1. Income Unemployment Income Social Security Benefits Other Income

2. Overview Taxable Income Non-Taxable Income or Exempt Income Income:
Tip Income
Scholarships and Fellowships
Educational Savings Account
Taxable Interest
Dividends
Capital Gains
Unemployment Compensation
Social Security Income
Other Income

3. Terms U.S. Savings Bonds U.S. Treasury Bonds Interest Income
Stock Dividends
Certificate of deposits
Tax exempt
Tax deferred
IRA and Roth IRA
Capital Gains
Distributions

4. Taxable Income Includes Earned and Unearned Income Earned Income
Work wages, business income, tips
Unearned Income
Investments, interest on savings, dividends on stocks, rental income
See complete list (Volunteer Resource Guide (Tab D)

5. Non-Taxable or Exempt Income
Income that you do not have to pay taxes on
Examples: Gifts and Inheritances
Most not shown on tax return but there are some exceptions (i.e. tax-exempt interest income)
See complete list (Volunteer Resource Guide (Tab D)

6. Form W-2 Box 1: Wages, tips, and other compensation Missing W-2
Shows the amount of payments received
Missing W-2
Contact employer
Contact IRS after February 15th

7. Tip Income
Must report to employer if you have over $20 per month in tips from one job
Tips that are reported to employers are included in wages on Form W-2 box 1
If less than $20 per month, no need to report to employer
Noncash tips must be included as taxable income at their fair market value (i.e. tickets)

8. Allocated Tips
Are tips an employer assigns to an employee in addition to the tips the employee reports to the employer
Assigned allocated tips to an employee that reports less than 8% of their sales
Shown in a separate box and not included in W-2 box 1
Must report allocated tips as income unless
Taxpayer kept a daily tip record
Daily tip record is incomplete, but shows tips were more than allocated plus reported tips

9. Scholarship & Fellowships
Some scholarships and fellowships may be fully or partially taxable
Information found on a W-2
1098-T
Qualified tuition and related expenses paid
Includes scholarships and grant money

10. Taxable Interest
Interest earned from checking and savings accounts, certificate of deposits (CDs), savings certificates, U.S. Government Bonds.
Reported on 1099-INT
If taxpayer received less than $10 in interest, the financial institution may might not issue INT
Even if taxpayer didn’t receive 1099-INT, they must still report all taxable interest income.

11. Individual Retirement Accounts Interest
Interest on a Roth IRA is generally not taxable
Interest on a traditional IRA is tax-deferred
1099-R to report distribution

12. Tax-Exempt Interest Some Interest is tax exempt
1099-INT may list both taxable and tax-exempt interest
Although interest in not taxable, all tax-exempt interest must be reported on Form 1040
Bonds from States, Counties, Cities, Port Authority, Utility Service authorities

13. Reporting Interest Interest income on line 8a
Tax-exempt income on line 8b
Complete Schedule B, Part I if the tax payer has any of the following
Over $1,500 of taxable interest
Received, as a nominee, interest that actually belongs to someone else
Received interest from a seller-financed mortgage
Tax-exempt interest
Distribution from a foreign trust or foreign bank account
Education savings bond exclusion

14. Types of Distribution Ordinary Dividends/Qualified Dividends
Capital Gain Distributions
Nontaxable Dividends and Distributions
Reported on Form 1099-DIV

15. Ordinary/Qualified Dividends
Are ordinary dividends that are eligible for a lower tax rate than ordinary income
Ordinary Dividends
If over $1,500, must complete Schedule B, Part II

16. Capital Gain Distributions
Reported on 1099-DIV
When a mutual fund sells assets for more than their cost and distributes the realized capital gains to the fund’s shareholders
Can report directly to 1040 if:
Only capital gains distributions (box 2a)
Non amounts in boxes 2b, 2c, 2d, 3, 8, 9
If not, must complete Schedule D
Use Capital gain tax worksheet to compute tax

17. State and Local Tax Refunds
Claimed a standard deduction in previous year
Not required to include the refund as income
Itemized deduction in previous year
Must include all refunds as income
If taxpayer itemized deductions and deducted the state sales tax instead of the state income tax withheld, none of the refund is taxable

18. Unemployment Income
Any amount received under unemployment compensation law of the United States
It is not considered income for the purpose of calculating EITC
In most states, a taxpayer can have federal income taxes withheld
Reported on 1099-G

19. Social Security Benefits
Payments made under Title II of the Social Security Act
Reported on SSA-1099
Portions of Social Security Payments are taxable
Depends on total income (including tax-exempt interest)
Never more than 85% of benefits are taxable

20. Other Income Prizes and awards
Gambling winnings (including lotteries and raffles)
Jury duty pay
Alaska Permanent Fund dividends