|
 |
|
4.1 Interest/Dividends/Other Types of Income: 1099–DIV Dividend Income
How do I report this 1099-DIV from my mutual fund?
Enter the ordinary dividends from Form 1099-DIV (PDF),
box 1, on line 9 of Form 1040 (PDF), U.S.
Individual Income Tax Return. Enter the total capital gain distributions
from box 2a on line 13, column (f) of Form 1040, Schedule D (PDF).
Enter the 28% rate gain portion of your capital gain distributions from box
2b on line 13, column (g) of Schedule D. If you have an amount in box 2c or
box 2d, refer to
Instructions for Form 1040, Schedule D.
Nontaxable distributions, box 3, that are return of capital distributions,
reduce your cost basis and are not taxable until your basis is reduced to
zero. If no amount is shown in boxes 2b through 2d, and your only capital
gains and losses are capital gain distributions, refer to
Instructions for Form 1040 for line 13.
References:
Do I have to pay tax on reinvested dividends?
Dividend reinvestment plans let you choose to use your dividends to buy
(through an agent) more shares of stock in the corporation instead of receiving
the dividends in cash. If you are a member of this type of plan and use your
dividends to buy more stock at a price equal to its fair market value, you
must report the dividends as income.
If you are a member of a dividend reinvestment plan that lets you buy more
stock at a price less than its fair market value, you must report as income
the fair market value of the additional stock on the dividend payment date.
Other rules may apply. For additional information, refer to Chapter 9 of Publication 17, Your Federal Income Tax, and Tax Topic 404, Dividends.
References:
I received dividends from my credit union. How do I report this
income?
Certain distributions commonly referred to as dividends are actually interest.
They include "dividends" on deposits or share accounts in cooperative banks,
credit unions, domestic savings and loan associations, and mutual savings
banks.
Report interest income on line 8a of Form 1040 (PDF) or Form 1040A (PDF), or line 2 of Form 1040EZ (PDF). If your taxable interest income is more than $1,500, be sure
to show that income on Schedule B of Form 1040, or on Schedule 1 of Form 1040A.
You cannot file Form 1040EZ if your interest income is more than $1,500. Refer
to Tax Topic 403, Interest Received, for additional information
on interest income.
References:
- Form 1040 (PDF), U.S. Individual
Income Tax Return
- Form 1040A (PDF), U.S. Individual
Income Tax Return
- Form 1040EZ (PDF), U.S. Individual
Income Tax Return for Single and Joint Filers with No Dependents
- Tax Topic 403, Interest Received
4.2 Interest/Dividends/Other Types of Income: 1099–INT Interest Income
How do I report interest received on an installment sale?
If you receive interest on an installment sale, report the entire amount
on line 8a of Form 1040 (PDF) or Form 1040A (PDF), or line 2 of Form 1040EZ (PDF).
If your taxable interest income is more than $1,500, be sure to show that
income on Schedule B of Form 1040, or on Schedule 1 of Form 1040A. You cannot
file Form 1040EZ if your interest income is more than $1,500. Refer to Tax Topic 403, Interest Received, for additional information on interest
income Form 1040, Schedule B (PDF). For additional
information on installment sales, refer to Tax Topic 705, or Publication 537, Installment Sales.
References:
4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed,
I do not have a business. How do I report this income?
If payment for services you provided is listed in box 7 of Form 1099-MISC,
you are being treated as a self-employed worker, also referred to as an independent
contractor. You do not necessarily have to "have a business," but simply perform
services as a nonemployee to have your compensation treated this way. The
payer has determined that an employer-employee relationship does not exist
in your case. That determination is complex, but is essentially made by examining
the right to control how, when, and where you perform those services. It is
not based on how you are paid, how often you are paid, nor whether you work
part-time or full-time. There is no statutory definition of an employee, but
from common law three basic areas have been identified:
behavioral control,
financial control, and
type of relationship.
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15-A (PDF), Employer's Supplemental
Tax Guide. If you think that you were, or are, an employee and you would
like the IRS to issue a determination, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment
Taxes and Income Tax Withholding.
Unless you have requested a determination by filing Form SS-8, you generally
have to report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or Form 1040, Schedule C-EZ (PDF), Net Profit
from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment
tax on your net earnings from self-employment, if you had net earnings from
self-employment of $400 or more. This is the manner by which self-employed
persons pay into the social security and Medicare trust funds. Employees pay
these payroll taxes, as well as income tax withholding, through deductions
from their paychecks. Generally, there are no tax withholdings on this income.
Thus, you may have been subject to the requirement to make quarterly estimated
tax payments. If you did not make estimated tax payments, you may be charged
an underpayment of estimated tax penalty.
References:
I thought I was an employee and thought my employer was withholding
tax from my pay. My former employer sent me a Form 1099-MISC and didn't withhold
any taxes. Is there a procedure to have the situation reviewed and possibly
make the former employer pay the taxes due? What can I do?
You can ask the IRS to make a determination as to whether an employer-employee
relationship exists by filing Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
If the IRS finds that an employer incorrectly treated an employee as a nonemployee,
the employer will be liable for the social security and Medicare tax withholding
that he or she failed to withhold and pay. (There are some exceptions to this
noted in Publication 15-A (PDF), Employer's
Supplemental Tax Guide).
Holding the employer liable for the tax that was not withheld does not
relieve you from the liability for your share of social security and Medicare
taxes. To pay your portion, attach Form 4137 (PDF), Social
Security and Medicare Tax on Unreported Tip Income, to your individual
income tax return and report the employee share of social security and Medicare
on page 2 of Form 1040. Cross out the word "Tip" and insert the word "Wages"
at the top of the Form 4137 and also at the top of Schedule U, U.S. Schedule
of Unreported Tip Income, which is attached to the bottom of Form 4137. Also
notate on the Form 4137 that a Form SS-8 has been filed. You may call us at
1 800-829-1040, the toll-free information number if further clarification
of the procedure is necessary.
References:
- Publication 15, Circular E, Employer's Tax Guide
- Publication 15-A (PDF), Employer's
Supplemental Tax Guide
- Form 4137 (PDF), Social Security
and Medicare Tax on Unreported Tip Income
- Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
- Tax Topic 762, Independent contractor vs. employee
The instructions for Form 1099-MISC, Box 7, say if you are not self-employed,
call the IRS for information about how to report any social security and Medicare
taxes. I need to know how do I report social security and Medicare taxes if
I received income reported on a Form 1099-MISC, but was not self-employed?
You need to use Form 4137 (PDF), Social
Security and Medicare Tax on Unreported Tip Income. Cross out the word
"Tip" and insert the word "Wages" at the top of the form and also at the top
of Schedule U, which is attached to the bottom of the form. Follow the instructions
on Form 4137 to compute your share of your social security and Medicare taxes.
