income

Income from work, investments, retirement, social security, jury duty, interest, etc., get reported on the 1040. Here are links to resources to explain the different types of income that are in-scope for the VITA program. Remember, your PUB 4012 has a list of what is in scope for the VITA program and covers how to enter them in Taxslayer (See Tab D Income)

General overviews & how to enter most common types

Did you know, There are 2 types of Income:
Earned Income: per IRS: 'Earned income includes all the taxable income and wages you get from working for someone else, yourself or from a business or farm you own.' **Farm and cryptocurrency is Out of Scope for VITA

W2s
Self-Employment (Cash, 1099-NEC, and 1099-K)
Scholarship is considered 'earned' for determining filing requirement
Benefits from a union strike
Certain disability benefits you got before you were the minimum retirement age
Nontaxable Combat Pay (Form W-2, box 12 with code Q)Military Cert required

Unearned Income includes:

Interest & dividends
Alimony
Retirement, pensions & annuities
Social Security income
Gambling
Workman's Compensation (does not get reported on return)
Veteran Disability Benefit (does not get reported on return)
Capital Gains/Losses (Sale of stocks, crypto currency, land)
Cancellation of Debt
and more...

See Pub 4012 Section D
See section below for how to calculate taxable portion of 1099-R when Box 2a is blank and there is an amount in Box 9b

Click image for PDF or this link for PowerPoint Presentation

Click here to practice entering some of the most common income statements/forms we get.

Following are Other Types of Income: what they are, and how to report them.

Interest--All interest is taxable, even if you don't get a tax form. Banks don't have to issue a 1099-INT unless you earn more than $10, but you still have to report income even if it is $1.00. If you don't have an interest statement--that is okay, when you go the entry screen, type the name of the bank and the amount of interest--that is all you need to enter. Note--Credit Unions will issue dividends instead of interest because account holders are considered part owners of the credit union--regardless though, these get entered at interest not as dividends on the tax return.
FYI note for myself-- there is a note in the IRS materials that mention $1,500 in interest needs to be reported differently-- we do not need to do anything different-the $1,500 rule means a Schedule B needs to be included in the tax return once $1,500 in interest is reported. We do not need to worry about this because our software will automatically generate a Schedule B regardless of amount of interest that is entered. I am adding this note here because I am tired of looking it up every couple years.

FYI-Ordinary & Qualified Dividends-- what's the difference? Answer, the rate they are taxed. Ordinary dividends are taxed at the taxpayer's income tax rate based on total income. (their tax bracket). Qualified dividends are taxed at capital gain rates of 0%, 15%, or 20%, depending on the taxpayer's tax bracket.

But have no fear, you don't have to do anything special. Just data entry the information exactly as it appears on the 1099-DIV. Once you enter the Dividend information into the appropriate fields, the system will automatically calculate the correct income tax for the return--you can see the calculations on the Qualified Dividends & Capital Gain Worksheet that prints from the return if you are so inclined to review it.

I noticed an income tax liability that appeared to be way off for the total income the client earned (a lot less than 10%)--it took me a few minutes to realize the qualified dividends and capital gains were throwing off the calculations of income tax from what I was expecting. So, whenever the tax amount seems off to me, I look for this worksheet and have an "a-ha" moment.

1099-K Payments-- Reporting starting for TY2023

Information on the form, new reporting requirements and several examples of when people might get them and when/if the income reported is reportable, taxable, and what to do when it isn't.

Alimony
Defined as: financial support that a person is ordered by a court to give to their spouse during separation or following divorce.

Divorced before 2019:

Payer--- lists on his taxes saying who he paid and how much—it gives him an adjustment (reduces his taxes)
Receiver– has to report it as income and it becomes subject to income tax

Divorced in 2019 or later

Payer– CANNOT list it on their taxes– no tax break
Receiver DOES NOT have to report it as income—not taxable

Note: If a divorce agreement from before 2019 is modified after 2019, it may be subject to the new rules.

Cryptocurrency-- if someone just bought cryptocurrency with regular cash--had no other transactions--that is okay--nothing to report--that is not income.
--that is ok--doesn't get reported)

Some people are investing in cryptocurrency buying and selling (Out of Scope)
Some are selling products or services and getting paid with cryptocurrency (Out of Scope)
I even heard last year about some companies who are issuing/funding employee retirement accounts through crypto.-I think that is scary. (Out of Scope)

Unemployment-for Florida clients

Super easy to enter, but not always easy to get the 1099-G from the state.

Florida's Department of Economic Opportunity website has been a struggle to navigate since COVID, and now with their new upgraded security, ID.ME, many are having trouble getting through. And once you access the site, downloading the form may be blocked by 'pop-up blockers'.
The PDF shows how to allow pop up blockers--->

*I haven't been on the site in over a year--hopefully the site has been improved for taxpayers to gain access

Tip Income
*If Reported on a W-2 (just data entry the W-2 as it appears and there is nothing else you need to do (Basic certified can do this)

*If Not reported to employer on W-2 must be Advanced certified (see PDF for how to enter) PUB 4012 PAGE D-7.Enter on screen for W-2 --unreported tips. IF any month they received less than $20--then visit form 4137 to remove Social Security & Medicare Taxes for those small tip earnings.

Self-employed- if the tips are not included in any statements being entered like 1099-K or 1099-NEC, then enter the amount of tips on the Schedule C --> Income menu-->First Box . **Sometimes I like to click the 3 lines and type a description for this box (e.g., 1099-K, tips, Uber 1099-K, Lyft 1099-K, cash, etc.). I do this if they have 2 or more sources of income that need to be keyed--when you list things, it gets printed on a statement which could be beneficial for them if they get audited, but also if they want to study/review how their business is doing.

