Chapter 12 - Questions (Other Income and Adjustments) Flashcards
List examples of nontaxable income
Most gifts (bequests) and inheritances Certain foster care payments Child support payments Disaster relief payments Federal income tax refunds Insurance proceeds or court judgments received for personal injury or illness.
Life insurance proceeds paid due to the death of the insured.
Most medical or health insurance proceeds
Rebates
Most veteran’s benefits
Welfare benefits
Worker’s Compensation
Where can you find info on whether a type of income is taxable or nontaxable
IRS Publication 525 Taxable and Nontaxable Income
What is unemployment compensation?
Benefits under a state or federal unemployment insurance program used when there is a period of unemployment.
What form reports unemployment compensation to the taxpayer
1099-G Certain Government Payments, box 1
Is unemployment compensation taxable?
Yes.
If a taxpayer wants to withhold 10% of the benefits from each check to go toward their tax liability what do they file?
Form W-4V (Voluntary Withholding Request)
If there is withholding on the 1099-G where does it show up?
Box 4
If a taxpayer receives too much unemployment compensation, what happens?
Taxpayer is required to repay it.
Taxpayer can reduce, dollar for dollar, the amount shown on box 1 of 1099-G
What happens if during the current tax year, the taxpayer repays unemployment benefits received in a previous year?
It is complicated, get a more experienced tax professional.
What are Alaska Permanent Fund dividends
Dividends paid to Alaska residents who lived in the state for a full calendar year. Amount varies.
Is an Alaska Permanent Fund Dividend taxable?
Yes, but not as a dividend on Form 1099-DIV. Is reported as income on line 13 of Form 1040A
What is the difference between a scholarship and fellowship?
Scholarship is intended to help fund a student’s college studies. Fellowship is used to help the recipient conduct some form of study or research.
When are scholarships and fellowships tax-free
If the student is a candidate for a degree at an eligible educational institution.
Can a scholarship or fellowship be taxable?
Yes, can be fully or partially taxable if certain conditions apply. If student is a non-degree candidate or is not attending an eligible educational institution, then it is fully taxable.
What is used to determine the taxable amount of a student’s scholarship or fellowship?
Worksheet 1, Taxable Scholarship and Fellowship Grant Income, which can be found in IRS Pub 970, Tax Benefits for Education.
If someone receives a W-2 for scholarship or fellowship info, what does that mean.
The income is fully taxable.
Are stipends for interns and doctors taxable?
Yes, they are compensation and are reported on Form W-2
What form are scholarships and fellowships generally reported on?
Form 1098-T (box 5)
Is a taxpayer required to report taxable scholarships or fellowships in all cases?
No, whether a taxpayer is required to report this income depends on whether the taxpayer is required to file a return. If the taxpayer is not required to file a return, then is not required to report this income.
If required to file a return and have scholarship or fellowship income, where is that income reported?
Line 7 for 1040A and 1040. (line 1 for 1040EZ). Use the code “SCH” to the left of the form line to indicate.
Is long-term disability income taxable?
It depends on who paid the premiums, and whether they were paid with pre- or after-tax dollars.
If a taxpayer retires on disability and paid premiums with after-tax dollars, is the income taxable?
No, the income is tax-free.
If a taxpayer retires on disability and paid premiums with pre-tax dollars, is that income taxable?
Yes.
What form is used for reporting payments received from disability income
1099-R
How is disability pension income identified on Form 1099-R
Distribution code of 3
Before a taxpayer reaches minimum retirement age, taxable disability pension payments are reported where?
Form 1099-R Box 2a, Taxable Amount. Entered as wage income on 1040/A line 7.
Once a taxpayer reaches minimum retirement age, disability pension payments are reported where on 1040?
1040A lines 12a and 12b. 1040 lines 16a and 16b.
What screen in blockworks do you use to enter form 1099-R?
Pensions input screen.
Is disability income considered income for the EITC?
Yes. The employer must have paid the premiums not the taxpayer. If the taxpayer paid (either after-tax or pre-tax) then not considered earned income, even if taxpayer has not reached minimum retirement age.