Attach Form 4137 to your Form 1040. You may call us at 1 800-829-1040 if further
clarification of the procedures is necessary.
You may want to file Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
This form requests the IRS to make an official determination of whether or
not you were an employee. To make this determination, the IRS will need information
from you and your employer.
References:
- Form 4137 (PDF), Social Security and Medicare
Tax on Unreported Tip Income
- Form SS-8 (PDF), Determination of Worker
Status for Purposes of Federal Employment Taxes and Income Tax Withholding
I received a Form 1099-MISC for an employee bonus. How do I report
it?
Employee bonuses should be reported on Form W-2, not on Form 1099-MISC.
Contact your employer and ask them to issue the correct form. If they will
not issue you a Form W-2 for the bonus, complete Form 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement. The
bonus amount is reported on Line 7 on your Form 1040 or 1040A or line 1 of Form 1040EZ (PDF).
References:
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
You are a sole proprietor if you are the sole owner of a business that
is not a corporation. Report your income and expenses from your sole proprietorship
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
If the total of your net profit from all businesses is $400 or more, you
must pay into the Social Security and Medicare systems by filing Form 1040, Schedule SE (PDF), Self-Employment Tax.
Self-Employment tax consists of the Old-Age, Survivors, and Disability Insurance
(social security) and the Hospital Insurance (Medicare) taxes. For more information
on this, refer to Publication 533, Self-Employment Tax.
The Federal tax system is based on a pay-as-you-go plan. Tax is generally
withheld from your wages or salary before you get it. However, tax is generally
not withheld from self-employment income. Thus, you may be required to make
estimated tax payments. Publication 505, Tax Withholding and Estimated
Tax, provides information on making estimated tax payments.
References:
My son is a newspaper carrier. I would like to know if this income
is subject to Social Security and Medicare tax and if I must file a Schedule
C for him?
Your son may be liable to pay into the Social Security and Medicare system
by paying self-employment tax. However, if your son is under the age of 18
he exempt from self-employment tax. Persons engaged in the trade or business
of delivering or distributing newspapers or shopping news (including any services
directly related to such delivery or distribution) are considered by statute
as nonemployees and are treated as self-employed for all Federal tax purposes,
including income and employment taxes.
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) ,
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business . See Form 1040, Schedule SE (PDF), Self-Employment
Tax , which must be filed if net earnings from self-employment are $400
or more. If your child is a newspaper carrier under the age of 18, he is exempted
from self-employment tax.
References:
What is the difference between a Form W-2 and a Form 1099-MISC?
Both of these forms are called information returns. The Form W-2 is used
by employers to report wages, tips and other compensation paid to an employee.
The form also reports the employee's income tax and Social Security and Medicare
taxes withheld and any advanced earned income credit payments. The Form W-2
is provided by the employer to the employee and the Social Security Administration.
A Form 1099-MISC is used by a person engaged in a trade or business to report
payments made in the course of such trade or business to another person or
business who is not an employee. The form is required when payments of $10
or more in gross royalties or $600 or more in rents or services are paid.
The form is provided by the payor to the IRS and the person or business that
received the payment.
References:
How do you determine if a person is an employee or an independent
contractor?
The determination is complex, but is essentially made by examining the
right to control how, when, and where the person performs services. It is
not based on how the person is paid, how often the person is paid, nor whether
the person works work part-time or full-time. There is no statutory definition
of what an employee is, but from common law three basic areas have been identified:
behavioral control,
financial control, and
type of relationship.
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15-A (PDF), Employer's Supplemental
Tax Guide. If you would like the IRS to determine whether services are
performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Unless you have requested a determination by filing Form SS-8, you generally
have to report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or Form 1040, Schedule C-EZ (PDF), Net Profit
from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment
tax on your net earnings from self-employment, if you had net earnings from
self-employment of $400 or more. This is the method by which self-employed
persons pay into the social security and Medicare trust funds. Generally,
there are no tax withholdings on this income. Thus, you may have been subject
to the requirement to make quarterly estimated tax payments. If you did not
make timely estimated tax payments, you may be assessed a penalty for an underpayment
of estimated tax. Employees pay into the social security and Medicare trust
funds, as well as income tax withholding, through payroll deductions.
References:
I received a Form 1099-MISC with an amount in box 7, (nonemployee
compensation). What forms and schedules should be used to report income earned
as an independent contractor?
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business (Sole Proprietorship). You should also be aware
of Form 1040, Schedule SE (PDF), Self-Employment
Tax, which must be filed if net earnings from self-employment are $400
or more. This form is used to figure your social security and Medicare tax
which is based on your net self-employment income. You may also need to file
Form 2210, Underpayment of Estimated Tax by Individuals, Estates & Trusts,
if you do not make estimated tax payments.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
-
Instructions for Form 1040, Schedule SE
- Publication 533, Self-employment Tax
- Publication 334, Tax Guide for Small Business
- Tax information for
Business
- Form 2210 (PDF) Underpayment
of Estimated Tax
If I am an independent contractor, am I considered self-employed?
Generally, an independent contractor is considered self-employed. Refer
to Chapter 5, Business Income, of Publication 334, Tax Guide for Small
Business, for a definition and examples of income from self-employment.
Refer to Chapter 2, Employee or Independent Contractor, of Publication 15-A (PDF), Employer's Supplemental Tax Guide, for more
information on independent contractors.
References:
I work as an independent contractor, but I do not own a business
and do not perform services in the name of a business. Can I file my tax return
without filing Schedule C or Schedule SE?
The income you earn as an independent contractor generally will be considered
income from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business. You will also need to file Form 1040, Schedule SE (PDF), Self-Employment Tax, if you had net earnings
from self-employment of $400 or more.
References:
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you will have no withholding taken from your
income, you may need to make quarterly estimated tax payments. You use Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for
estimated tax payments. You can start looking for information at How
to Contact Us. You may want to go to your state's individual Web site
for additional information. To access the state you need go to our Alphabetical
State Index.
References:
I made several thousand dollars moonlighting as an independent contractor.
What taxes do I need to pay?
You are responsible for Federal income tax and self-employment taxes on
your income as an independent contractor. Self-employment taxes are your contributions
to Social Security and Medicare. Your self-employment income and expenses
will be reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your social security and Medicare tax, if
you had net earnings from self-employment of $400 or more. Since there is
no withholding on your self-employment income, you may need to make quarterly
estimated tax payments. This is done using a Form 1040-ES (PDF), Estimated Tax for Individuals.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Publication 334, Tax Guide for Small Business
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Tax Topic 355, Estimated Tax
- Tax Information for
Business
- Publication 505,Tax Withholding and Estimated Tax
I received a Form 1099-MISC from a company that paid all employees
this way. Will my income go on line 21 of Form 1040 as Other Income or
on Schedule C?
