1. Wages
Form 1040 – Line Pub 4012 – Pages D-5 to D-7 Pub 4491 – Part 3 – Lesson 9

2. Wages – The Interview Encourage counselors to ask probing questions
It is not “prying,” it is essential to an accurate return
NTTC Training – TY2015

3. The Interview – A Conversation
Prior year’s return
Forms W-2 or other records
Forms 1098-T (scholarship exceeds expenses)
At interview, identify possible scholarship income; do not finalize until all return info has been entered
Emphasize:
Steps and questions to determine whether in scope, before touching the computer
Prior year’s return
Review all income areas to understand the taxpayer’s tax situation
Most taxpayers’ situation does not vary much year to year
Was there household worker income reported last year?
W-2 forms
Look for out-of-scope items (detailed later)
Is it the right SSN or does TP have an ITIN?
Does the form look legit?
Is it the right year?
1098-T form
Does scholarship amount exceed expenses?
Is any of it for the prior year and education credit was claimed in prior year?
May need to recapture some of the credit – out of scope
If unsure, reassure participants that LC or QR person can help!
NTTC Training – TY2015

4. Interview: Missing W-2 Taxpayer “should” receive W-2 by early February
If not, taxpayer should pursue with employer
If employer can’t help, taxpayer should contact IRS on , but not before 02/15/2015
If IRS can’t help, can complete return
Use Form 4852 (discussed later)
Must have pay stub with full-year cumulative information
Haven’t received a W-2?
First contact employer to find out if or when it was mailed or can they pick it up
If still haven’t received a reissued W-2 in a reasonable amount of time – taxpayer should contact the IRS for assistance
If they still haven’t received a W-2 – need to file the return with Form 4852
Keep a copy of Form 4852 for their records.
If employer has ceased operations – taxpayer should also file a copy with Social Security Administration
If the taxpayer has an ITIN – do not enter the SS# on the 4852 – the return is filed with the ITIN only
Household employees – discussed later
NTTC Training – TY2015

5. Limitations on Scope – W-2
With W-2 in hand determine if out of scope:
Box 12
Code R – Archer Medical Savings Acct (MSA)
Code T – adoption benefits
Code Q – nontaxable combat pay (unless certified for Military)
Code W – employer contribution to Health Savings Acct (unless certified for HSA)
If possible, show participants how to look up the instructions in TaxWise to see all the box 12 codes
NTTC Training – TY2015

6. Limitations on Scope – W-2 (cont)
Ministers/church workers (special tax rules)
Very high income that is subject to the Additional Medicare Tax
MFJ: $250,000
MFS: $125,000
S, HH or QW: $200,000
Ministers or certain church works
This may be noted in box 14
The additional Medicare tax (Form 8959) is out of scope
Married filing jointly $250,000
Married filing separately $125,000
Single, Head of household, or Qualifying widow(er) $200,000
NTTC Training – TY2015

7. Entering W-2 Income How/where to enter income in TaxWise
Select form in Forms Tree OR
Link from 1040 line 7
NTTC Training – TY2015 7

8. Entering W-2 Look in Forms Tree Click W2
Prior year W-2 employer information carries forward – if so, click that W-2 and verify employer data (can change)
NTTC Training – TY2015 8

9. Add W-2 Link Method Click on arrow head to right of Line 7
Select Link Icon
Select New tab in dialog box
Select W2 2 3 1 4
NTTC Training – TY2015

10. Add W-2 F9 Link Method Go to line 7 on Form 1040 Press F9
Select New tab in dialog box
Select W2 3 4
NTTC Training – TY2015

11. Verify current tax year
Entering W-2
The Tax Form
Verify current tax year
Emphasize
Every labeled box must be input
2015
NTTC Training – TY2015

12. Entering W-2
All information that is on W-2 form should be entered on TaxWise input form
Plus there are more items to answer on input screen
NTTC Training – TY2015

13. Entering W-2 Check if address matches return address
The Input Form
Check if address matches return address
If does not match, enter exactly as on W-2
Emphasize
Click TP or spouse
First box (if W2 is handwritten) – only if it appears not to be a true W-2
will slow refund processing
NTTC Training – TY2015

