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 (see page 7) 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 income 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 rqd

Unearned Income includes:

Interest & dividends
Alimony
Retirement, pensions & annuities
Social Security income
Gambling
Workman's Compensation (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.

Extra Resources you may be interested in-- broken down by type of income

Social Security Income--there are 3 types (Basic certified can do)

Income received from Social Security for Retirement and Disability (SSDI) is reported on an SSA-1099. Many people believe it to not be taxable. This is not necessarily true. Social Security Income can be taxable IF their income crosses a certain threshold. How much is taxable depends on the total income. Up to 85% of their Social Security benefits may be subject to income tax.

Those whose filing status is Married Filing Separately and who lived with their spouse in the tax year will find 85% of their Social Security income subject to income tax.

If Client doesn't have their SSA-1099. Click here for options.

Supplemental Income (SSI) is not taxable, does not get reported on a tax return and there is no tax form issued for it.

Click image for PDF and this link for PowerPoint Presentation

Railroad Retirement--made up of 2 separate forms (Basic certified can do if the RRB-1099-R Box 3 is zero).

See next section for how to calculate the taxable portion of the RRB-1099-R when there is a value in Box 3

Calculating the taxable portion of a retirement distributions for use with Form 1099-R & Form RRB-1099-R (Advanced certification required)

*Form 1099R box 2a:
When the 1099-R has a blank Box 2a Taxable Amount, AND box 2b is checked 'Taxable Amount not Determined' AND there is an amount in Box 9b 'Employee Contributions' it is up to the tax preparer to calculate how much of the amount received in Box 1 is taxable. View video below for more information and to learn 2 different methods to calculate the taxable portion. I have included a link to the Annuity calculator tool shown in the video as well. For those that want to use Taxslayer to calculate the amount, there is also a link to an age calculator tool as well.

*Form RRB-1099-R
When Form RRB-1099-R has an amount in Box 3, use the Simplified method to calculate the taxable portion; If there is nothing in box 3, then the whole amount is taxable

See short video to learn more and see 2 methods for calculating the taxable portion.

Annuity Calculator

Age
Calculator

Distributions from Retirement accounts may be subject to a 10% early withdraw penalty if the client is under 59 1/2. There are exceptions to this rule. *While this is not income--I think it needs to be reviewed here while dealing with retirement income

If your client is aged 55 to 59 1/2 and they retired and took money from their retirement account--they may be exempt from the 10% penalty rule-- click the images to read this article and then check out the IRS website to see who qualifies for the exemption

Click image below for IRS webpage that goes over all the exemptions to the 10% penalty rule

Capital Gains

Click image to be taken to page with training on Capital Gains and more examples of brokerage statements

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.

Schedule C-Self Employed

Click image to be taken to Self-employment page with presentation, handouts for clients and more resources

1099-K Payments--
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 todo when it isn't.

Resource created by AARP for NTTC tax volunteers.

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.

Crypto-- 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--->

. 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.

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).

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.

Military Income--requires Military Certification for tax preparer & Quality Reviewer-we do not have military bases aroud here and I am not certified so I will share only what is in PUB 4491

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

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