Since your income was reported to you on a Form 1099-MISC, box 7, the company
has treated you as an independent contractor and your income is treated as
self-employment income. You will need to report that income, and any related
expenses, on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your Social Security and Medicare tax, if
you had net earnings from self-employment of $400 or more. You may also need
to make quarterly estimated tax payments. You would use Form 1040-ES (PDF), Estimated Tax for Individuals, for this.
If you feel that you were an employee and not self-employed, you can file Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes. This will enable the IRS to make a determination
as to whether you are an employee or an independent contractor. To do this
the IRS will need information from you and your employer.
For information about determining whether you are an employee or an independent
contractor, please see Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Taxes
- Publication 334, Tax Guide for Small Business
- Publication 15-A (PDF), Employer's
Tax Guide to Fringe Benefits
- Tax Information for
Business
- Tax Topic 355, Estimated Tax
4.4 Interest/Dividends/Other Types of Income: 1099 Information Returns (All Other)
I received a Form 1099-G, for my state tax refund.
Do I have to include this amount as income on my return?
I received a Form 1099-G (PDF) , for my state
tax refund. Do I have to include this amount as income on my tax return?
If you did not itemize your deductions on your Federal tax return for the
same year as the state or local tax refund applies to, do not report any of
the refund as income.
If you itemized deductions on your Federal tax return for 2002, and received
a refund of state or local taxes in 2002, you may have to include all or part
of the refund as income on your 2003 tax return. Report your taxable State
or Local Refunds on Form 1040, Line 10. You cannot use Form 1040A or 1040EZ.
Refer to Tax Topic 405, Refund of State and Local Taxes , and Publication 525 , Taxable and Nontaxable Income , for further
information.
References:
How do I report income received as a prize or award?
If you win a prize in a lucky number drawing, television or radio quiz
program, beauty contest, or other event, you must include it in your income.
For example, if you win a $50 prize in a photography contest, you must report
this income on line 21 (other income), Form 1040. If you receive merchandise,
you must report the fair market value of the item(s) as income. Refer to Chapter
13 of Publication 17, Your Federal Income Tax, for additional
information.
References:
I won $250 in a charity raffle. Where do I show this on my return?
Gambling winnings are fully taxable and must be reported on your tax return.
You must file Form 1040 (PDF) and include all your
winnings on line 21 (other income). For information on deducting gambling
losses. Refer to Tax Topic 419, Gambling Income and Expenses,
or Publication 529, Miscellaneous Deductions, .
References:
My house was foreclosed on and the lender has sent me a Form 1099.
What do I do? Must I report this?
You may have received either a Form 1099-A (PDF), Acquisition
or Abandonment of Secured Property, or Form 1099-C (PDF), Cancellation of Debt, or both. You may not have to
report gain on the sale of property and, depending on the circumstances, you
may have cancellation of indebtedness as well. You have cancelled debt income
if the debt cancelled, as a result of the foreclosure and it exceeds the fair
market value of the property at the time of he transfer. Cancelled debt income
is taxable as other income on line 21 (other income) of Form 1040 (PDF). Refer to Publication 544, Sales and Other
Disposition of Assets. Complete Table 1-2, Worksheet for Foreclosure
& Repossessions to determine if there is income from cancellation of debt
or gain or loss from foreclosure or repossession.
You may be able to exclude all or part of the cancelled debt income if
all or part of the debt was discharged in bankruptcy; if you were insolvent
immediately before the transfer; or if the debt is a qualified farm debt or
qualified real property indebtedness. Refer to Publication 908, Bankruptcy
Tax Guide.
You may be required to compute gain on the disposition of the property
and, under certain circumstances, may be eligible to claim a loss as well.
The tax treatment of he disposition may be affected by whether the debt was
recourse or nonrecourse.
If the debt was nonrecourse (you were not personally liable for payment),
the amount realized for purposes of computing gain is the sum of the amount
of money received, the fair market value of any other property received incident
to the transfer of the property subject to foreclosure, and the amount of
any nonrecourse debt on the property. The difference between the amount realized
and your basis is your gain or loss. No portion of the gain on property subject
only to nonrecourse debt is income from discharge of indebtedness.
If the debt was recourse (you could have been held personally liable for
payment), the proper treatment depends on the amount of the debt and whether
you were discharged as a result of the transaction. If the debt was less than
the fair market value of the property, the amount realized is equal to the
sum of the amount received and the fair market value of any other property
received incident to the transfer of the property subject to foreclosure,
and the amount of any debt discharged as the result of the transaction. On
the other hand, if the debt was more than the fair market value of the property
and it was discharged as result of the transaction, for example, if you gave
the creditor a deed in lieu of foreclosure, then the difference between the
FMV of the property and the amount of the debt up to the FMV of the property
is considered to be the amount realized and the excess debt is considered
to be income from discharge of indebtedness. Your gain or loss would be computed
by the difference between the FMV of the property and your basis; the balance
would be ordinary income reportable on Line 21. If the debt was not discharged
because of the foreclosure and the creditor could collect the difference from
you, there would be no discharge of indebtedness income until such time as
the debt was actually discharged or the statute of limitations expired. In
such case, you might only have to report your gain on the disposition of the
property.
References:
- Publication 523, Selling Your Home
- Publication 537, Installment Sales
- Publication 544, Sales and Other Dispositions of Assets
- Publication 908, Bankruptcy Tax Guide
- Form 982 (PDF), Reduction of
Tax Attributes Due to Discharge of Indebtedness
- Form 1040 (PDF), U.S. Individual
Income Tax Return
- Form 1040, Schedule D (PDF), Capital
Gains and Losses
- Form 1099-A (PDF), Acquisition
or Abandonment of Secured Property
- Form 1099-C (PDF), Cancellation
of Debt
- Form 4797 (PDF), Sales of Business
Property
4.5 Interest/Dividends/Other Types of Income: Alimony, Child Support, Court Awards, Damages
Are alimony payments considered taxable income?
Alimony, separate maintenance, and similar payments from your spouse or
former spouse are taxable to you in the year received. The amount is reported
on line 11 of Form 1040 (PDF). You cannot use Form 1040A (PDF) or Form 1040EZ (PDF).
Refer to Tax Topic 406, Alimony Received, or Publication 504, Divorced
or Separated Individuals.
To help determine if these payments are or are not alimony, please read
the following:
The following rules apply to payments under divorce or separation instruments
executed after 1984. They also apply to instruments that were modified after
1984 to:
(1) Specify that these rules will apply or
(2) Change the amount or period of payment or to add or delete any contingency
or condition.
