Chapter 12 - Other Income

scholarships and fellowships

financial aid grants awarded to students for the purpose of attending a college or performing research

tax-exempt income

income that, by law, is not subject to income tax

scholarship v. fellowship

scholarship = grant of financial aid to help fund college studies fellowship = grant to conduct a study or research

prizes and awards

--FMV is generally includable in gross income --exception: when recipient has payer directly transfer prize as a charitable/gov't contribution --exception: certain employee achievement awards (like gold watch for retirement)

Social security disability income

--SS disability income = paid by the SS Administration --never reported as wage income --never considered earned income --reported on Form SSA-1099

minimum retirement age

--age when taxpayer could have first received a pension if not disabled --retirement age is set by employer (contact HR)

scholarship: partially taxable

--any excess $ beyond current-year qualified edu. expenses is taxable --funds earmarked/used for room and board, etc. are taxable --payment for teaching, research, services is taxable --use Worksheet 1-1, Taxable Scholarship and Fellowship Grant Income

Unemployment comp: withholding

--can request 10% fed. income tax withholding with Form W-4V (Voluntary Withholding Request) --Fed. tax withheld is on 1099G Box 4

disability income and EITC

--disability benefits = until retirement age, qualify as earned income for EITC --only if employer paid the premiums (not the taxpayer) --form W-2 may show code J if policy is through employer

Alaska Permanent Fund Dividends

--for full-year residents of AK --taxable to the recipient --report on 1040EZ line 3 or 1040A line 13

Form 1040 other income

--gambling winnings, prizes and awards --alimony --jury duty pay (unless surrendered, then can be deducted) --canceled debts and reimbursements; CC insurance --rental of personal property --HSA/MSA distributions --medical trial income (not subject to self-employment tax) --hobby income

Gambling winnings

--gross amount of all winnings is taxable --may receive a W-2G --withholding of tax is usually required

scholarship: fully taxable

--if non-degree candidate or not an eligible edu. institution --$ reported on a W-2 instead of 1098-T, e.g. internship/residency stipends

scholarship: reporting

--if not required to file, then not required to report --if required to file, then report taxable scholarship/fellowship $ on 1040EZ line 1 or 1040A line 7 --also, enter SCH and taxable amount on the space to the left of the line

Unemployment comp: overpayment

--if payer determines that they overpaid the taxpayer, taxpayer must pay back the overpayment received --enter the reduced (net) amount of unemployment comp on 1040EZ/A --write "Repaid" and amount repaid in space to the left of the line --if repayment was for another year's compensation, get a higher tax professional

scholarship: tax-free

--if student is a candidate for a degree at an eligible edu. institution --$ used to pay for qualified edu. expenses • tuition, fees • required books, supplies, equipment --recipient must determine if $ is qualified edu. expense --reported on 1098-T box 5

alimony payments

--made by 1 spouse to the other/former spouse --under a written separation or divorce instrument --qualified alimony and separate maintenance payments are taxable in recipient's gross income and deductible by giver --child support payments and property settlements are not alimony --must be reported on 1040

long-term disability income: overview

--paid premiums with after-tax $ >> benefits are nontaxable --paid premiums with pre-tax $ >> benefits are taxable

Unemployment compensation

--reported on 1099-G Box 1 --fully taxable --report on 1040EZ line 3 or 1040A line 13

long-term disability income: reporting to taxpayer

--reported on 1099-R, box 2a "Taxable Amount" • code "3" in box 7

nontaxable income

--see IRS Pub. 525, Taxable and Nontaxable Income --common examples: • gifts and inheritances • child support • disaster relief payments • Federal income tax refunds • rebates • Veterans' and welfare benefits • Worker's compensation

disability pension

--taxable pension from an employer-financed disability plan or a disability provision of a retirement plan --until retirement age, disability pension is reported as wages and treated as such for child care, child tax, earned income credits

long-term disability income: reporting to IRS

--until retirement age: reported as wages • 1040A line 7 with "1099-R" and amount in the space to the left --at/beyond retirement age: report as pension income • 1040A line 12a, 12b

scholarship: earned or unearned?

--when calculating a dependent taxpayer's standard deduction, taxable scholarships/fellowships are considered earned income