Interest/Dividends/Other Types of Income:
1099–DIV Dividend Income
How do I report this 1099-DIV from my mutual fund?
Enter the ordinary dividends from Form 1099-DIV (PDF),
box 1a, on line 9a of Form 1040 (PDF), U.S.
Individual Income Tax Return. Enter any qualified dividends from Form
1099-DIV, box 1b, on line 9b of Form 1040. If you have an amount entered in
other boxes of your 1099-DIV refer to Form 1040, Schedule D Instructions to
see where to report them. If your only capital gains and losses are from capital
gain distributions, refer to Form 1040 Instructions.
I received dividends from my credit union. How do I report this
income?
Certain distributions commonly referred to as dividends are actually interest.
They include "dividends" on deposits or share accounts in cooperative banks,
credit unions, domestic savings and loan associations, and mutual savings
banks.
Interest income can be reported on Form 1040 (PDF), Form 1040A (PDF), or Form 1040EZ (PDF).
If your taxable interest income is more than $1,500, be sure to show that
income on Form 1040, Schedule B (PDF) or Form 1040A, Schedule 1 (PDF). You cannot file Form 1040EZ
if your interest income is more than $1,500. Refer to Tax Topic 403, Interest
Received, for additional information on interest income.
References:
- Form 1040 (PDF), U.S. Individual Income
Tax Return
- Form 1040A (PDF), U.S. Individual Income
Tax Return
- Form 1040EZ (PDF), U.S. Individual Income
Tax Return for Single and Joint Filers with No Dependents
- Tax Topic 403, Interest Received
How do I report interest received on an installment sale?
If you receive interest on an installment sale, you can report it on Form 1040 (PDF), Form 1040A (PDF),
or Form 1040EZ (PDF). If your taxable interest
income is more than $1,500, be sure to show that income on Form 1040, Schedule B (PDF) or on Form 1040A, Schedule 1 (PDF).
You cannot file Form 1040EZ if your interest income is more than $1,500. Refer
to Tax Topic 403, Interest Received, for additional information
on interest income. For additional information on installment sales, refer
to Tax Topic 705, or Publication 537, Installment Sales.
I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed,
I do not have a business. How do I report this income?
If payment for services you provided is listed in box 7 of Form 1099-MISC (PDF), you are being treated as a self-employed worker, also referred
to as an independent contractor. You do not necessarily have to "have a business,"
but simply perform services as a nonemployee to have your compensation treated
this way. The payer has determined that an employer-employee relationship
does not exist in your case. That determination is complex, but is essentially
made by examining the right to control how, when, and where you perform those
services. It is not based on how you are paid, how often you are paid, nor
whether you work part-time or full-time. There are three basic areas that
are relevant to determine employment status:
- behavioral control,
- financial control, and
- relationship of the parties
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15, Circular E, Employer's Tax Guide and
Chapter 2 of Publication 15-A (PDF), Employer's
Supplemental Tax Guide. If you think that you were, or are, an employee
and you would like the IRS to issue a determination, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Unless you think you were an employee, you report your nonemployee compensation
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You also need
to complete Form 1040, Schedule SE (PDF), Self-Employment
Tax, and pay self-employment tax on your net earnings from self-employment,
if you had net earnings from self-employment of $400 or more. This is the
manner by which self-employed persons pay into the social security and Medicare
trust funds. Employees pay these payroll taxes, as well as income tax withholding,
through deductions from their paychecks. Generally, there are no tax withholding
on self-employment income. However, you may be subject to the requirement
to make quarterly estimated tax payments. If you did not make estimated tax
payments, you may be charged an underpayment of estimated tax penalty.
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
You are a sole proprietor if you are the sole owner of a business that
is not a corporation. Report your income and expenses from your sole proprietorship
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
If the total of your net earnings from self-employment from all businesses
is $400 or more, you must pay into the Social Security and Medicare systems
by filing Form 1040, Schedule SE (PDF), Self-Employment
Tax. Self-Employment tax consists of the Old-Age, Survivors, and Disability
Insurance (social security) and the Hospital Insurance (Medicare) taxes. For
more information refer to chapter 1 of Publication 334, Tax
Guide for Small Business.