For the rules for alimony payments under pre-1985 instruments, please see Publication 504, Divorced or Separated Individuals.
A payment to or for a spouse or former spouse under a divorce or separation
instrument is alimony, if the spouses do not file a joint return with each
other, if the following conditions are met:
(1) The payment must be made by cash, check, money order, etc.
(2) The instrument does not designate the payments as "not alimony."
(3) The spouses are not members of the same household at the time the payments
are made.
(4) There is no liability for payments after the death of the recipient
spouse.
(5) The payment is not treated as child support.
For an explanation of these requirements please see, Publication 504, Divorced
or Separated Individuals.
References:
Are child support payments considered taxable income?
No. Some types of income taxpayers receive are not taxable and child support
is one of them. When you total your gross income to see if you are required
to file a tax return, do not include your nontaxable income. For additional
information, refer to Tax Topic 422, Nontaxable Income, or Publication 525, Taxable and Nontaxable Income.
References:
I received damages for emotional distress suffered as a result of
employment discrimination. Is the money I received taxable?
Emotional distress is not considered a physical injury or physical sickness;
therefore, damages for emotional distress are includible in income except
to the extent they are paid for medical care attributable to emotional distress.
References:
Because of my age, my employer wanted to terminate my employment.
I signed a statement not to sue and received a lump-sum payment from my employer
for age discrimination. Is this payment taxable?
A lump-sum payment for cancellation of your employment is taxable income
in the year you receive it and must be reported with your other salary and
wages. This is true even if the payment was received (by suit or agreement)
as settlement under the Age Discrimination in Employment Act.
Refer to Publication 525, Taxable and Nontaxable Income, for
more details.
References:
- Publication 525, Taxable and Nontaxable Income
- Tax Topic 422, Nontaxable Income
- Revenue Ruling 96-65 and Commissioner v. Schleier, 515 US 323 (1995)
Is the money received from my settlement taxable?
For court awards and damages, to determine if settlement amounts you receive
by compromise or judgment must be included in your income, you must consider
the item which the settlement replaces. Include the following as ordinary
income:
Interest on any award.
Compensation for lost wages or lost profits in cases other than those
where the payments are for wages lost as a result of physical injury.
Punitive damages. (But see below)
Amounts received in settlement of pension rights (if you did not contribute
to the plan).
Damages for: (A) Patent or copyright infringement. (B) Breach of contract.
(C) Interference with business operations.
Any recovery under the Age Discrimination in Employment Act.
Injury to your reputation .
Alienation of affection.
Do not include in your income compensatory damages for personal physical
injury or physical sickness (whether received in a lump sum or installments).
Damages for emotional distress due to a physical injury or physical sickness
are not taxable.
Punitive damages are taxable. It does not matter if they relate to a physical
injury or a physical sickness.
For additional information, refer to Publication 525, Taxable and
Nontaxable Income, or Tax Topic 422, Nontaxable Income.
References:
4.6 Interest/Dividends/Other Types of Income: Employee Reimbursements, Form W–2, Wage Inquiries
Is tuition reimbursement for school a form of taxable income or
not?
If you receive educational assistance benefits from your employer under
an educational assistance program, you can exclude up to $5,250 of those benefits
each year. This means your employer should not include the benefits with your
wages, tips, and other compensation shown in box 1 of your Form W-2. You do
not have to include the benefits on your income tax return. The exclusion
also applies to educational assistance for graduate level courses.
To qualify as an educational assistance program, the plan must be written
and must meet certain other requirements. Your employer can tell you whether
there is a qualified program where you work.
Tax-free educational assistance benefits include payments for tuition,
fees and similar expenses, books, supplies, and equipment. The payments do
not have to be for work-related courses. Educational assistance benefits do
not include payments for the following items:
(1) Meals, lodging, transportation, or tools or supplies (other than textbooks)
that you can keep after completing the course of instruction.
(2) Education involving sports, games, or hobbies unless the education
has a reasonable relationship to the business of your employer, or is required
as part of a degree program.
References:
For further information, please see,Publication 970 , Tax
Benefits for Education .
Tax Topic 513 Tax Topic 513, Education Expenses
References:
My employer is including amounts paid graduate school related expenses
on my Form W-2. Where do I claim education expenses on my Form 1040?
The law changed in 2002 to allow up to $5,250 in graduate school related
expenses paid by educational assistance program to be excluded from gross
income. If your employer has included amounts paid for graduate school related
expenses amounting to $5,250 or less with your wages, tips, and other compensation
shown in box 1 of your W-2, ask your employer for a corrected W-2. If you
have received amounts for graduate school related expenses that are includable
in gross income, you may deduct expenses attributable to those amounts on Form 1040, Schedule A (PDF), Itemized Deductions.
References:
On my Form W-2, why would line 1, wages, tips, other compensation,
be different from line 3, social security wages, and line 5, medicare wages
and tips?
When the amount in box 1 is less than the amount in boxes 3 and 5, you
have received some employee compensation that is not subject to Federal income
tax but is subject to Social Security and Medicare taxes. The most common
example of this is deferred compensation, e.g. contributions to a 401(k) plan.
Another example is an employee benefit plan that provides for the contribution
of pretax dollars (e.g. cafeteria plan, flexible spending arrangement, dependent
care plan, etc.).
When the amount in box 1 is more than the amount in boxes 3 and 5, you
have received some employee compensation that is not defined as wages for
the purpose of social security and Medicare taxes. An example of this would
be when a child works for his or her parent in the parent's trade or business
and is under age 18.
References:
Is my employer supposed to include mileage reimbursement as a part
of my gross income on my Form W-2, and do I include it on my return as wages,
tips & salaries?
That depends on whether you were reimbursed under an accountable plan or
under a nonaccountable plan. Generally, an employer will have an accountable
plan if it pays business expenses that would otherwise be deductible by the
employee, requires the employee to substantiate the expense, and does not
permit the employee to keep any reimbursements that exceed expenses. If the
employer does not use an accountable plan, mileage reimbursement would be
included in your wages on Form W-2. For more information on reimbursements
and accountable plans, refer to Chapter 6 of Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
If your mileage reimbursement is included in box 1 on Form W-2, you need
to enter that amount on the "wages, salaries, and tips" line of your tax return.
If you itemize your deductions on Form 1040, Schedule A (PDF), Itemized
Deductions, you may deduct the business transportation expense as an
employee business expense, subject to the 2% limitation of adjusted gross
income. You may usually deduct either your actual business automobile expenses
or use the standard mileage rate. For more information on when you may use
the standard mileage rate, refer to Chapter 4 of Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
References:
Is there any amount of wages too low to report on my tax return?
