Other Income Form 1040 – Line 21 Pub 4012 – Pages D-3 and D-4 Pub 4491 – Part 3 – Lesson 16 Pub 4012 Tab D Pub 17 Chapter 12 Form 1040 Line 21 1099-MISC, W-2G, 1099-C, Taxpayer Records

Intake/Interview NTTC Training – TY2015

Form 1040 – Line 21 NTTC Training – TY2015

Examples: Gambling winnings including lotteries and raffles Pub 17, pg 94 Gambling winnings including lotteries and raffles Reported on 1099-MISC, Box 3 Reported on 1099-MISC, Box 7 (but “not a business”) 1099-LTC Jury duty pay and Poll Worker Pay (not on W-2) Other: Prizes and awards Medical study subject pay Cancellation of credit card debt Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C if from your self-employment activity A free tour from a travel agency for organizing a group of tourists must be included as income Gambling winnings are generally determined on a per-session basis Taxpayer must keep detailed records A debt canceled or forgiven is income unless intended as a gift Nonbusiness debt – Form 1040, line 21 Business debt – Schedule C Only credit card debt forgiven is in scope Refund of health insurance premium deducted in an earlier year on Schedule A (Form 1040) must generally be included as income in the year received Reported on Form 1099-MISC Apply tax-benefit rule to determine whether the recovery is reportable Out of scope items: Activities not for Profit Nonbusiness rental income if taxpayer is not in the business of renting personal property Income from an activity from which taxpayer does not expect to make a profit, such as a hobby NTTC Training – TY2015

National Mortgage Settlement Taxpayers may receive a settlement payment Relates to a home lost in foreclosure 2008 – 2012 No tax form (1099) issued Out-of-scope Amount paid can be $1,400 per home lost NTTC Training – TY2015

Other Income Generally does NOT include 1099-MISC non-employee compensation (Box 7) which is business income – Sch C Does NOT include rent or royalty income which are reported on Sch E DOES include income not reported on other lines and schedules Payments from state agencies to family caregivers who care for children are taxable and may be found on Form 1099-MISC in box 7, box 6 or box 3 If family caregiver is not conducting a business of caring for children, this income is reported on Form 1040, line 21 If the family caregiver is conducting a business of caring for children, this income is reported on Schedule C Note that if payments are Medicaid waiver payments, the income may be excludible at the election of the TP State agencies may not know if the family caregivers are operating a daycare center and may prefer to report the payments on Form 1099-MISC, box 7 If the caregiver receives less than $1,800 and is properly considered a household employee, the income may be reported on Line 7 using Wkt 1 NTTC Training – TY2015

Line 21 in TaxWise Link to Wkt 7 Other Income Worksheet, if not already on tree. NTTC Training – TY2015

Gambling income Link to W-2G If no W-2G, use L 16 If no W-2G received, use line 16 and describe as Gambling Income Be sure to limit Sch A L 28 gambling losses to no more than net gambling winnings reported in Line 21 Must be done manually if reporting winnings or losses not on W-2G Taxpayers must keep detailed records of their gambling sessions and winnings or losses Sessions that result in losses may be deducted, if itemizing, enter on Sch A Line 28 (not subject to 2%) If no W-2G, use L 16 NTTC Training – TY2015

NTTC Training – TY2015

Bottom of W-2G Check if not taxable by state If a gambling loss amount is entered using W-2G that is greater than gambling winnings TaxWise limits the amount transferred to Schedule A Losses claimed on Schedule A cannot exceed winnings Losses do not have to “match” winnings, e.g. can have poker winnings and slot machine losses from different casinos Losses can be input on any W-2G, assuming taxable for both federal and state If gambling winning is not taxable by state (e.g. state lotto) Losses from state exempt gambling should be put on the same W-2G as the state exempt winnings TaxWise will properly remove both from the state return Losses automatically transfer to Schedule A limited by amount of winnings. If no W-2G, ensure losses are entered on Schedule A, but do not exceed winnings. NTTC Training – TY2015

Other Income If 1099-MISC received If NO 1099-MISC received If no 1099-MISC received, used Line 17 onward 1099-MISC with box 3 USUALLY is NOT a business – must interview to determine 1099-MISC with box 7 USUALLY IS a business – must interview to determine If income relates to a business, e.g. cash tips, report on Sch C not on Line 21 If NO 1099-MISC received NTTC Training – TY2015

Long Term Care Payments 1099-LTC LTC Insurance Contracts – Generally reimbursements not taxable Per diem costs up to an aggregate limit of $330/day are non-taxable Reported to taxpayer on 1099-LTC Complete Form 8853, Section C (Sections A and B remain out-of-scope) NTTC Training – TY2015

Long Term Care Payments 1099-LTC XX NTTC Training – TY2015

Accelerated Death Benefits 1099-LTC Insured has been certified by a physician as terminally ill Fully excludible Certified as chronically ill Treated the same as paid under a qualified long-term care insurance contract NTTC Training – TY2015

