1. Unemployment compensation and social security
Spring 2018, LAMC

2. Unemployment compensation
Objectives
Identify unemployment compensation income
Determine how to report unemployment compensation on the tax return.
Unemployment Compensation
Any amount received under an unemployment compensation law of the U.S. or of a state in the U.S.
In most cases unemployment compensation is taxable.
Form 1099-G: unemployment compensation form.
Review box 4 of this form to see if any federal income tax has been withheld.
Unemployment compensation is reported on Form 1040, line 19.

3. Form 1099-G

4. Social security benefits
Social Security benefits are payments under Title II of the Social Security Act.
Includes monthly retirement, survivor, and disability benefits. Does not include Supplemental Security Income (SSI).
Generally, if Social Security benefits are the only source of income, they are not taxable. Taxpayers may not have a requirement to file a return in this case.
Some portion of the Social Security benefits may be taxable.
Railroad Retirement Benefits
Benefits paid to railroad employees working in jobs that are covered by the Railroad Retirement Act (RRA).
Has two components: (1) Tier 1 – Social Security Equivalent benefits and (2) Tier 2 – treated as qualified employee plan.
Tier 2 benefits are reported on Form RRB 1099-R

5. Social security benefits
Form SSA-1099: Social Security benefits are reported on this form.
Box 5 shows amount of net benefits.
Form RRB-1099
Tier 1 railroad retirement benefits are equal to Social Security benefits that a railroad employee or beneficiary would have been entitled to receive under Social Security system.
For tax purposes, they are treated like Social Security benefits.
Box 5 shows the net Social Security equivalent benefits for tier 1.
The taxable portion of Social Security benefits is never more than 85% of the net benefits the taxpayer received.
Enter the amount of net benefits in the tax software, and it will compute the portion of benefits that is taxable.

6. Lump sum benefits
Some taxpayers may have received a lump-sum benefit payment.
This payment could be for current tax year and for prior tax years.
Box 3 of the taxpayer’s Form SSA-1099 or Form RRB – 1099 will include the lump sum payment.
When determining taxable portion of Social Security benefits, two options are available for lump-sum benefit payments:
First option: allows taxpayer to report the whole payment the year it was received.
Second option: treat payment as received in the earlier year or years.
Done by determining whether any part of these benefits is taxable based on the earlier year’s income.
Any part that is taxable is then added to any taxable benefits for the current year, and included on Form 1040, line 20b.
Need prior year return to compute this.
Figuring out the lump-sum election method is within the scope of VITA.
If taxpayer uses the second option, only the current year income will be adjusted. No amended returns are filed.
The tax software will figure all the calculations after you enter the prior year tax return information.