There is no wage amount too low that you would not include in gross income
on your tax return. If your total income were below your filing requirement,
however, you would not have to file a tax return. However, you may wish to
file to claim a refund of withheld taxes. For information on filing requirements,
please refer to the instructions for your income tax form.
References:
What box on the Form W-2 do I use to determine my income to go on
my tax return? What are all of these other boxes for? Does the amount from
any other box go anywhere on my tax return?
For most people, only the amount in box 1 (wages, tips, other compensation)
needs to be reported as income on your tax return. If you are an employee
who receives tips, you may have to include the amount from box 8 (allocated
tips) as income on your return.
Any employer-provided dependent care benefits listed in box 10 that are
not excludable from income must be reported as wages on line 7 of the Form
1040. Any credit taken for child and dependent care expenses must be reported
on line 44 of the Form 1040. Refer to Form 2441 (PDF), Child
and Dependent Care Expenses, to determine the amount, if any, of the
exclusion or credit.
Employer-provided adoption benefits that must be included on line 18 of Form 8839 (PDF), Qualified Adoption Expenses, appear in box
12 with a code T. Employer contributions to a medical savings account (MSA),
which you report on line 3b of Form 8853 (PDF), Medical
Savings Accounts and Long-Term Care Insurance Contracts, also appear
in box 12 with a code R. Employer-provided benefits may be taxable as compensation
under certain conditions. Refer to the relevant form instructions.
If you received advanced earned income credit payments from your employer
(box 9), you must include the amount on your individual income tax return
Form 1040 or 1040A.
The other boxes either display information that the employer wanted to
provide to you, or contain information that must be reported to the Social
Security Administration or to the IRS.
References:
What is meant by "dependent care benefits" (Box 10 of Form W-2)?
Dependent care benefits are amounts your employer paid directly to either
you or your care provider for the care of your qualifying person(s) while
you worked. They also include the fair market value of care in a day-care
facility provided or sponsored by your employer. Dependent care benefits include
amounts placed into a flexible spending account under a salary reduction arrangement
if the benefit provided was day care. If you have an amount in Box 10 of the Form W-2 (PDF), you must complete Form 2441, Child and Dependent Care Expenses (PDF) when you file the Form 1040.
If you file the Form 1040A (PDF), complete Schedule
2.
References:
Should Line 10, Dependent Care Benefits, of my Form W-2 be included
when calculating my income?
A portion of the amount in Box 10 of the Form W-2 may be includable in
your income. Please refer to the
Instructions for Form 2441, Child
and Dependent Care Expenses, to determine how much, if any, of the dependent
care benefits may be excluded. If you meet the requirements described in Form 2441 (PDF), Child and Dependent Care Expenses,
you can exclude up to $5,000 of dependent care benefits provided under a qualified
employer plan. However, this amount is reduced or eliminated if your earned
income (or your spouse's earned income) is less than $5,000, or if your child
is not under age 13. Any benefits that exceed the exclusion limit ($5,000)
are also includable in your income, and your employer should have included
these amounts in Boxes 1, 3, and 5 of your Form W-2 in addition to reporting
these amounts in Box 10. The amount you can exclude is figured and claimed
by completing Part III of Form 2441 or Schedule 2 of Form 1040A.
References:
Is severance pay taxable?
Amounts you receive as severance pay are taxable. A lump-sum payment for
cancellation of your employment contract is income in the tax year you receive
it and must be reported with your other salaries and wages. For additional
information on wages, salaries, and other earnings, refer to Publication 17, Your
Federal Income Tax, in Chapter 6, or Tax Topic 401, Wages and
Salaries.
References:
4.7 Interest/Dividends/Other Types of Income: Gifts & Inheritances
Are gifts, bequests, or inheritances taxable?
Generally, property you receive as a gift, bequest, or inheritance is not
included in your income. However, if property you receive this way later produces
income such as interest, dividends, or rentals, that income is taxable to
you. For additional information, refer to Publication 17, Your Federal
Income Tax, Chapter 13. If you inherit an Individual Retirement Arrangement
(IRA) or proceeds from a retirement (pension) plan, special rules apply. Refer
to Publication 590, Individual Retirement Arrangements (IRAs),
or Publication 575, Pension and Annuity Income, for further information.
For additional information on this subject see Gifts.
References:
Is the money received from the sale of inherited property considered
taxable income?
To determine if the sale of inherited property is taxable, you must first
determine your basis in the property. The basis of inherited property is generally
one of the following:
(1) The fair market value (FMV) of the property on the date of the decedent's
death.
(2) The FMV of the property on the alternate valuation date if the executor
of the estate chooses to use alternate valuation. See Form 706 (PDF), United States Estate (and Generation-Skipping Transfer) Tax
Return.
(3) The special use valuation for estate tax purposes of qualified real
property used for farming purposes or in a trade or business other than farming.
However, if an interest in such property is disposed of or ceases to be used
in a qualified use during the 10 year period following the decedent's death,
additional estate tax is imposed. If the qualified heir elects to pay interest
on the additional estate tax, the adjusted basis of the property will be deemed
to have been increased, immediately before disposition, by an amount equal
to the excess of its fair market value on the date of the decedent's death
over its special use value. See Form 706 (PDF), U.S.
Estate (and Generation-Skipping Transfer) Tax Return and section 2032A
of Internal Revenue Code.
(4) If an election is made to exclude a portion of the value of land from
a decedent's gross estate section 2031 (c) (regarding the transfer of qualified
conservation easement), the decedent's adjusted basis in the land to the extent
the value of the land was excluded from the decedent's gross estate under
2031(c) by reason of the transfer of a qualified conservation easement plus
the fair market value of the land to the extent the value of the land was
included in the gross estate. For more information on qualified conservation
easement see the
Instructions for Form 706, U. S. Estate
(and Generation-Skipping Transfer) Tax Returnand section 2031(c) of the
Internal Revenue Code.
If you or your spouse gave the property to the descendent within one year
of their death, see Publication 551, Basis of Assets.
Report the sale on Form 1040, Schedule D (PDF), Capital
Gain and Losses. If you sell the property for more than your basis, you
have a taxable gain. For information on how to report the sale on Schedule
D, please see Publication 550, Investment Income and Expenses.
References:
4.8 Interest/Dividends/Other Types of Income: Grants, Scholarships, Student Loans, Work Study
Is money from student loans considered taxable income?
A school loan is not taxable at the time you get the money and should not
be included as income on your return. A loan is not income because you are
expected to repay the amount borrowed (plus interest). If, at a later date,
any part of the loan is forgiven, the amount forgiven would be income in that
year. Under certain circumstances, student loans forgiven are not income.