Long Term Care Payments 1099-LTC If there are multiple payees under the insurance contract, refer the taxpayer to a paid preparer NTTC Training – TY2015

Long Term Care Payments 1099-LTC Complete Form 8853 Pg 2 Either add or link from Wkt 7 TaxWise will carry taxable amount, if any, to 1040 Wkt 7 L 11 Unreimbursed medical expenses can be deducted on A Detail, if itemizing NTTC Training – TY2015

Form 8853 NTTC Training – TY2015

Cancellation of Debt Nonbusiness credit card debt only Pub 4012 – pg D-32 Nonbusiness credit card debt only Taxpayer must be solvent immediately before debt cancelled Value of assets exceeds value of liabilities Not in bankruptcy Otherwise out-of-scope Generally, if a debt for which a taxpayer is personally liable is canceled or forgiven, the taxpayer must include the canceled amount in income. There is no income from canceled debt if the cancellation or forgiveness of debt is a gift or bequest. NTTC Training – TY2015

Cancellation of Debt Lenders must issue Form 1099-C if cancel $600 or more of debt Less than $600 must also be reported as income by taxpayer Cancelled debt included on Form 1040, Line 21 NTTC Training – TY2015

Nonbusiness credit card debt only Nonbusiness credit card debt only Form 1099-C OOS OOS Nonbusiness credit card debt only Nonbusiness credit card debt only NTTC Training – TY2015

Income – Quality Review The final question with respect to income: Did you have any other income? Remember, all income is taxable (unless the law says it’s not) NTTC Training – TY2015

Other Income Questions? Comments… NTTC Training – TY2015

Medicaid Waiver Payments Entire Lesson Difficulty of Care Payments 4491 – Part 3 – Lesson 16

Medicaid Waiver Payments Paid by state or county Paid to caregiver to provide nonmedical support services to an individual in caregiver’s home Frequently paid to care recipients own family NTTC Training – TY2015

Difficulty of Care Payments IRS Notice 2014-7 Treats “qualified Medicaid waiver payments” as difficulty of care payments MUST be excluded from Income Historically were excluded from income as “foster care payments” (Section 131) Court ruling in 2011 eliminated the exclusion if caregivers were biological parents – not “foster parents” Initial position by IRS in 2014 was that the taxpayer could either include or exclude qualified Medicaid waiver payments from income. On Feb 23, 2015, IRS issued updated Q&A’s to clarify Notice 2014-7. The answer to question 9 in the notice makes it clear that a taxpayer may not choose to include in gross income difficulty of care payments that are excludable from gross income under section 131 as provided in Notice 2014-7. In other words, the payments MUST be excluded. NTTC Training – TY2015

Income Documents Each state reports payments according to its own rules 1099-MISC Box 7 1099-MISC Box 3 W-2 Not reported Other… NTTC Training – TY2015

Tax Return Enter income from W-2 on Line 16 of Wkt 7 as negative number OR Enter income from 1099-MISC on Line 21 (using Wkt7 Line 2) Enter same amount as a negative number on Line 21 (using a blank line on Wkt7) labeled “Notice 2014-7” If reported on either W-2 or 1099-MISC, to exclude enter same amount as negative on Line 21 (Wkt 7). If Social Security, Medicare or other payroll taxes were withheld and taxpayer excludes the income with a Line 21 adjustment, taxpayer needs to go back to payer and request reimbursement of those taxes NTTC Training – TY2015

In TaxWise Worksheet 7 NTTC Training – TY2015

Reported on W-2 Payments entered on a W-2 and then excluded are automatically deducted by TWO from earned income for EIC ACTC Dependent care credit For the EITC, TW carries over Medicaid waiver amount entered on line 16 of WKT 7 to new line 1c of the Figure Your Credit section of the EIC WKT. For ACTC, TW automatically deducts Medicaid waiver amount entered on line 16 of WKT 7 from line 4a (Total Earned Income) of Part II of the Form 8812. CCH may fix the dependent care credit problem. Until fixed see next slide for method used to deduct Medicaid wavier amounts for dependent care credit. NTTC Training – TY2015

Schedule C Report payments on Schedule C if taxpayer is in the business of providing care Enter exclusion as an other expense on Schedule C Do not exclude income if care is for more than 5 adults or more than 10 children NTTC Training – TY2015

Excluding Payment from Return Taxpayer must exclude income from return. Will likely receive a notice of omission from IRS Should answer with “Notice 2014-7” NTTC Training – TY2015

Quality Review Verify if amount has been excluded from all applicable worksheets/forms, (EIC, ACTC, & Dependent Care Credit) Verify the dollar amount on Wkt7 NTTC Training – TY2015

Medicaid Waiver Payments Questions? Comments? NTTC Training – TY2015 33