The Federal tax system is based on a pay-as-you-go plan. Tax is generally
withheld from employees wages or salary before they get it. However, tax is
generally not withheld from self-employment income. Thus, you may be required
to make estimated tax payments. Publication 505, Tax Withholding and
Estimated Tax, provides information on making estimated tax payments.
My son is a newspaper carrier. I would like to know if this income
is subject to Social Security and Medicare tax and if I must file a Schedule
C for him?
Your son may be liable to pay into the Social Security and Medicare system
by paying self-employment tax. However, if your son is under the age of 18,
he is exempt from self-employment tax. His employer should complete the other
income box on Form 1099-MISC (PDF), Miscellaneous
Income. Persons engaged in the trade or business of delivering or distributing
newspapers or shopping news (including any services directly related to such
delivery or distribution) are considered by statute as non employees and are
treated as self-employed for all Federal tax purposes, including income and
employment taxes. They must receive income based on number of sales or distribution
volume and work under a written contract that says the carrier will not be
treated as an employee for federal employment tax purposes in order to be
treated as independent contractors.
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) ,
or they may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business. See Form 1040, Schedule SE (PDF), Self-Employment
Tax, which must be filed if net earnings from self-employment are $400
or more.
References:
- Publication 15, Circular E, Employer's Tax Guide
- Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
- Form 1040, Schedule C Instructions
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040, Schedule SE Instructions
- Publication 334, Tax Guide for Small Business
- Tax information for
Business
- Form 1099-MISC (PDF), Miscellaneous
Income
- Publication 15-A (PDF), Employer's Supplemental
Tax Guide
I received a Form 1099-MISC with an amount in box 7, (nonemployee
compensation). What forms and schedules should be used to report income earned
as an independent contractor?
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business (Sole Proprietorship). You should also be aware
of Form 1040, Schedule SE (PDF), Self-Employment
Tax, which must be filed if net earnings from self-employment are $400
or more. This form is used to figure your social security and Medicare tax
which is based on your net self-employment income. You may also need to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals,
Estates & Trusts, if you do not make estimated tax payments.
References:
- Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
- Form 1040, Schedule C Instructions
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040, Schedule SE Instructions
- Publication 334, Tax Guide for Small Business
- Tax information for
Business
- Form 2210 (PDF), Underpayment of Estimated
Tax
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you generally will have no withholding taken
from your income, you may need to make quarterly estimated tax payments. For
information on how to make estimated tax payments refer to Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for
estimated tax payments. You can start looking for information at How
to Contact Us. You may want to go to your state's individual Web site
for additional information. To access the state you need go to our Alphabetical
State Index.
I received a Form 1099-G, for my state tax refund. Do I have to
include this amount as income on my return?
If you did not itemize your deductions on your Federal tax return for the
same year that the state or local tax refund applies to, do not report any
of the refund as income.
If you received a refund of state or local income taxes this year that
you took an itemized deduction for in an earlier year, you may have to include
all or part of the refund as income on your tax return. The Form 1040 instructions
for the state and local tax refund line provide you with a worksheet to calculate
the amount of your refund that is taxable. There is a more detailed worksheet
called Itemized Deduction Recoveries in Publication 525, Taxable
and Nontaxable Income. Report your taxable State or Local Refunds on Form 1040 (PDF). You cannot use Form 1040A (PDF) or Form 1040EZ (PDF). Refer to Tax Topic 405, Refund of State and Local Taxes, and Publication 525, Taxable and Nontaxable Income, for further information.
Why is it that I may have both gain (or loss) and COD income upon
foreclosure of my house?
In many home foreclosures, the mortgage debt is recourse and the fair market
value (FMV) of the house is less than the unpaid face amount of the debt.
Often in this situation the borrower/debtor transfers the house to the lender
(or to a third party), either through a deed in lieu of foreclosure or as
a result of a foreclosure proceeding. This transfer is treated as a sale or
other disposition of the property and results in the borrower/transferor realizing
gain or loss. At the time of the transfer, the lender often cancels the remaining
mortgage debt, leading to COD income.
Different rules may apply if the mortgage debt is nonrecourse.