For more information, refer to Exceptions under Canceled
Debts in Publication 525, Taxable and Nontaxable Income.
References:
I received an academic scholarship that is designated to be used
for tuition and books. Is this taxable?
Qualified scholarships and fellowships are treated as tax-free amounts
if all of the following conditions are met:
You are a candidate for a degree at an educational institution,
Amounts you receive as a scholarship or fellowship are used for tuition
and fees required for enrollment or attendance at the educational institution,
or for books, supplies, and equipment required for courses of instruction,
and
The amounts received are not a payment for your services.
For additional information on Scholarship and Fellowship Grants, refer
to Tax Topic 421, and Publication 970, Tax Benefits
for Education .
References:
Can I exclude any scholarship or grant from being taxed?
If you received a scholarship or fellowship, all or part of it may be taxable,
even if you did not receive a Form W-2. Generally, the entire amount is taxable
if you are not a candidate for a degree.
If you are a candidate for a degree, you generally can exclude from income
that part of the grant used for:
Tuition and fees required for enrollment or attendance, or
Fees, books, supplies, and equipment required for your courses.
Taxable scholarships are reported on line 7 of Form 1040 (PDF) or Form 1040A (PDF) or line 1 of Form 1040EZ (PDF). If you did not receive a Form W-2, please
write "SCH" and the taxable amount to the left of the line.
References:
Can I exclude from taxable income the room and board portion of
a grant or fellowship?
No, you cannot exclude from income any part of the grant used for room
and board. A scholarship generally is an amount paid for the benefit of a
student at an educational institution to aid in the pursuit of studies. The
student may be in either a graduate or an undergraduate program. A fellowship
grant generally is an amount paid for the benefit of an individual to aid
in the pursuit of study or research. Report this amount on line 7 Form 1040 (PDF) or Form 1040A (PDF) or
line 1 of 1040EZ. If you did not receive a Form W-2, please write "SCH" and
the dollar amount to the left of the line.
References:
Do I need to report income made as a work study student at my college?
If you are enrolled in a state or local work-training program, payments
you receive as compensation for services are wages and includable in gross
income. Report these payments as wages on line 7 of Form 1040 (PDF) or Form 1040A (PDF) or line 1 of Form 1040EZ (PDF).
References:
4.9 Interest/Dividends/Other Types of Income: Life Insurance & Disability Insurance Proceeds
Are proceeds paid under a life insurance contract as defined in
IRC 7702 taxable and do they have to be reported as income?
Generally, if you receive the proceeds under a life insurance contract
because of the death of the insured person the benefits are not taxable income
and do not have to be reported. Any interest you receive would be taxable
and would need to be reported just like any other interest received.
However, if the policy was transferred to you for valuable consideration,
the amount excluded from gross income, pursuant to IRC 101 (a) (1), shall
not exceed an amount equal to the sum of the value of the consideration you
paid for the transfer of the policy and other amounts you subsequently paid
by the transferee.
References:
I am receiving long-term disability. Is it considered taxable?
Generally, you must report as income any amount you receive for your disability
through an accident or health insurance plan paid for by your employer.
If both you and your employer have paid the premiums for the plan, only
the amount you receive for your disability that is due to your employer's
payments is reported as income. If you pay the entire cost of a health or
accident insurance plan, do not include any amounts you receive for your disability
as income on your tax return. If you pay the premiums of a health or accident
insurance plan through a cafeteria plan, and the amount of the premium was
not included as taxable income to you; the premiums are considered paid by
your employer, and the disability benefits are fully taxable.
Refer to Publication 525, Taxable and Nontaxable Income, for
more details. If the amounts are taxable, you can submit a Form W-4S (PDF), Request for Federal Income Tax Withholding, to the insurance
company, or make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax for Individuals.
Amounts you receive from your employer while you are sick or injured are
part of your salary or wages. Report the amount you receive on line 7, Form 1040 (PDF); line 7, Form 1040A (PDF); or line 1, Form 1040EZ (PDF). You
must include in your income sick pay from any of the following:
A welfare fund.
A state sickness or disability fund.
An association of employers or employees.
An insurance company, if your employer paid for the plan.
Payments you receive from qualified long-term care insurance contracts
will generally be excluded from income as reimbursement of medical expenses
received for personal injury or sickness under an accident and health insurance
contract. Also, certain payments received under a life insurance contract
on the life of a terminally or chronically ill individual (accelerated death
benefits) can be excluded from income. Refer to Publication 17, Your
Federal Income Tax, Chapter 13, Other Income.
You may be able to deduct your out of pocket expenses for medical care
above any reimbursements, if you are eligible to itemize your deductions.
You will need to review Publication 502, Medical and Dental Expenses.
For more information, refer to Publication 907, Tax Highlights
for Persons with Disabilities.
References:
4.10 Interest/Dividends/Other Types of Income: Ministers' Compensation & Housing Allowance
A minister receives a salary plus a housing allowance. Is the housing
allowance income? Where do the minister report it?
A minister's housing allowance, sometimes called a parsonage allowance
or a rental allowance, is excludable from gross income for income tax purposes,
but not for self-employment tax purposes.
If you are a minister and receive as part of your pay for your services
as a minister an amount officially designated as a rental allowance, you can
exclude the allowance from income if the amount is used to provide or rent
a home. However, the exclusion is limited to the lesser of the fair market
rental value (including furnishing, utilities, garage, etc.) the amount officially
designated (in advance of payment) as a rental or housing allowance, or the
actual amount used to provide a home, and cannot exceed what is reasonable
pay for your services.
If housing is furnished to you by your congregation as pay for your services
as a minister, the exclusion cannot be more than what is reasonable pay for
your services, and is limited to the fair market rental value (including furnishings,
utilities, garage, etc.) of the home.
If you own your home and you receive a housing allowance as part of your
pay, for your services as a minister, the exclusion cannot be more than the
smaller of the following:
the amount actually used to provide a home,
the amount officially designated (in advance of payment) as a rental or
housing allowance, or
the fair market rental value of the home, including furnishings, utilities,
garage, etc.
References:
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are housing allowances taxable to ministers?
A housing allowance paid to you as part of your salary is excluded from
gross income to the extent you use it, in the year received, to provide a
home or to pay utilities for a home with which you are provided. The amount
of the housing allowance that you can exclude from your income cannot be more
than the reasonable compensation for your services as a minister. The church
or organization that employs you must officially designate the payment as
a housing allowance before the payment is made. A definite amount must be
designated; the amount of the housing allowance cannot be determined at a
later date. Other provisions may apply. While not subject to income tax, the
housing allowance will included in income for self-employment tax purposes.
