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 Missing W-2 Shows the amount of payments received Missing W-2 Contact employer Contact IRS after February 15th

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 8a Tax-exempt income on line 8b 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 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 2a) Non amounts in boxes 2b, 2c, 2d, 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