Income Flashcards
Unearned income is
any income produced by investments, such as interest on savings, dividends on stocks, or rental income
Is workers compensation taxable?
Inheritance
Nontaxable
Workers’ compensation
Nontaxable
What to do if you do not receive a w-2?
A taxpayer who does not receive a Form W-2 by January 31 should first contact the employer and find out if or when the form was mailed or if it can be picked up in person. If the taxpayer does not receive the Form W-2 after a reasonable amount of time, the taxpayer should contact the IRS for assistance at 1-800-829-1040, but not before February 15.
A taxpayer who has requested a Form W-2 or Form 1099-R and has still not received it by the due date of the return should file Form 4852,
A taxpayer who has requested a Form W-2 or Form 1099-R and has still not received it by the due date of the return should file Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Taxpayers should:
Keep a copy of Form 4852 for their records
Attach Form 4852 to the tax return
If the taxpayer eventually receives the employer’s Form W-2 and the numbers differ from those on Form 4852, the taxpayer will need to amend the return to report the correct amounts.
Household employee.. Do u need w-2?
The term, “household employee” refers to a person who works in someone’s home performing household duties such as caring for children, cleaning, or cooking. Generally, an employer is not required to provide Form W-2 to a household employee who earned less than $1,800 in a year. In this situation, neither the employer nor the employee will owe social security or Medicare tax on those wages. However, employers who withhold federal income taxes from their employee’s wages must issue Form W-2. Regardless of whether Form W-2 is issued, the income must be included on Form 1040, line 7
Should you report tip income?
Tip Income
If taxpayers have the type of jobs that normally include income from tips (i.e. waiter/waitress, bellhop, motel/hotel housekeeper, etc.), be sure to ask about any tips they may have received.
All tip income is subject to federal income tax. Individuals who receive $20 or more per month in tips from one job must report their tip income to their employer. Tips that are reported to employers are included in the amount on Form W-2, boxes 1, 5, and 7.
What about self-employed individuals who receive tip?
Self-employed taxpayers should include their tips in gross receipts on Schedule C, for example, self-employed hair stylists and manicurists.
Where to report interest income
Bob holds a promissory note for a cash loan that he made to his brother-in-law, Stan. Stan pays Bob principal and interest each month. Even though Bob does not receive a Form 1099-INT, he reports that interest on Schedule B of his tax return.
U.S. Savings Bonds
Series EE and Series I
The most common type of U.S. savings bonds are Series EE bonds. They are issued at a discount, and the interest is the difference between the purchase price and the amount received when the bonds are redeemed (cashed in).
Series I bonds, first offered in 1998, are issued at face value with a maturity period of 30 years. As with Series EE bonds, the interest is paid when the bonds are redeemed.
Taxpayers can report interest income from a Series EE or Series I savings bond either:
When the bond matures or is redeemed (whichever occurs first), or
Each year as its value increases
However, taxpayers must generally use the same method for all the Series EE and Series I bonds they own.
U.S. Savings Bonds (continued)
Series HH Bonds and Other U.S. Obligations
Series HH U.S. savings bonds are issued at face value and pay interest twice a year. Taxpayers must report the interest in the year it is paid.
Interest on other U.S. obligations, such as U.S. Treasury notes and bonds, is fully taxable when received
Tax-Exempt Interest
Bonds issued by the following are exempt from federal income tax:
State and political subdivisions (county or city)
District of Columbia
U.S. possessions and political subdivisions
Port authorities
Toll-road commissions
Utility service authorities
Community redevelopment agencies
Qualified volunteer fire department
Amounts indicated on broker statements as tax-exempt interest
What are qualified dividends
Qualified dividends are ordinary dividends that are eligible for a lower tax rate than other ordinary income. They are shown on Form 1099-DIV
What are capital gain distributions?
Capital gain distributions come from mutual funds and real estate investment trusts (REITs). These distributions are treated as long-term capital gains, regardless of how long the taxpayer holds the shares. Capital gain distributions are reported to the taxpayer on Form 1099-DIV. The taxpayer reports these distributions as long-term capital gains on Form 1040, line 13, and on Schedule D if required.
What are non dividend distributions?
Form 1099-DIV also shows nondividend distributions, part of a distribution that is nontaxable because it is a return of the taxpayer’s cost or other basis. Taxpayers should keep this information with their tax records in order to calculate the adjusted basis of the stock when it is sold.
How to report ordinary dividends?
Form 1099-DIV, Dividends and Distributions reports dividend income to the taxpayer and to the IRS.
Ordinary dividends are reported on Form 1040, line 9a. If the taxpayer’s ordinary dividends exceed a specified amount, or if the taxpayer was the nominee for dividends that actually belong to someone else, Schedule B may need to be filed.
Married taxpayers who earn ordinary dividends from shares they own jointly must report the income:
-Together on a joint return
-By splitting the dividends evenly between the spouses’ separate returns if they file as Married Filing Separately
Taxpayers who have Forms 1099-DIV reporting —Unrecaptured Section 1250 gain, Section 1202 gain, cash liquidation distributions or noncash liquidation distributions are out of scope for VITA/TCE. Refer taxpayers with amounts in these boxes to a professional tax preparer.