However, a minister may request exemption from self-employment tax. For additional
information on housing allowances, refer to Chapter 6 of Publication 17, Your
Federal Income Tax or Publication 517, Social Security and Other
Information for the Members of the Clergy and Religious Workers. For
information on earnings for clergy, refer to Tax Topic 417.
References:
For a minister, is the housing allowance included in box 1 with
wages?
No. The church would enter the amount of any parsonage allowance and any
utilities allowance in box 14 of Form W-2. If the housing allowance exceeds
the minister's qualified expenses, the minister would add the excess to the
wage amount and enter the sum on line 7 of Form 1040.
References:
As a minister, what do I do if my household expenses are greater
than my housing allowance?
Usually, the total of household expenses is only used as a limit to the
amount of excludable parsonage allowance (for an ordained, commissioned, or
licensed minister). A parsonage allowance or the fair rental value of a parsonage
provided as pay for a minister's services is excluded from gross income for
income tax purposes only, not for the computation of self-employment tax.
While the excess cannot be deducted, it is helpful to prepare a worksheet
like the one labeled "Attachment 1," shown as part of the comprehensive example
at the end of Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers. This worksheet,
when completed, reflects the amount of income you've received, your qualified
expenses, and your tax-free (excluded) income. If your expenses exceeded the
amount of your parsonage allowance, your allowance will be fully excludable
for income tax purpose provided the amount would not exceed an amount which
represented reasonable pay for your services as a minister.
References:
- Publication 517, Social Security and Other Information for the
Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
As a minister, what do I do if my household expenses are less than
my housing allowance?
To the extent that your household expenses are less than your parsonage
allowance, your allowance is taxable income for income tax purposes.
If you receive as a portion of your pay for your services as a minister
an amount officially designated as a rental allowance, you can exclude the
allowance if the amount is used to provide or rent a home. However, the exclusion
is limited to the lesser of the fair market rental value (including furnishings,
utilities, garage, etc.), the amount officially designated as a rental or
housing allowance (prior to payment), or the actual amount used to provide
a home, and cannot exceed what is reasonable pay for your services.
If housing is furnished to you by your congregation as pay for your services
as a minister, the exclusion cannot be more than what is reasonable pay for
your services, and is limited to the fair market rental value ( including
furnishings, utilities, garage, etc.) of the home.
If you own your home and you receive a housing allowance as part of your
pay, for your services as a minister the exclusion cannot be more than the
smaller of the following:
the amount actually used to provide a home,
the amount officially designated as a rental or housing allowance, or
the fair market rental value of the home, including furnishings, utilities,
garage, etc.
an amount which represents reasonable pay for your services as a minister.
The amount of the allowance that cannot be excluded should be entered with
your wages on line 7 of Form 1040, U.S. Individual Income Tax Return.
References:
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are all ministers treated as self-employed for social security purposes?
Services that a minister performs in the exercise of his or her ministry
are covered under the Self-Employment Contributions Act (SECA). That means
they are exempt from Social Security and Medicare withholding, but they are
responsible for paying self-employment tax on their net earnings from self-employment.
There are some members of religious orders, ministers, and Christian Science
practitioners who have requested and been granted exemption from self-employment
tax. There are also members of religious orders who have taken a vow of poverty
and ministers who are covered solely by the social security laws of another
country under a social security agreement between the United States and that
other country.
References:
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
I am a licensed minister. What are the procedures to follow to file
for Exemption from (Self Employment ) Social Security Taxes?
The procedures to request an exemption from self-employment tax are listed
in Publication 517, Social Security and Other Information for the
Members of the Clergy and Religious Workers.
References:
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
- Form 4361 (PDF), Application
for Exemption from Self-Employment Tax for Use by Ministers, Members
of Religious Orders, and Christian Science Practitioners
- Tax Topic 417, Earnings for clergy
As a minister, I previously elected, and was approved for, an exemption
from social security coverage. Can I revoke this election?
These exemptions are generally irrevocable. To make this election, you
must have completed Form 2031, Revocation of Exemption Tax for Use by
Ministers, Members of Religious Orders and Christian Science Practitioners,
by April 15, 2002. This period is extended beyond April 15, 2002, if you have
a valid extension to file your 2001 Federal Income Tax Return. See the references
below for additional information.
References:
- Form 2031 (PDF), Revocations
of Exemption from Self-Employment Tax for Use by Ministers, Members of Religious
Orders, and Christian Science Practitioners
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
4.11 Interest/Dividends/Other Types of Income: Savings Bonds
I cashed some Series E, Series EE and Series I savings bonds, how
do I report the interest?
If your total taxable interest for the year is more than $1500, you report
(and separately identify) the interest on Schedule B of Form 1040 or Schedule
1 of Form 1040A. If your total interest is not more than $1500 for the year,
report the savings bond interest with your other interest on the "Interest"
line of your tax return. If you do not report the increase in the redemption
value of the bonds as interest each year, you must report all of the interest
in the year they are cashed or otherwise disposed of.
References:
How do I determine how much interest to report on U.S. savings bonds
I inherited?
You may have choices, but it will depend on several factors. Before your
question can be answered, you'll need to know:
the date of death of the deceased,
the type of bond you inherited (Series EE, Series E, Series I, or Series
HH, or Series H),
whether the deceased was reporting the interest yearly or not, and
whether any of the interest was included on the decedent's final income
tax return.
Once you have these facts, you can find your answer and any options that
may be available by reading the appropriate section of Publication 550, Investment
Income, Chapter 1, or call 800-829-1040.
References:
Is deferred interest on a U.S. savings bond (series EE, E, or I)
that I inherited taxable to the deceased owner's estate, to the deceased on
his or her final tax return, or to me when I cash them?
The deferred interest is not taxable to the estate. It is going to either
be reported on the final return of the decedent or be reported by you, depending
on the choice you make. If you are the surviving spouse, the choice is made
by the executor or administrator of the decedent's estate as to who is responsible
for filing the decedent's final return.
You may have choices, but it will depend on several factors. Before your
question can be answered, you'll need to know:
the date of death of the deceased,
the type of bond you inherited (Series EE, Series E, Series I, or Series
HH, or Series H),
whether the deceased was reporting the interest yearly or not, and
whether any of the interest was included on the decedent's final income
tax return.
Once you have these facts, you can find your answer and any options that
may be available by reading the appropriate section of Publication 550, Investment
Income, Chapter 1, or call 1-800-829-1040.
References:
Can interest from some inherited U.S. savings bonds be included
on the decedent's final income tax return and interest from other inherited
U.S. savings bonds be included as interest to the beneficiary?
The same method of reporting interest must be used for all saving bonds
owned by an individual. If the surviving spouse or executor of the decedent's
estate elected to report accrual interest on bonds owned by the decedent and
the decedent had not reported interest on saving bonds prior to their disposition
or maturity, the surviving spouse executor of the decedent's estate would
be required to treat all savings bonds owned by the decedent the same way.