What is COD income, and how is it calculated?
Loan proceeds are not included in income when received because there is
an offsetting obligation to repay. However, if the debt is cancelled in part
or full in a foreclosure proceeding, you will have COD income equaling the
difference between the unpaid amount of the debt and the FMV of the property
you transfer to the lender or a third party to discharge that debt. For example,
if your debt prior to foreclosure was $200,000 and the FMV of the property
was $170,000, you would have $30,000 of COD income.
Note: If you borrow money from a friend or relative and he or she cancels
all or part of the debt, the cancellation often is treated as a gift from
the lender to you. Gifts, including gifts of cancelled debts, are excludible
from income. However, the cancellation of debt by a commercial lender is not
a gift.
Can the amount of COD income be affected by other liabilities relating
to the property?
The existence of other liabilities, such as property taxes, can either
increase or reduce the amount of your COD income. For example, there may be
unpaid property taxes that are treated as imposed on you for federal tax purposes.
If you have not provided funds to pay the property taxes, the taxes generally
either remain as unpaid charges against the property after foreclosure or
must be satisfied from the sales proceeds from the foreclosed property prior
to any application of such proceeds to satisfaction of the debt. The unpaid
liabilities reduce the amount of the FMV of the property that is available
for satisfaction of the debt and must be taken into account in computing the
amount of COD income.
For example, suppose your debt prior to foreclosure was $200,000 and the
FMV of the property was $170,000, but you had $10,000 of unpaid property taxes.
In this situation, because the FMV of the property available to satisfy the
debt would be only $160,000 ($170,000 FMV less $10,000 unpaid taxes), the
COD income would be $40,000 ($200,000 debt less $160,000 FMV).
On the other hand, if you pay property taxes that for federal income tax
purposes are treated as imposed on the owner of the property, this may reduce
the amount of your cancelled debt income. Thus, if you paid $10,000 of property
taxes that for federal income tax purposes are imposed on the owner of the
property after the foreclosure, your FMV would be $180,000 ($170,000 plus
$10,000) and your COD income would be $20,000 ($200,000 debt less $180,000
FMV).
How do I compute gain or loss on a disposition by foreclosure?
Gain or loss is the difference between your amount realized and your adjusted
basis in the property. In general, an amount realized by the transferor on
a foreclosure or other transfer of property is the sum of:(1) the amount of
money received; (2) the FMV of any other property received; and (3) the amount
of any other liabilities that the transferee (the person acquiring the property)
either assumes or takes the property subject to.
Give an example involving recourse debt in which both gain and COD
income results on the foreclosure.
If the face amount of the recourse debt is $200,000, the FMV of the property
is $170,000, and the adjusted basis is $120,000, you have $30,000 of COD income
($200,000 debt less $170,000 FMV) and $50,000 of gain ($170,000 FMV (amount
realized) less $120,000 adjusted basis).
If the mortgage debt is nonrecourse, is there COD income on the
foreclosure?
If your mortgage debt is nonrecourse, the debt is greater than the FMV
of the house, and the house is foreclosed upon, your amount realized will
be the face amount of the unpaid mortgage debt. Thus, if the amount of the
nonrecourse debt is $200,000, the FMV of the property is $170,000, and the
adjusted basis of the property is $120,000, your gain on foreclosure is $80,000
($200,000 amount realized less $120,000 adjusted basis). No portion of the
gain on property subject only to nonrecourse debt is COD income.
If your house is foreclosed upon and your mortgage debt is recourse,
are there circumstances in which you may have gain or loss but not COD income?
There are at least two situations involving recourse debt in which foreclosure
results in gain or loss, but not in COD income.
First, sometimes when a house is transferred to the lender by foreclosure
the lender does not cancel the remaining unpaid portion of the debt. This
could happen if the lender believes it can still collect the balance of the
debt. In that circumstance, you would not have COD income until the lender
discharged the debt or the statute of limitations on collection of the debt
expired. The gain or loss on the foreclosure is the difference between the
FMV of the property and its adjusted basis.
