Income Unemployment Income Social Security Benefits Other Income

Overview • Taxable Income • Non-Taxable Income or Exempt Income • Income: ▫ ▫ ▫ ▫ ▫ Tip Income Scholarships and Fellowships Educational Savings Account Taxable Interest Dividends Capital Gains Unemployment Compensation Social Security Income Other Income

Terms • • • U. S. Savings Bonds U. S. Treasury Bonds Interest Income Stock Dividends Certificate of deposits Tax exempt Tax deferred IRA and Roth IRA Capital Gains Distributions

Taxable Income • Includes Earned and Unearned Income • Earned Income ▫ Work wages, business income, tips • Unearned Income ▫ Investments, interest on savings, dividends on stocks, rental income • See complete list (Volunteer Resource Guide (Tab D)

Non-Taxable or Exempt Income • Income that you do not have to pay taxes on • Examples: Gifts and Inheritances • Most not shown on tax return but there are some exceptions (i. e. tax-exempt interest income) • See complete list (Volunteer Resource Guide (Tab D)

Form W-2 • Box 1: Wages, tips, and other compensation ▫ Shows the amount of payments received • Missing W-2 ▫ Contact employer ▫ Contact IRS after February 15 th

Tip Income • Must report to employer if you have over $20 per month in tips from one job • Tips that are reported to employers are included in wages on Form W-2 box 1 • If less than $20 per month, no need to report to employer • Noncash tips must be included as taxable income at their fair market value (i. e. tickets)

Allocated Tips • Are tips an employer assigns to an employee in addition to the tips the employee reports to the employer ▫ Assigned allocated tips to an employee that reports less than 8% of their sales ▫ Shown in a separate box and not included in W-2 box 1 • Must report allocated tips as income unless ▫ Taxpayer kept a daily tip record ▫ Daily tip record is incomplete, but shows tips were more than allocated plus reported tips

Scholarship & Fellowships • Some scholarships and fellowships may be fully or partially taxable ▫ Information found on a W-2 • 1098 -T ▫ Qualified tuition and related expenses paid ▫ Includes scholarships and grant money

Taxable Interest • Interest earned from checking and savings accounts, certificate of deposits (CDs), savings certificates, U. S. Government Bonds. • Reported on 1099 -INT ▫ If taxpayer received less than $10 in interest, the financial institution may might not issue 1099 -INT ▫ Even if taxpayer didn’t receive 1099 -INT, they must still report all taxable interest income.

Individual Retirement Accounts Interest • Interest on a Roth IRA is generally not taxable • Interest on a traditional IRA is tax-deferred • 1099 -R to report distribution

Tax-Exempt Interest • Some Interest is tax exempt ▫ 1099 -INT may list both taxable and tax-exempt interest ▫ Although interest in not taxable, all tax-exempt interest must be reported on Form 1040 ▫ Bonds from States, Counties, Cities, Port Authority, Utility Service authorities

Reporting Interest • Interest income on line 8 a • Tax-exempt income on line 8 b • Complete Schedule B, Part I if the tax payer has any of the following ▫ Over $1, 500 of taxable interest ▫ Received, as a nominee, interest that actually belongs to someone else ▫ Received interest from a seller-financed mortgage ▫ Tax-exempt interest ▫ Distribution from a foreign trust or foreign bank account ▫ Education savings bond exclusion

Types of Distribution • Ordinary Dividends/Qualified Dividends • Capital Gain Distributions • Nontaxable Dividends and Distributions • Reported on Form 1099 -DIV

Ordinary/Qualified Dividends • Qualified Dividends ▫ Are ordinary dividends that are eligible for a lower tax rate than ordinary income • Ordinary Dividends ▫ If over $1, 500, must complete Schedule B, Part II

Capital Gain Distributions • Reported on 1099 -DIV • When a mutual fund sells assets for more than their cost and distributes the realized capital gains to the fund’s shareholders • Can report directly to 1040 if: ▫ ▫ Only capital gains distributions (box 2 a) Non amounts in boxes 2 b, 2 c, 2 d, 3, 8, 9 If not, must complete Schedule D Use Capital gain tax worksheet to compute tax

State and Local Tax Refunds • Claimed a standard deduction in previous year ▫ Not required to include the refund as income • Itemized deduction in previous year ▫ Must include all refunds as income ▫ If taxpayer itemized deductions and deducted the state sales tax instead of the state income tax withheld, none of the refund is taxable

Unemployment Income • Any amount received under unemployment compensation law of the United States • It is not considered income for the purpose of calculating EITC • In most states, a taxpayer can have federal income taxes withheld • Reported on 1099 -G

Social Security Benefits • Payments made under Title II of the Social Security Act • Reported on SSA-1099 • Portions of Social Security Payments are taxable ▫ Depends on total income (including tax-exempt interest) ▫ Never more than 85% of benefits are taxable

Other Income • Prizes and awards • Gambling winnings (including lotteries and raffles) • Jury duty pay • Alaska Permanent Fund dividends