1. Understanding W-2
Box 1 – Federally taxable wages, tips and other compensation (line 7 on 1040)
Box 2 – Federal income tax withheld (line 64 on 1040)
Box 3 – SS wages should not exceed $127,200
Box 4 – SS tax withheld 6.2% of (Box 3 + Box 7)
Box 5 – Medicare Wages and tips – no limit
Box 6 – Medicare tax withheld 1.45% of Box 5
Box 7 – tips reported to employer (included in Box 1 & 5, not box 3)
Box 8 – Allocated tips – (Not included in Boxes 1,3,5,7) Must use form 4137
Tips not reported to employer – use 4137
Box 10 - Dependent care benefits (may need to use form 2441)

2. W-2 Not taxable? Federal – Pre-Tax NJ State – Pre-Tax
Box k (D), 403b (E), 457b (G) contributions
Box H NJ Employee Pension contributions
Box 14 - Cafeteria 125 plan contributions
NJ State – Pre-Tax
Only Box 12 – code D “401k contributions”
NJ grants deduction for medical expenses*
*FSA only amount spent is deductible

3. Cafe 125 plans
A Cafeteria Plan is a reimbursement plan governed by IRS Section 125 which allows
employees to contribute a certain amount of their gross income to a designated account
or accounts before taxes are calculated. These accounts can be for insurance premiums
and medical or dependent care expenses not covered by insurance, from which employees
can be reimbursed throughout the plan year or claim period as they incur the expenses.
Premium Only Plan (POP) is the process of taking after-tax employee contributions
to their (employer-provided) group insurance and “converting” them to pre-tax
contributions. This results in a tax savings for the employee (Federal, FICA, and
sometimes State) as well as the employer (FICA and sometimes Workers’ Compensation).
An FSA is an account into which pre-tax earnings for medical and/or dependent care
expenses are deposited. It functions like a checking account in that the cafeteria plan
administrator (myCafeteriaPlan) actually writes checks to participants for the medical
and dependent care expenses that they submit.

4. 125 Plan Benefits
Accident and health benefits (but not Archer medical savings accounts or long-term care insurance)
Adoption assistance
Dependent care assistance
Group-term life insurance coverage
Health savings accounts, including distributions to pay long-term care services
FSA - health care, dependent care

5. W-2 Not taxable? Federal – Pre-Tax NJ State – Pre-Tax
Box k (D), 403b (E), 457b (G) contributions
Box H NJ Employee Pension contributions
Box 14 - Cafeteria 125 plan contributions
NJ State – Pre-Tax
Only Box 12 – code D “401k contributions”
NJ grants deduction for medical expenses*
*FSA only amount spent is deductible

7. Determining Cafeteria 125 Amount
Cafeteria 125 = NJ Taxable K – Medicare
Income Amount Income
Cafeteria 125 = Box Box – Box 5
code “D”

8. Caution for Flexible Savings Account
Federal FSA is funded with pre-tax money NJ Deductible amounts for FSA is the amount spent, not the amount contributed.

9. Declare Medical Expenses on NJ1040

10. Declare Medical Expenses on NJ1040

11. NJ Checklist

12. NJ 1040

13. Reported Tips
Social Security Tips (Box 7) is income in addition to wages reported to
your employer. They are included
in Box 1
W-2 box 3 does not include these tips
W-2 Box 5 does include these tips
Only additional entry would be if there are unreported tips

14. Unreported Tips
Any month TP earns $20 or more, must report tips to employer.
Input all unreported tips on respective employer W-2 input screen
TaxSlayer adds to wages line 7 and carries amount to Form 4137 for FICA tax

15. Allocated Tips
Allocated Tips (Box 8) is income in addition to wages in box 1
For income tax and FICA
taxes
TaxSlayer automatically
Adds allocated tips to wages line 7
Takes allocated tips to Form 4137 (which computes FICA tax on the amount)

16. W-2 Tips $20 Rule Tips < $20 per month are not subject to FICA
Enter amount on Form 4137 input form
TaxSlayer reduces income for FICA tax only and completes Form 4137
NTTC Training - TY2017

17. Dependent Care Dependent Care Form 2441
Box 10 shows the total amount of dependent care benefits that your employer paid to you or incurred on your behalf. Amounts over $5,000 ($2,500 in the case of MFS) are also included in box 1.
Form 2441

18. State Wages Only NJ – enter as indicated Only NY - enter as indicated
If both NJ and NY make sure you subtract NY from NJ and enter the difference in NJ.
Any other state – we can only do federal taxes, we will not be able to do state tax ( Make sure amount in state tax deduction is correct)

19. W-2 Voting Poll Worker Kerry – W-2 (p5) No wages on Federal (Box 1)
State wages non- zero
Taxslayer does not process a W-2 with nothing in box 1. Must put $1 in Box for Taxslayer to process.