Second, sometimes the FMV of a house that is foreclosed upon is greater
than the amount of the debt. If the FMV is sufficient to pay the debt in full,
the debt is satisfied and there is no COD income because no part of the debt
was discharged or cancelled. For example, if the FMV of the house was $200,000,
the amount of the debt was $140,000, and the adjusted basis of the house was
$110,000, the gain on the sale of the house is $90,000 ($200,000 FMV (amount
realized) less $110,000 adjusted basis), but there is no COD income because
the FMV of the house is $60,000 ($200,000 FMV less $140,000 debt), which is
more than enough to satisfy the debt in full.
Can COD income ever be excluded from my gross income?
You may be able to exclude all or part of the cancelled debt income if
all or part of the debt was discharged in bankruptcy, if you were insolvent
immediately before the transfer, or if the debt is a qualified farm debt or
qualified real property indebtedness. Refer to Publication 908 (PDF), Bankruptcy Tax Guide.
How do I report COD income on my return?
COD income is ordinary income and is reported on Line 21 of your return.
Can gain on the foreclosure of my house be excluded from my gross
income?
If the house is your principal residence, you may be able to exclude part
of all of the gain under I.R.C. 121. See Publication 523, Selling
Your Home.
How do I report a foreclosure gain or loss on my return?
Gain or loss on the foreclosure of your house usually is capital gain or
loss. However, a loss on the foreclosure of your residence is not deductible.
Capital gains are reported on Form 1040, Schedule D (PDF).
If, however, the gain on the foreclosure of your residence is excluded under
I.R.C. 121, you are not required to report the gain on your return.
References: Publication 523, Selling Your Home Publication 537, Installment
Sales Publication 544, Sales and Other Dispositions of Assets Publication
908, Bankruptcy Tax Guide Form 982, Reduction of Tax Attributes Due to Discharge
of Indebtedness Form 1040, U.S. Individual Income Tax Return Form 1040,
Schedule D, Capital Gains and Losses Form 1099-A, Acquisition or Abandonment
of Secured Property Form 1099-C, Cancellation of Debt Form 4797, Sales of
Business Property
References:
- Publication 523, Selling Your Home
- Publication 537, Installment Sales
- Publication 544, Sales and Other Dispositions of Assets
- Publication 908 (PDF), Bankruptcy Tax
Guide
- Form 982 (PDF), Reduction of Tax Attributes
Due to Discharge of Indebtedness
- Form 1040 (PDF), U.S. Individual Income
Tax Return
- Form 1040, Schedule D (PDF), Capital
Gains and Losses
- Form 1099-A (PDF), Acquisition or Abandonment
of Secured Property
- Form 1099-C (PDF), Cancellation of Debt
- Form 4797 (PDF), Sales of business Property
Are alimony payments considered taxable income?
Alimony, separate maintenance, and similar payments from your spouse or
former spouse are taxable to you in the year received. The amount is reported
on Form 1040 (PDF). You cannot use Form 1040A (PDF) or Form 1040EZ (PDF). Refer to Tax Topic 406, Alimony Received, or Publication 504, Divorced
or Separated Individuals.
To help determine if these payments are considered alimony, please read
the following:
The following rules apply to payments under divorce or separation instruments
executed after 1984. They also apply to instruments that were modified after
1984 to:
(1) Specify that these rules will apply or
(2) Change the amount or period of payment or adds or delete any contingency
or condition.
For the rules for alimony payments under pre-1985 instruments, please see Publication 504, Divorced or Separated Individuals.
A payment to or for a spouse or former spouse under a divorce or separation
instrument is alimony, if the spouses do not file a joint return with each
other, if the following conditions are met:
(1) The payment must be made by cash, check, money order, etc.
(2) The instrument does not designate the payments as "not alimony."
(3) The spouses are not members of the same household at the time the payments
are made. Exception: If you are not legally separated under a decree of divorce
or separate maintenance, a payment under a written separation agreement, support
decree or court order may qualify as alimony even if you are of the same household
at the time of payment.
(4) There is no liability for payments after the death of the recipient
spouse.
(5) The payment is not treated as child support.
For an explanation of these requirements please see, Publication 504, Divorced
or Separated Individuals.
Are child support payments considered taxable income?
