Scholarship program sent me a 1099-NEC instead of scholarship documentation - do I really have to file this?

What you're dealing with is the difference between a qualified scholarship and nonemployee compensation. For tax purposes, scholarships used for qualified education expenses (tuition, books, required fees) are typically tax-free. But if you receive money that isn't tied directly to qualified education expenses - like stipends for living expenses or rewards/incentives - those can be taxable. Based on what you described, the program was structured more like an incentive program with rewards for completing milestones, rather than a traditional scholarship paid directly to your school for tuition. The gift cards portion would definitely be taxable, and the "savings" portion might be as well if it wasn't restricted to qualified education expenses. The 1099-NEC suggests they're classifying you as having performed services to earn this money (completing their milestones), rather than receiving a no-strings-attached scholarship for educational purposes. While it sounds like they weren't clear about the tax implications, this classification isn't necessarily incorrect from a tax perspective.

After going through almost the exact same situation with a merit program in my state, I found that using https://taxr.ai was incredibly helpful. I uploaded my 1099-NEC and documentation from the program, and their AI analyzed everything and showed me that part of my "scholarship" could actually be excluded from taxable income because it was used for qualified educational expenses. The tool helped me identify which portions were truly taxable vs. which could be classified as a qualified scholarship. They even generated a detailed explanation I could attach to my return to clarify the situation. Seriously saved me hundreds in unexpected taxes and gave me the confidence that I was filing correctly instead of just accepting what the 1099 stated.

I was skeptical about the advice to reclassify my "scholarship" income that came with a 1099, but I gave https://taxr.ai a try out of desperation. I'm actually amazed at the results. It analyzed my program's documentation and found that their classification as contractor income was legally questionable since I never provided services to them. The tool helped me properly report the income as scholarship funds on my return, with clear documentation showing how much went toward qualified education expenses. My tax bill dropped from $310 to $85, and the detailed explanation attachment gives me peace of mind in case of questions from the IRS. Sometimes the organizations issuing these forms don't understand the tax implications themselves!

If you need to speak directly with the IRS about this situation, I highly recommend using https://claimyr.com to get through quickly. I tried for WEEKS to speak with someone about a similar scholarship/1099 issue, and kept hitting the "call volume too high" message. Through Claimyr I got connected to an IRS agent in under 20 minutes, and they confirmed that scholarship money used for qualified education expenses shouldn't be reported on a 1099-NEC. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically it navigates the phone system and waits on hold for you, then calls you when an agent is ready. After getting clear guidance from the IRS, I was able to confidently address the misclassification with proper documentation on my return.

I was completely wrong about Claimyr being a scam. After my skeptical comment, I decided to try it myself for a different tax issue I needed to resolve. I was absolutely FLOORED when I got a call back connecting me to an actual IRS representative in about 40 minutes - after spending THREE DAYS trying to get through on my own. The IRS agent was actually super helpful regarding my scholarship/1099 situation and confirmed that education awards should be classified based on their purpose, not arbitrarily as non-employee compensation. She walked me through exactly how to document everything properly on my return. Saved me hours of frustration and probably hundreds in taxes. Sometimes I hate admitting when I'm wrong, but in this case, I'm glad I gave it a chance.

My cousin had the same issue with a state merit scholarship program. The organization was incorrectly issuing 1099-NECs instead of 1098-Ts. He ended up writing a formal letter to both the program and the IRS explaining that the money was used exclusively for qualified educational expenses (tuition and required textbooks), and included documentation from his school showing these expenses. The IRS eventually ruled in his favor and he didn't have to pay taxes on that portion. However, the portion that went toward living expenses (about 30% of the total) was still considered taxable income. You might need to do something similar - document exactly how much went toward qualified expenses vs. other uses.

Actually, if this was one of those "promise scholarship" or "complete these steps" programs, it's pretty common for them to issue 1099s instead of treating it as a traditional scholarship. I work at a community college and we see this ALL THE TIME with our students. The key is determining what portion of the funds went toward qualified education expenses (tuition, required books/supplies, required fees) versus living expenses or other non-qualified uses. Only the qualified portion can be excluded from income. If you transferred all the money to your personal bank account and then paid for both qualified and non-qualified expenses from there, you'll need to document which was which.

The whole scholarship taxation thing is SO confusing. From what I understand after dealing with this myself: 1. Scholarships for tuition, fees, books, and supplies required for courses = not taxable 2. Scholarships for room, board, travel, optional equipment = taxable 3. Scholarships that require you to provide a service = taxable as wages It sounds like your program might fall into category 3 since you had to complete specific "milestones" to earn the money. That's probably why they issued a 1099-NEC. But I think they should have been SUPER clear about this from the beginning rather than calling it a scholarship and then surprising you with tax forms. Could you reach out to the program administrators and ask them to explain why they classified it this way? Maybe they made a mistake.