Payments Pub 4012 Tab H Pub 4491 – Lesson 28

AARP Intake Booklet Discuss with taxpayer Estimated tax payments 2017 refund applied to 2018 return Any payment made with request for extension If available carry forward can provide this information 2017 tax return can also provide some information Still important to question taxpayer NTTC Training - TY2018

Types of Payments Federal income tax withheld Estimated payments Amounts applied from prior year Earned income credit Child tax credit American opportunity credit (see Education Benefits lesson) Premium tax credit (see ACA lesson) Payments made with request for extension Excess social security or tier 1 RRTA tax withheld Other credit (for repayment of income) NTTC Training - TY2018

Tax Withholding Sources Employment:  W-2 Social Security:  SSA 1099, RRB 1099 Pensions, IRA distributions:  1099-R, RR 1099-R Capital gains, interest, dividends:  Broker Statement, 1099- INT/DIV Unemployment compensation:  1099-G Gambling winnings:  W-2G  Ensure all sources are entered into TaxSlayer Verify during quality review NTTC Training - TY2018

Estimated Payments Estimated payments typically made if: Self-employed Investment income Projected balance due more than $1,000 Payments made periodically by taxpayer No form – ask taxpayer if payments made  “When” and “How Much” for each Check last year’s Form 1040-ES Taxpayers who owe over $1,000 can be assessed a tax penalty. The federal income tax system is a “pay as you go” system. Taxpayers owing over $1,000 should be advised they may receive a letter from the IRS with an additional amount owed.  NTTC Training - TY2018

Overpayment from Previous Year Ask taxpayer if 2017 refund was applied to 2018 return Review 2017 return TaxSlayer will carryforward   NTTC Training - TY2018

Reporting in TaxSlayer NTTC Training - TY2018

Reporting in TaxSlayer From prior years return Enter amount from taxpayer's records NTTC Training - TY2018

Amount Paid with Extension Enter amount paid with extension form 4868 NTTC Training - TY2018

Excess Social Security Payments Excess Social Security Payments occur when earnings exceed maximum amount subject to Social Security taxes TaxSlayer automatically adjusts when excess calculated from multiple W-2s Taxpayer must contact employer when excess calculated on single W-2 Excess Social Security withholding rarely occurs with a single W-2. Typically occurs when higher income wage earners change jobs during the year. NTTC Training - TY2018

Refundable Credits TaxSlayer calculated refundable credits Child Tax Credit Earned Income Credit American Opportunity Credit refundable portion Excess Social Security Premium Tax Credit Other credit (for repayment of income – at end of this lesson) NTTC Training - TY2018

Quality Review Verify estimated payments entered correctly 2017 refund applied to 2018 return States if applicable Confirm all taxes withheld entered as payments Verify actual estimated payments paid in 2018 Actual payments may not match 2018 Form 1040-ES NTTC Training - TY2018

Summary with Taxpayer Review estimated tax and other payments Confirm taxpayer understands 1099-ES (estimated tax payment forms)  IRS mailing address Payment schedule Payment amounts Suggest taxpayers enter estimated payment schedule on their 2019 calendar. NTTC Training - TY2018

Payments NTTC Training - TY2018

Comprehensive Topic Repayment of Income Not Business Income or Capital Gain Income Local instructors may limit training in this area to experienced Counselors New volunteers should be made aware if the issue and advised to refer the return to a trained Counselor

Repayment of Income Declared taxable income in a prior year Repaid some or all of that income in 2018 Treatment based on where originally reported: Schedule C: take a 2018 Schedule C deduction Capital gain: report as 2018 capital loss (same short or long as originally declared) Wages, unemployment, or other non-business: two choices (maybe) Covered in this lesson NTTC Training - TY2018

Repayment of $3,000 or Less Pub 525 Itemized miscellaneous deduction subject to 2% of AGI threshold All 2% deductions suspended 2018 – 2025 Check state for possible deduction NTTC Training - TY2018

Repayment of More Than $3,000 Pub 525 Select best of two options when repayment over $3,000 Miscellaneous deduction not subject to 2% rule (Method 1) Many taxpayers will not be able to itemize so maybe no benefit OR Tax credit equal to amount of tax paid on inclusion in the prior year (Method 2) TaxSlayer 2017 does not allow an entry on proper line 73 – will need a workaround; TaxSlayer 2018 TBD NTTC Training - TY2018

Repayment of More Than $3,000 Method 1 is easy Taxpayers not itemizing will not receive a benefit Method 2 more beneficial, but TaxSlayer workaround necessary Two workarounds to choose from NTTC Training - TY2018

Repayment of Income: Method 2 Compute credit amount Open prior year return in TaxSlayer Note federal and state tax, if any Reduce income by the amount of repayment Restore income and close return Step 4 less step 2 is the credit amount NTTC Training - TY2018

Method 2 – Workaround A – File and Amend 2018 Prepare current year Form 1040 (and state) return without repayment (e-file as normal) Prepare current year amended return to claim repayment credit Taxpayer should wait to file amended return until original 2018 return processed Confirm state rules NTTC Training - TY2018

Method 2 – Workaround A – File and Amend 2018 Report credit amount on Form 1040X, line 15 specify: “I.R.C. 1341” Note the type and amount of income repaid in the explanation of changes section NTTC Training - TY2018

Method 2 – Workaround B – Paper File 1040 Instructions Paper file the return Enter amount of repayment credit as having been paid with Extension (see slide #9) Confirm correct state treatment Manually cross off the extension payment amount and enter it on the correct line (line 74 for TY 2018) Check box d and note “I.R.C. 1341” Does the state return need fixing? NTTC Training - TY2018

Refund of Other Taxes Due to Repayment of Income Pub 525 If wages are repaid (originally subject to Social Security and Medicare taxes) Taxpayer can file a claim on Form 843 to get a refund of those taxes Form 843 is out of scope for Tax-Aide If the Additional Medicare Tax was paid (wages over $200,000), the return is out of scope NTTC Training - TY2018

Repayments of Income Questions… Comments… NTTC Training - TY2018