FAQ 4 - Interest/Dividends/Other Types of Income: 1099

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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.

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 withholdings 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 profit 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 your wages or salary before you 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. Only if they 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.

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.

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 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 as 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. 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.

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), Medical Savings Accounts 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 Form 706 (PDF), 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 do 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, or
the fair market rental value of the home, including furnishings, utilities, garage, etc.

An amount which represents reasonable pay for your services as a minister.

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.

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.

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 document 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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Interest/Dividends/Other Types of Income: 1099–DIV Dividend Income

Interest/Dividends/Other Types of Income:
1099–DIV Dividend Income