1. Other Income
Form 1040 – Line Pub 4012 – Pages D-3 and D 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

2. Intake/Interview
NTTC Training – TY2015

3. Form 1040 – Line 21
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4. 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
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5. National Mortgage Settlement
Taxpayers may receive a settlement payment
Relates to a home lost in foreclosure – 2012
No tax form (1099) issued
Out-of-scope
Amount paid can be $1,400 per home lost
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6. 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
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7. Line 21 in TaxWise
Link to Wkt 7 Other Income Worksheet, if not already on tree.
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8. 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
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9. NTTC Training – TY2015

10. 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

11. 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
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12. 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)
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13. Long Term Care Payments 1099-LTCXX
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14. 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
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15. Long Term Care Payments 1099-LTC
If there are multiple payees under the insurance contract, refer the taxpayer to a paid preparer
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16. 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
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17. Form 8853
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18. 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

19. 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
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20. 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
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21. 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

22. Other Income
Questions?
Comments…
NTTC Training – TY2015

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

24. 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

25. Difficulty of Care Payments
IRS Notice
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 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 In other words, the payments MUST be excluded.
NTTC Training – TY2015

26. Income Documents
Each state reports payments according to its own rules
1099-MISC Box 7
1099-MISC Box 3
W-2
Not reported
Other…
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27. 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 ”
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
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28. In TaxWise
Worksheet 7
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29. 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

30. 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
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31. Excluding Payment from Return
Taxpayer must exclude income from return.
Will likely receive a notice of omission from IRS
Should answer with “Notice ”
NTTC Training – TY2015

32. 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

33. Medicaid Waiver Payments
Questions?
Comments?
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