14. Verify Withholding Question
Will be red if federal withholding is outside IRS-set norms
Review with taxpayer
Consult with LC/QR, if not satisfied
Check box if satisfied
Emphasize
Inquire of the taxpayer if amount seems extraordinarily high
Compare to prior years
Could be valid, if
there is non-withholding income (interest or dividends) and
taxpayer does not want to make estimated payments
NTTC Training – TY2015

15. Verify Withholding Question
If not satisfied
Check the “appears not to be a true W-2” box at the top of the input form
-OR-
Decline to prepare return
Emphasize
What is due diligence? Refer to intake form C
Generally, as an IRS certified volunteer, you can rely in good faith on information from a taxpayer. However, part of due diligence requires asking a taxpayer to clarify information that may appear to be inconsistent or incomplete. When reviewing information for its accuracy, you need to ask yourself if the information is unusual or questionable.
If counselor is ever uncomfortable with the return, they should check with their LC or other responsible person designated at the site
Tax-Aide does not want to participate in a less than honest and accurate return
Counselors have the discretion to decline a return on the basis of discomfort with the data presented
Checking the “suspicious” W-2 box will slow up the refund – IRS will try to verify w/h first
NTTC Training – TY2015

16. Entering W-2 Input entire form W-2 (esp. Box 12)
Compare social security and Medicare wage and tax amounts
Take calcs off only if different on W-2
Input actual amounts from W-2
Same for state information
Emphasize
Be sure to input everything that’s on the W-2 first
Government/civil service employees may not be in social security system
Some box 12 items are subject to social security and Medicare tax, even though not currently taxable
Such as 401(k) deferrals
Caution for state differences: may need to make manual adjustment on state form
TaxWise may not carry a fed-state difference to the state form
NTTC Training – TY2015

17. W-2 Box 12 Codes F1 for help Index W-2, Box 12 Codes 3 2
Some box 12 items are subject to social security and Medicare tax, even though not currently taxable
Such as 401(k) deferrals
NTTC Training – TY2015

18. W-2 Box 12 codes Often seen codes (26 possible codes):
D – Elective deferrals to a section 401(k) (Codes E through H are elective deferrals to other qualified plans)
DD – Cost of employer-sponsored health coverage
Careful: don’t confuse D and DD
Informational
Code D will cause an incomplete Form 8880 to appear in the return
Code DD is informational only and does not affect the income tax return
All codes as shown on W-2 should be input into TaxWise
NTTC Training – TY2015

19. Entering W-2 The Input Form ITIN* return?
W-2 may have erroneous SS number
TaxWise will check the box
Input SS number shown on W-2
* IRS assigned ID number, not a social security number
Emphasize
ITIN returns can be e-filed
Not be eligible for all benefits (e.g. EIC)
NTTC Training – TY2015

20. Entering W-2 Input should conform to actual W-2 The Input Form
Check if “corrected” W-2C
Disregard Control number
Critical: verify employer ID, name and address!
Emphasize
Employer ID, name or address error: e-file will reject
Additional info on rarely seen boxes
Box 7 Social security tips
These are tips that the employee reported to the employer
The amount is included in boxes 1 (no further reporting needed)
The social security tax shown in box 4 is based on the sum of boxes 3 and 7
Box 8 Allocated tips
Adds 4137 to form tree
See slide set 27 for how to complete 4137
Box 10 Dependent care benefits
Employer provided benefit
TaxWise carries amount to 2441
Dependent care credit is for net amount paid by TP
Box 11 Nonqualified plans – input as on W-2
Amount is distribution from employer plan
Amount is included in box 1 already
Amount may be disregarded in some calculation, e.g. EIC or CTC
NTTC Training – TY2015

21. Entering W-2 Input should conform to actual W-2 The Input Form
Verify box 13 entries on W-2
Some employers put amounts in Box 14
Emphasize
Box 12 out of scope codes
Code R – Archer MSA
Code T – adoption benefits
Code Q – nontaxable combat pay, unless certified for Military
Code W – employer contribution to HSA, unless certified for HSA
If box 14 has “401k”
Leave in box 14 and check that it qualifies for Form 8880 retirement savers credit
The “go-to” person varies by site, the point is to confirm the treatment if unsure
NTTC Training – TY2015

