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

W-2 Not taxable? Federal – Pre-Tax NJ State – Pre-Tax Box 12 - 401k (D), 403b (E), 457b (G) contributions Box 14 - 414H NJ Employee Pension contributions Box 14 - Cafeteria 125 plan contributions NJ State – Pre-Tax Only Box 12 – code D “401k contributions” NJ grants deduction for medical expenses* *FSA only amount spent is deductible

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

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

W-2 Not taxable? Federal – Pre-Tax NJ State – Pre-Tax Box 12 - 401k (D), 403b (E), 457b (G) contributions Box 14 - 414H NJ Employee Pension contributions Box 14 - Cafeteria 125 plan contributions NJ State – Pre-Tax Only Box 12 – code D “401k contributions” NJ grants deduction for medical expenses* *FSA only amount spent is deductible

Determining Cafeteria 125 Amount Cafeteria 125 = NJ Taxable + 401K – Medicare Income Amount Income Cafeteria 125 = Box 16 + Box 12 – Box 5 code “D”

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

Declare Medical Expenses on NJ1040

Declare Medical Expenses on NJ1040

NJ Checklist

NJ 1040

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

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

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

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

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

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

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

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

Other Line 7 Wages … NTTC Training - TY2017

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

NTTC Training - TY2016

400 NTTC Training - TY2016

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

NTTC Training - TY2016

500 NTTC Training - TY2016

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

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

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

Interest Example

Dividend Example

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

Foreign Tax Credit Page 1, 1040 Page 2, 1040

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

Dividend –Private Activity Bonds

AMT

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

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

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

Example: NTTC Stanley p 67

D-45

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

2017 Form RRB_1099 P30 - NTTC

Gambling Income On W2-G form On other income, no W2-G form Tax Law Federal All winnings are taxable Winnings appear on other income 1040 line 21 Losses are deductible only if itemizing NJ Winnings minus Losses appear on NJ 1040 line 23 Amount is zero if negative number NJ Lottery winnings ≤ 10000 are not taxable

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

Page 1, 1040 NJ 1040

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

NJ Check List

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

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

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

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

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