No. Child support payments are neither deductible by the payor nor taxable
to the payee. When you total your gross income to see if you are required
to file a tax return, do not include child support payments received. For
additional information, refer to Tax Topic 422, Nontaxable Income,
or Publication 504, Divorced or Separated Individuals..
What box on the Form W-2 do I use to determine my income to go on
my tax return? What are all of these other boxes for? Does the amount from
any other box go anywhere on my tax return?
For most people, only the amount in box 1 (wages, tips, other compensation)
needs to be reported as income on your tax return. If you are an employee
who receives tips, you may have to include the amount from box 8 (allocated
tips) as income on your return.
Any employer-provided dependent care benefits listed in box 10 that are
not excludable from income must be reported as wages on Form 1040 (PDF) or Form 1040A (PDF). Any credit taken
for child and dependent care expenses must be reported on your return. Refer
to Form 2441 (PDF), or Form 1040A, Schedule 2 (PDF) Child and Dependent Care Expenses, to determine
the amount, if any, of the exclusion or credit.
Employer-provided adoption benefits that must be used to complete Form 8839 (PDF), Qualified Adoption Expenses, appear in box
12 with a code T. Employer contributions to a medical savings account (MSA),
which you report on Form 8853 (PDF), Archer
MSAs and Long-Term Care Insurance Contracts, also appear in box 12 with
a code R. Employer-provided benefits may be taxable as compensation under
certain conditions. Refer to the relevant form instructions.
If you received advanced earned income credit payments from your employer
(box 9), you must include the amount on your individual income tax return Form 1040 (PDF) or Form 1040A (PDF).
The other boxes either display information that the employer wanted to
provide to you, or contain information that must be reported to the Social
Security Administration or to the IRS.
Should Line 10, Dependent Care Benefits, of my Form W-2 be included
when calculating my income?
A portion of the amount in Box 10 of the Form W-2 (PDF) may
be includable in your income. Please refer to the Form 2441 Instructions, Child and Dependent Care Expenses, 1040A filers refer
to Form 1040A, Schedule 2 (PDF), Child and
Dependent Care Expenses for 1040A Filers to determine how much, if any,
of the dependent care benefits may be excluded. If you meet the requirements
described in Form 2441 (PDF), Child and Dependent
Care Expenses, you may be able to exclude all or part of dependent care
benefits provided under a qualified employer plan. However, this amount is
reduced or eliminated if your earned income (or your spouse's earned income)
is less than the annual exclusion amount, or if your child is not under age
13. Any benefits that exceed the exclusion limit are also includable in your
income, and your employer should have included these amounts in Boxes 1, 3,
and 5 of your Form W-2 (PDF) in addition to reporting
these amounts in Box 10. The amount you can exclude is figured and claimed
by completing Part III of Form 2441 (PDF) or Schedule
2 of Form 1040A (PDF).
Is the money received from the sale of inherited property considered
taxable income?
To determine if the sale of inherited property is taxable, you must first
determine your basis in the property. The basis of inherited property is generally
one of the following:
(1) The fair market value (FMV) of the property on the date of the decedent's
death.
(2) The FMV of the property on the alternate valuation date if the executor
of the estate chooses to use alternate valuation. See the Form 706 Instructions, United States Estate (and Generation-Skipping Transfer) Tax
Return.
(3) The special use valuation for estate tax purposes of qualified real
property used for farming purposes or in a trade or business other than farming.
However, if an interest in such property is disposed of or ceases to be used
in a qualified use during the 10 year period following the decedent's death,
additional estate tax is imposed. If the qualified heir elects to pay interest
on the additional estate tax, the adjusted basis of the property will be deemed
to have been increased, immediately before disposition, by an amount equal
to the excess of its fair market value on the date of the decedent's death
over its special use value. See Form 706 (PDF), U.S.
Estate (and Generation-Skipping Transfer) Tax Return and section 2032A
of Internal Revenue Code.