If you receive Series EE or Series I bonds from an estate in satisfaction
of a specific dollar amount legacy and the decedent was a cash method taxpayer
who did not elect to report interest each year, the interest earned after
you receive the bonds is your income. The income earned to the date of death
plus any further interest earned to the date of distribution of the bonds
to you is income to (and reportable by) the estate. You have a choice. You
can report the interest on the series EE or series I bonds, which you received
in satisfaction of specific legacy, each year or you can report the interest
which accrues from the date the bonds were distributed to you until the date
you cash the bonds as interest in the taxable year in which you cash the bonds.
If you have other series EE or series I bonds, you will be required to treat
the interest on the saving bonds received in satisfaction of the specific
legacy in the same way that you treat interest on the other savings bonds.
You may have other choices, that will depend on several factors. Before
your question can be answered, you'll need to know:
the date of death of the deceased,
the type of bond you inherited (Series EE, Series E, Series I, or Series
HH, or Series H),
whether the deceased was reporting the interest yearly or not, and
whether any of the interest was included on the decedent's final income
tax return.
Once you have these facts, you can find your answer and any options that
may be available by reading the appropriate section of Publication 550, Investment
Income, Chapter 1. If additional clarification is needed, you can call
1-800-829-1040.
References:
4.12 Interest/Dividends/Other Types of Income: Tips
My Form W-2 includes allocated tips. What are they and how are they
taxed?
Certain employers must allocate tips if the percentage of tips reported
by employees falls below a required minimum percentage of gross sales. To
"allocate tips" means to assign an additional amount as tips to each employee
whose reported tips are below the required percentage. For additional information
on how the rules for tip allocation work, refer to Chapter 7 of Publication 17, Your
Federal Income Tax. All tips you receive are taxable. If you do not have
adequate records for your actual tips, you must include the allocated tips
shown on your Form W-2 (PDF) as additional tip income
on your return. You must also complete and attach Form 4137 (PDF), Social Security and Medicare Tax on Unreported Tips.
For more information on the requirements, refer to Tip Allocation in Publication 531, Reporting Tip Income. Refer to Tax Topic 402, Tips, for
other important information.
References:
My employer included allocated tips on my W-2 in box 1. The allocated
tips included were higher than I actually received. Do I have to pay taxes
on money I never received?
Allocated tips are reported in box 8 of Form W-2 and should not be included
in the amount in box 1. If they have been included in box 1, you need to get
a corrected Form W-2 from your employer.
By including the tip amount in box 1, the employer has indicated that this
is the tip amount you reported monthly and that Social Security tax and Medicare
taxes have been withheld (unless an amount indicating otherwise appears in
box 12). Your copies of your monthly tip reports and your daily tip log will
enable you to document that you reported a different tip amount if the W-2
income continues to be disputed. If you do not receive a corrected W-2, enter
the amount of wages and tips you believe to be correct on line 7 of Form 1040.
Keep your tip records to support the amount you reported.
You normally must report allocated tips (box 8, Form W-2) as income on
line 7 of your Form 1040 unless you have a daily tip record documenting that
you actually received less tips than the amount allocated to you. If you have
adequate documentation of your actual tip amount, include only the amount
of tips that were actually received and reported to your employer. This additional
amount of tip income, whether it is allocated tips or unreported tips, has
not had income tax, social security tax or Medicare taxes withheld. To correct
this, the tips should also be entered on Form 4137 (PDF), Social
Security and Medicare Tax on Unreported Tips. Enter the tax from Form
4137 on line 56 of Form 1040 and attach Form 4137 to your return.
References:
Is it legal for my employer to require me to report 10% of my total
sales as tips rather than reporting my actual tips?
No. When you report the actual tips you have received in the form of cash,
check, or charge, in a signed and dated report, you are complying with your
legal requirement. Your employer cannot legally ask you to do otherwise. Please
see Publication 531, Reporting Tip Income, for further information.
References:
Of my allocated tips, I tip out 15% to the busboy and 5% to the
bar. Where do I deduct this on my tax return?
You cannot deduct tip-outs (the tips you split with other employees) on
your tax return. Nor can you deduct them from your allocated tips. The practice
of tipping-out is one of the reasons you should keep a detailed daily log
of your tips. If you document that you tip out, and you reported all your
tips to your employer, then you do not include in your income the allocated
tips in box 8 of Form W-2.
Tipping-out, by itself, should not cause an allocated tip situation. First,
when you report the cash tips you receive, you should report the total tips,
then the amount tipped out. Publication 1244 (PDF), Employee's
Daily Record of Tips and Report to Employer, includes Forms 4070 and
4070A, Employee's Report of Tips to Employer that provides the following lines:
Cash tips received, line 1
Credit card tips received, line 2
Tips paid out, line 3
Net tips (lines 1 + 2 - 3), line 4
The detail of the information provided should enable your employer to develop
a reasonable, fair, and accurate method for determining whether tips need
to be allocated, and, if so, how much. Employers who operate large food and
beverage establishments are only required to allocate tips if the total tips
reported by all the employees who customarily receive tips are less than 8%
of gross sales. Thus, when there is a tip-splitting arrangement, it is important
that all tips, including those received through tip-splitting, be reported
to the employer by each employee who receives $20 or more in a month.
For more information, refer to Publication 531, Reporting Tip Income.
References:
If the reported tips from employees are more than 8% of sales, must
an employer still allocate tips to the employees?
No. Employers who operate "large food or beverage establishments" must
allocate tips among the employees who receive tips only if the reported tips
are less than 8% of the gross receipts from sales for that establishment for
a given period. Employers can also petition for a lower rate, for additional
information refer to Publication 531, Tip Income.
References:
Can the 8%, normally used for allocated tips, be a matter agreed
upon as reported tips between the employer and employees, so that the employees
do not have to report the exact amount of their tips?
No. The law requires that the employee who receives tips must report the
actual tip amount to his or her employer if the amount is $20 or more for
that calendar month. The 8% figure is not a simplified reporting method. If
an employee is customarily tipped between 10% and 20%, reporting only 8% of
his or her sales would not only lead to underreporting of income, but also
an underpayment of your of Social Security and Medicare taxes.
The employee should keep a tip record of his or her daily tips. A daily
tip record can relieve the employee from having to include allocated tips
in his or her income by documenting that the amount of tips the employee reported
were the actual amount received.
For more information on tip reporting for employees, refer to Chapter 7
of Publication 17, Your Federal Income Tax (For Individuals),
or Publication 531, Reporting Tip Income.
References:
|
|
|
|