22. W-2 – Box 13 Statutory employee – special status
Taxpayer can report income and deduct expenses using Sch C – see Business Income lesson
Retirement plan – participant
May affect deductibility of IRA contributions – see Adjustments Lesson
3rd Party sick pay
Reports outside insurer payments
NTTC Training – TY2015

23. W-2 Verification Code
New for 2015, some payroll service providers will note a 16-digit verification number on some Forms W-2 (this is an IRS test procedure)
Enter the code, if any, on TaxWise Form W2
NTTC Training – TY2015

24. Missing W-2 – Form 4852
If attempts to get W-2 from employer or IRS are unsuccessful, complete return with Form 4852
Note: Form 4852 can be used for missing W-2 or 1099-R
Do not use 4852 if taxpayer was not treated as an employee
NTTC Training – TY2015

25. Missing W-2 – Form 4852 Go to a blank W-2 in the form tree
If no blanks, add one with “+”
From the blank W-2 link to new Form 4852
NTTC Training – TY2015

26. Missing W-2 – Form 4852 Complete Form 4852
Use prior year W-2, if applicable
Use last pay check stub
Taxpayer needs to provide year-end totals if not on pay stub
If IRS sent taxpayer a Form 4852 with information on it, transfer it to TaxWise
NTTC Training – TY2015

27. Complete as much employer information as possible
Missing W-2 – Form 4852
2014
Complete as much employer information as possible
If employer information is incomplete, processing by the IRS will be slowed down
NTTC Training – TY2015

28. Missing W-2 – Form 4852 Complete lines 7, 9 and 10
(line 8 is for 1099-R)
NTTC Training – TY2015

29. Missing W-2 – Form 4852 Taxpayer should retain copy of 4852
If taxpayer gets W-2 later with different information, may need to amend return
Taxpayer may need to follow up with Social Security Administration to get credit for FICA taxes paid
From Instructions to Form 4852:
Retain a copy of Form 4852 for your records
Check your Social Security Statement (received at least a full year after the date shown on line 4) against Form 4852
If the earnings you reported on Form 4852 are not shown in the statement, you should contact the Social Security Administration (SSA) at the telephone number shown on the statement
Alternatively, after September 30 following the date shown on line 4, you may contact your local SSA office to verify wages reported by your employers
NTTC Training – TY2015

30. Entering W-2 – Special Situation
W-2 with -0- wages (box 1)
May be reporting sick or disability pay
Must include in return if tax was withheld
Will not e-file with -0- in TaxWise box 1
Input $1 in box 1
F3 social security and Medicare taxes to clear the red
Emphasize
Very rare situation
Always check with LC/ QR for guidance if unsure
Can e-file a return with 0 in box 1 if there is withholding or a state reason.
NTTC Training – TY2015

31. Need to add another W-2? Click “+” to right of first W-2
Can also click the “add” button and type in form name
NTTC Training – TY2015

32. Entering W-2
Completely enter all information on each W-2, before going to next one
Double check employer ID numbers, names and addresses!
Remove any unused W-2 forms from tree
NTTC Training – TY2015

33. W-2 Allocated Tips
Allocated Tips (Box 8) is income in addition to wages in box 1
An assumed amount of tips received by worker
Set at 8% of underlying charge such as restaurant bills
Emphasize
Workers that receive tips are supposed to report their tips to their employer
Exception for tips that are no more than $20 per month
All income must be reported and taxed
IF taxpayer is employed in a position that normally receives tips, inquiry should be made
NTTC Training – TY2015

34. W-2 Allocated Tips
Minimum amount of imputed tip income that must be declared, absent records
Worker that keeps good records (tip log) can declare
More tip income
Less tip income
Emphasize
Workers that receive tips are supposed to report their tips to their employer
Exception for tips that are no more than $20 per month
All income must be reported and taxed
IF taxpayer is employed in a position that normally receives tips, inquiry should be made
IRS prints free tip logs that Taxpayers can order from IRS.gov or by phone
NTTC Training – TY2015