Scholarship Income-- will be reviewed in the Education credit and scholarship section. (Basic certified can do)

Refund of State/Local Income Taxes-- Reported on Form 1099-G Box 2 (Basic certified can do)
If your client filed a state or Local tax return in the prior year, received a refund AND they itemized deductions on their Federal return, then they must report the state/local refund as income.
Florida does not have state income tax so we very seldom see clients with state income tax refunds--and of those we see, very seldom have itemized deductions.
Since this website is used by so many in other states, and we get people that move here during the year from another state, I am adding this resource shared by Kenny Hayes from a VITA/TCE program up North. Thanks Kenny!

Gambling Winnings--The following rules apply to casual gamblers who aren't in the trade or business of gambling. Gambling winnings are fully taxable and you must report the income on your tax return. (Basic certified can do)

Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips. all gambling/lottery/prizes are considered taxable income.

You can't reduce your gambling winnings by your gambling losses and report the difference.

You must report the full amount of your winnings as income
and claim your losses (up to the amount of winnings) as an itemized deduction.
Therefore, your records should show your winnings separately from your losses.

Reported on W2-G- If the winnings are $600 or more, the client should be issued a W2-G. This just requires simple data entry in the W2-G screen.

Not reported on W2-G; If the winnings are under $600, they will not be issued a W2-G, BUT the income still needs to be reported. If your client discloses they won money, you have to enter it-- choosing not to enter it after it being disclosed means you are not entering a correct and complete return--technically fraud, and you put our program in danger. To enter winnings not reported on a W2-G see PDF

Gambling Losses--

Gambling losses can be claimed UP TO THE AMOUNT WON, as long as the client itemizes deductions (Schedule A).
Client MUST keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both winnings and losses. Refer to Publication 529, Miscellaneous Deductions for more information.
You must report the full amount of your gambling winnings for the year on your Schedule 1 (Form 1040).
You deduct your gambling losses for the year on your Schedule A (Form 1040). Gambling losses include the actual cost of wagers plus expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino.
You can't deduct gambling losses that are more than your winnings.
Generally, nonresident aliens can't deduct gambling losses on your Schedule A (Form 1040-NR).

See PDF to learn more

Client has 1042-S for Gambling Winnings See how to enter on a 1040 (Basic certified can do)

*Client must be:

Able to file 1040;
A Resident Alien for tax purposes
Must either have a green card, pass the Standard of Presence test, or be married to U.S. citizen (see PUB 4012 L1-2 for more info on this)

We do not file 1040NRs, Out of Scope, except for Foreign Students and you have to be International Student certified.

Other Less Common Incomes:

Hobby Income or Business? Read article to understand difference--basically it boils down to what is the intent of doing that activity?

A hobby isn’t a business because it isn’t carried on (done) to make a profit.

If you receive income for an activity that you don’t carry out to make a profit, the expenses you pay for the activity can not be deducted on your tax return. The income would get reported as Other Income (Line 8 of the 1040). (Hobby income is Out of Scope for VITA) (though I do not see why)

See Not-for-Profit Activities in chapter 1 of Pub. 535. You must still report the income you receive on your Schedule 1 (Form 1040).

Election / Poll Worker Income -contrary to what a lot of people think, it must be reported

Click here to visit IRS.gov and learn more about this topic

Canadian & German Retirement Income

Explains which types we can enter, and how to convert to U.S. dollars if not already done.

Resource created by AARP for NTTC tax volunteers.

For exchange rates: irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

Military Income--requires Military Certification for tax preparer & Quality Reviewer-we do not have military bases around Where I am, so I have not been certified in the past so I will share only what is in PUB 4491
***TY2023 I have decided to get Military Certified to assist Reserves and National Guards who are entitled to some tax benefits (claiming mileage/lodging for travel to weekend and annual trainings--we need to support them) **training will be added to training vide page

Combat Pay
A Form W-2 with code Q in Box 12, indicating combat pay, requires Military certification to complete the return

What about EITC? Combat pay is never taxable to most soldiers. Members of the U.S. Armed Forces who served in a combat zone may elect to include their nontaxable combat pay in their earned income for the purposes of computing this credit. Doing this may increase or decrease the taxpayer’s EIC. Figure the EIC amount with and without the pay before making the election. If the election is made, all of the nontaxable combat pay must be included. If both spouses filing a joint return have combat pay, they can individually choose to make the election on the tax return.

To learn more review PUB 4491 Section 16

Rental Income-- Out of Scope except for active duty military clients AND the tax preparer and quality reviewer MUST be military certified. To learn more review PUB 4491 Section 12-3 through 12-14

Missing a W2 or 1099-R but have last pay stub?
It's not the end of the world, see what to do.

Other training resources:

Click the links below to go to the IRS Link&Learn online interactive Modules on or click image (updated end of November each year)

Or view Income section of PUB 4491 (available as a PDF) updated generally by mid October-click link

The content in these sections can be reviewed at any time as not much changes here year after year. If we get a new income form, it will be added October-November and will also be added to the Important Changes Section as well.

Short summary on types of Income and forms created by AARP's NTTC program. Click image (11 min)

Prosperity Now's Taxpayer Opportunity Network has created great resources for VITA volunteers to use--check out the VITA Train--click link for Income Module

VITA-Train

Click Here to Go Back to Training Checklist