(4) If an election is made to exclude a portion of the value of land from
a decedent's gross estate section 2031 (c) (regarding the transfer of qualified
conservation easement), the decedent's adjusted basis in the land to the extent
the value of the land was excluded from the decedent's gross estate under
2031(c) by reason of the transfer of a qualified conservation easement plus
the fair market value of the land to the extent the value of the land was
included in the gross estate. For more information on qualified conservation
easement see the Form 706 Instructions, U. S. Estate
(and Generation-Skipping Transfer) Tax Return and section 2031(c) of
the Internal Revenue Code.
If you or your spouse gave the property to the descendent within one year
of their death, see Publication 551, Basis of Assets.
Report the sale on Form 1040, Schedule D (PDF), Capital
Gain and Losses. If you sell the property for more than your basis, you
have a taxable gain. For information on how to report the sale on Schedule
D, please see Publication 550, Investment Income and Expenses.
I received an academic scholarship that is designated to be used
for tuition and books. Is this taxable?
Qualified scholarships and fellowships are treated as tax-free amounts
if all of the following conditions are met:
- You are a candidate for a degree at an educational institution,
- Amounts you receive as a scholarship or fellowship are used for tuition
and fees required for enrollment or attendance at the educational institution,
or for books, supplies, and equipment required for courses of instruction,
and
- The amounts received are not a payment for your services.
For additional information on Scholarship and Fellowship Grants, refer
to Tax Topic 421, and Publication 970, Tax Benefits
for Education.
Are proceeds paid under a life insurance contract taxable and do
they have to be reported as income?
Generally, if you receive the proceeds under a life insurance contract
because of the death of the insured person the benefits are not taxable income
and do not have to be reported. Any interest you receive would be taxable
and would need to be reported just like any other interest received.
However, if the policy was transferred to you for valuable consideration,
the exclusion for the proceeds is limited to the sum of the consideration
you paid, additional premiums you paid, and certain other amounts. There are
some exceptions to this rule. For additional information, call 1 800-829-1040.
I am receiving long-term disability. Is it considered taxable?
Generally, you must report as income any amount you receive for your disability
through an accident or health insurance plan paid for by your employer.
If both you and your employer have paid the premiums for the plan, only
the amount you receive for your disability that is due to your employer's
payments is reported as income. If you pay the entire cost of a health or
accident insurance plan, do not include any amounts you receive for your disability
as income on your tax return. If you pay the premiums of a health or accident
insurance plan through a cafeteria plan, and the amount of the premium was
not included as taxable income to you; the premiums are considered paid by
your employer, and the disability benefits are fully taxable.
Refer to Publication 525, Taxable and Nontaxable Income, for
more details. If the amounts are taxable, you can submit a Form W-4S (PDF), Request for Federal Income Tax Withholding, to the insurance
company, or make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax for Individuals.
Amounts you receive from your employer while you are sick or injured are
part of your salary or wages. Report the amount you receive on the line for Wages, salaries, tips, etc, on Form 1040 (PDF); Form 1040A (PDF); Form 1040EZ (PDF). You must include in your income sick pay from any of the following:
- A welfare fund.
- A state sickness or disability fund.
- An association of employers or employees.
- An insurance company, if your employer paid for the plan.
Payments you receive from qualified long-term care insurance contracts
will generally be excluded from income as reimbursement of medical expenses
received for personal injury or sickness under an accident and health insurance
contract. Also, certain payments received under a life insurance contract
on the life of a terminally or chronically ill individual (accelerated death
benefits) can be excluded from income. Refer to Publication 907, Tax
Highlights for Persons with Disabilities.
You may be able to deduct your out of pocket expenses for medical care
above any reimbursements, if you are eligible to itemize your deductions.
You will need to review Publication 502, Medical and Dental Expenses.
For more information, refer to Publication 907, Tax Highlights
for Persons with Disabilities.
A minister receives a salary plus a housing allowance. Is the housing
allowance income? Where does the minister report it?
A minister's housing allowance, sometimes called a parsonage allowance
or a rental allowance, is excludable from gross income for income tax purposes,
but not for self-employment tax purposes.
If you are a minister and receive as part of your salary (as a minister)
an amount officially designated as a rental allowance, you can exclude from
gross income the amount that is used to provide or rent a home. However, the
exclusion is limited to the lesser of the fair market rental value (including
furnishing, utilities, garage, etc.) of the amount officially designated (in
advance of payment) as a rental or housing allowance, or the actual amount
used to provide a home, and cannot exceed what is reasonable pay for your
services. The payments must be used in the year received.