35. W-2 Allocated Tips
TaxWise adds Form 4137 when W-2 Box 8 Allocated Tips is used, otherwise add form if needed
If taxpayer keeps good records, can use actual amount of tips on Form 4137, Line 4 (requires override)
If using allocated tips amount, amount not reported because <$20 per month is deemed included in allocated amount
May need to have LC or a counselor with the needed TaxWise permissions to assist in overriding Line 4
NTTC Training – TY2015

36. W-2 Allocated Tips
Total tips on 4137 Line 4 will flow to Line 7 as additional wages
Social security and Medicare tax may be due
See Other Taxes Lesson 27
NTTC Training – TY2015

37. Other Line 7 Income
Taxable scholarship not on Form W-2 (see Education Credits Lesson 24)
Taxable scholarship entered on 1040 Wkt 1:
will flow to Line 7 Wages:
Wkt 1
Emphasize
Don’t input scholarship income until the education benefits are done after all other info is input
Pub 4012, page J-1 has a worksheet
Taxable scholarships are covered in lesson 23
Also see Education Benefits slides for tax-optimizing strategies
1040 P. 1
NTTC Training – TY2015

38. Other Line 7 Income Household employee income not on W-2?
Usually, amounts less than $1,800
Input on 1040 Wkt 1
Can link to Scratch Pad if more than one
Informational:
Payers
who pay more than $1,800 in the year or $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
Some household workers are self-employed, use Schedule C instead
Household workers can include
Housekeepers
Nannies
Babysitters
Among others
NTTC Training – TY2015

39. Other Line 7 Income
If taxpayer is under normal retirement age for employer plan, disability “pension” flows to Line 7 Wages (see retirement income lesson)
Eligible for EIC!
Emphasize
The interview should have already identified that the 1099-R has code 3
Can look at the prior year’s return for confirmation
Must still ask the question
Once Taxpayer reaches normal retirement age, distribution will remain as retirement income
Some employers report using W-2 instead of 1099-R and that is ok
NTTC Training – TY2015

40. Incorrect reporting of Medicare waiver payments on W-2
Taxpayer presents W-2 saying that this is incorrect – that it is not be reported as income;
First, enter information in a W-2 per usual;
New 2015 – 1040 Wkt 7 line 16 may be used to correct this. Note: enter data as a negative number (e.g. “-2000”)
NTTC Training – TY2015

41. Quality Review – Wages Line 7
Verify all W-2 data has been input correctly
Employer Identification Number (EIN)
Employer name
Employer address
Social Security/Medicare amounts
All box 12 items
Stat employee/retirement/3rd party sick
NTTC Training – TY2015

42. Quality Review – Wages Line 7
Confirm Line 7 has all that it should have
How many jobs or W-2s?
Per Intake/Interview/QR form
In return
Compare to prior year
NTTC Training – TY2015

43. Quality Review – Wages Line 7
After all other aspects of return are done, confirm Line 7 is complete
Tips from Form 4137
Household worker income
Disability pension
Taxable scholarships
This part of QR is done at the end, after all items have been input
NTTC Training – TY2015

44. Quality Review – Wages Line 7
Delete any unused W-2 forms
Clear incomplete W-2 form warnings in tree
Return will not e-file with unused W-2 forms or those with -0- in box 1
NTTC Training – TY2015

45. Quality Review – Wages Line 7
Wage income may trigger other aspects in return (more forms will show on forms tree)
Proceed methodically through each
e.g. IRA contributions or deductions, retirement saving credit, EIC
All will be covered in separate lessons
Emphasize
Saving for retirement is mentioned here to get thought going as the return is being prepared
It is the taxpayer’s responsibility to manage their tax affairs
We can remind them of opportunities to reduce their taxes if they are eligible
NTTC Training – TY2015

46. Taxpayer Summary – Wages Line 7
When return is done, revisit
Is withholding too high? Too low?
Can change using W-4
May need state “W-4” form, too
Emphasize
The real exit interview is done at the end of the return preparation process
These exit interview comments are to highlight topics specific to Wages
NTTC Training – TY2015

47. Wages Line 7
Comments? Questions?
NTTC Training – TY2015