20. Statutory Employee
A statutory employee is a an independent contractor that is to be treated, by law, as an employee for certain employment tax withholdings.
Statutory employees are also permitted to deduct work-related expenses on Schedule C instead of Schedule A.
TaxSlayer moves income from Line 7 to Sch C when box is checked

21. Other Line 7 Wages …
NTTC Training - TY2017

23. Taxable Scholarship or Grant Not on W-2
Scholarships and Grants
The amount of taxable scholarships is done at after all other items have been entered.
If student is a dependent, income goes on the student’s return!
NTTC Training - TY2017

24. NTTC Training - TY2016

25. 400
NTTC Training - TY2016

26. Household Employee Income Not on W-2
Amount is less than $2,000 per employer
No withholding or FICA taxes apply
Can have multiple employers so long as each is less than $2,000 (enter total amount)
Informational:
Payers who pay more than $2,000 in the year or cash wages of $1,000 in a quarter must file Schedule H and pay the employment taxes for their household employee
Sch H is out of scope
Payees must report all their income, even if below the employer reporting limit
Informational note W-2:
No withholding or FICA taxes apply to employee who is related to the employer as:
Spouse, child under age 21, (some) parents, or anyone under age 18
Cannot be the employee’s principal occupation (not a test for students)
See Pub 926
Some household workers are self-employed, use Schedule C instead
Household workers can include
Housekeepers
Nannies
Babysitters
Among others
NTTC Training - TY2017

27. NTTC Training - TY2016

28. 500
NTTC Training - TY2016

29. How Interest & Dividends are Taxed
Type of Investment
Federally Taxable
NJ Taxable
Bank Accounts
Taxed
Corporate Bonds/ Funds
U.S. Obligations, U.S. Savings Bonds
Exempt
Muni Bonds/Funds – NJ
Muni Bonds/Funds – Not NJ

30. NJ Tax Exempt Interest and Dividends
Interest and gains from obligations of the State of New Jersey or any of its political subdivisions;
Interest and gains from direct obligations of the federal government, such as U.S. Savings Bonds;
Certain distributions from “New Jersey Qualified Investment Funds;”
Distributions paid by mutual funds to the extent the distributions are attributable to interest earned on federal obligations;

31. NJ Qualified Investment Funds (GIT-5)
Have 80% or more of its investments (other than cash or receivables) in obligations that are exempt from New Jersey Income Tax; A fund may hold up to 20% of its investments in obligations that are not tax-exempt. The portion of the fund’s distributions and gains that comes from those taxable investments must be reported as dividends and/or capital gains (as indicated on your Form 1099) on your New Jersey Income Tax return (Line 16 Form NJ‑1040).

32. Interest Example

33. Dividend Example

34. Interest Quiz Is interest taxable on federal return? NJ Return?
New York City bond interest?
Eatontown Muni interest?
Treasury bill interest?
Ford Motor Co bond interest?
Interest on loan to cousin Charlie?

35. Foreign Tax Credit
Page 1, 1040
Page 2, 1040

36. Qualified Dividend
Common stock investors must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. Capital Gains Tax
Tax Payer rate
Capital gains rate
10%-15% 0%
15%-39.6%
15%
> 39.6%
20%

37. Dividend –Private Activity Bonds

38. AMT

39. If entry here causes Tax return
to have Alternate Minimum Tax,
the return is out of scope

40. Dividend Quiz
Dividends reinvested in more shares are not taxable (true or false)?

41. Child Dependent Unearned Income
Child’s unearned income exceeds $2100
At least one of the child’s parents is alive
Child is required to file a tax return
Child does not file a joint tax return.
Then
Tax return for the child is out of scope
If Parent wants to claim the child’s unearned income, then the parent’s tax return is out of scope.

43. Example:
NTTC Stanley p 67

44. D-45

45. Add to AGI any tax-exempt
interest and any adjustments
from Lines 33 to 35.

46. 2017
Form RRB_1099
P30 - NTTC

47. Gambling Income On W2-G form On other income, no W2-G form Tax Law
Federal
All winnings are taxable
Winnings appear on other income line 21
Losses are deductible only if itemizing NJ
Winnings minus Losses appear on NJ 1040 line 23
Amount is zero if negative number
NJ Lottery winnings ≤ are not taxable

48. NJ Gambling Winnings
Gambling winnings do not flow from a W2-G to the NJ 1040
The winnings do not flow to either
Line 23 Net Gambling winnings or
Line 25 Other Income
You must use TSO screen
NJ State Return/Income Subject to Tax/
Field: Enter Taxable Gambling Winnings

49. Page 1, 1040
NJ 1040

50. Enter Net Gambling winnings This field will populate line 23 on
NJ 1040

51. NJ Check List

52. Gambling Example Kerry Line 21 – Other Income (p-20)
Mary had Gambling losses of $600
What is the value of Line 21 on 1040?
What is the value of Line 23 on NJ 1040?
What is the value of line 25 on NJ 1040?

53. Alimony Received What is Alimony?
Spousal support under separation or divorce instrument
Usually stops if recipient remarries, may stop sooner
Not subject to change based on factors such as age of a child
Child/family support is NOT alimony
See Pub 4012 page E-6 for more details

54. Alimony received Where do I get alimony information?
Intake Sheet Part III Question 6
Taxpayer needs to provide information of actual amount received in the current tax year
Look at prior year return

55. Alimony Received Not earned income for EIC
Not earned income for child tax credit
Not earned income for dependent care credit
But IS “compensation” for IRA Contributions

56. Alimony Received. In TaxSlayer:
Type “Alimony Received” in “Enter the Form Number”, or
Find in Federal Section > Income
Line 11 on 1040