If housing is furnished to you by your congregation as pay for your services
as a minister, the exclusion cannot be more than what is reasonable pay for
your services, and is limited to the fair market rental value (including furnishings,
utilities, garage, etc.) of the home.
If you own your home and you receive a housing allowance as part of your
pay, for your services as a minister, the exclusion cannot be more than the
smaller of the following:
- The amount actually used to provide a home,
- The amount officially designated (in advance of payment) as a rental or
housing allowance,
- The fair market rental value of the home, including furnishings, utilities,
garage, etc., or
- An amount which represents reasonable pay for your services as a minister.
The amount of the allowance that cannot be excluded should be entered with
you wages on line 7 of form 1040.
For additional information on housing allowance, refer to Publication 517, Social Security and Other Information for the Members of
the Clergy and Religious Workers. For information on earnings for clergy
and reporting of self-employment tax, refer to Tax Topic 417, Earnings
for clergy.
References:
- Publication 517, Social Security and Other Information for the
Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
Are all ministers treated as self-employed for social security purposes?
Services that a duly ordained, commissioned or licensed minister performs
in the exercise of his or her ministry are covered under the Self-Employment
Contributions Act (SECA). That means they are exempt from Social Security
and Medicare withholding, but they are responsible for paying self-employment
tax on their net earnings from self-employment.
There are some members of religious orders, ministers, and Christian Science
practitioners who have requested and been granted exemption from self-employment
tax. There are also members of religious orders who have taken a vow of poverty
and ministers who are covered solely by the social security laws of another
country under a social security agreement between the United States and that
other country.
References:
- Publication 517, Social Security and Other Information for the
Members of the Clergy and Religious Workers
- Form 4361 (PDF), Application for Exemption
from Self-Employment Tax for Use by Ministers, Members of Religious Orders,
and Christian Science Practitioners
- Tax Topic 417, Earnings for clergy
I cashed some Series E, Series EE and Series I savings bonds, how
do I report the interest?
If your total taxable interest for the year is more than $1500, you report
(and separately identify) the interest on Schedule B of Form 1040 (PDF) or Schedule 1 of Form 1040A (PDF).
If your total interest is not more than $1500 for the year, report the savings
bond interest with your other interest on the "Interest" line of your tax
return. If you do not report the increase in the redemption value of the bonds
as interest each year, you must report all of the interest in the year they
are cashed or otherwise disposed of. Exception: Some or all of the interest
may be excludable from your gross income if you pay qualified higher education
expenses for yourself, your spouse, or your dependent during the year.
Of my allocated tips, I tip-out 15% to the busboy and 5% to the
bar. Where do I deduct this on my tax return?
You cannot deduct tip-outs (the tips you split with other employees) on
your tax return. Nor can you deduct them from your allocated tips. The practice
of tipping-out is one of the reasons you should keep a detailed daily log
of your tips. If you documented that you tip-out, and you reported all your
tips to your employer, then you do not include in your income the allocated
tips in box 8 of Form W-2 (PDF).
Tipping-out, by itself, should not cause an allocated tip situation. First,
when you report the cash tips you receive, you should report the total tips,
then the amount tipped-out. Publication 1244 (PDF), Employee's
Daily Record of Tips and Report to Employer, includes Forms 4070 and
4070A, Employee's Report of Tips to Employer that provides lines to record:
- Cash tips received
- Credit card tips received
- Tips paid out
- Net tips
The detail of the information provided should enable your employer to develop
a reasonable, fair, and accurate method for determining whether tips need
to be allocated, and, if so, how much. Employers who operate large food and
beverage establishments are only required to allocate tips if the total tips
reported by all the employees who customarily receive tips are less than 8%
of gross sales. Thus, when there is a tip-splitting arrangement, it is important
that all tips, including those received through tip-splitting, be reported
to the employer by each employee who receives $20 or more in a month.
For more information, refer to Publication 531, Reporting Tip Income.
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