Tiana Baker: Single Working Parent

• This lesson will focus on a tax return for a typical single working parent taxpayer
• The following new tax topics will be discussed:
• Income: Unemployment, Alimony, and Gambling Winnings
• Adjustments: Student Loan Interest
• Credits: Child Tax Credit, Child and Dependent Care Credit, Retirement Savings Credit, and Earned Income Credit (EIC)
• Healthcare: Marketplace Insurance/Premium Tax Credit
• Additional Practice Lab entry for W-2 wages

Unemployment Compensation�NTTC 4012 page D-6�NTTC 4491 page 13-1 to 13-2

• Unemployment Compensation is unearned income and is taxable
• Found on Page 2 of Intake/Interview & Quality Review – Form 13614‐C
• Reported on form 1099-G

Form 1099-G for Unemployment Compensation

Income: Alimony Received�NTTC 4012 page D-7�NTTC 4491 pages 15-2

• What is Alimony?
• Spousal support under separation or divorce instrument
• Not earned income
• Not common in Texas
• Taxpayer must provide information of actual amount received in the current tax year

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Alimony Rules

• Alimony under pre-2019 court orders are grandfathered
• Alimony received continues to be taxable
• Alimony payments continue to be an adjustment to income
• Alimony under new or modified court orders after December 31, 2018
• Alimony received not taxable
• Alimony payments not an adjustment to income

Other Income

• Covers a variety of income other than wage, retirement, and investment income
• Review “Other Income” in NTTC Modified Pub 4012 pages D-77 to D78
• Examples include:
• Reported on 1099-MISC, Box 3
• Gambling winnings including lotteries and raffles
• Taxable amount of long term care (1099-LTC)
• Cancellation of debt (1099-C)

Other Income: Gambling Winnings�NTTC 4012 page D-77 and NTTC 4491 page 15-3

Normally reported on �Form W-2G

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Gambling losses can be� deducted only if the�taxpayer itemizes �(Schedule A) and only up to the amount of winnings

Other Income: Cancellation of Credit Card Debt�(no example in exercises)�NTTC 4012 page D-83 and D-85�NTTC 4491 pages 15-9 to 15-11

• Cancellation of debt is in scope for credit card debt
• Other debt such as car loans, student loans**, or other consumer installment loans is out-of-scope
• Lenders must issue Form 1099-C if they cancel $600 or more of debt
• Less than $600 must also be reported as income by taxpayer

** Special rules apply 2021-2025 (next slide)

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Cancellation of Credit Card Debt�(no example in exercises)

• Credit card debt – nonbusiness only
• Taxpayer must be solvent immediately before debt canceled
• Value of assets exceeds total amount of liabilities
• Not in bankruptcy
• Review the Screening Sheet in NTTC 4012 page D-84
• Otherwise out-of-scope

Cancellation of Credit Card Debt - Form 1099-C

Forgiveness of Student Debt 2021 - 2025

• Exclusion from gross income for student debt forgiven
• Through the educational institution or directly to the borrower
• If made, insured, or guaranteed by
• The U.S., or instrumentality or agency thereof
• A State, territory, possession, or the District of Columbia, or any political subdivision thereof
• An eligible educational institution (as defined for AOC)
• Any private education loan or by an educational organization*, as defined

*Education organization loan not forgiven if in exchange for services

• Borrowers who made qualified student loan payments after 3/13/21 could have those payments refunded if they notify their loan servicer

Adjustments

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Total Income – minus Adjustments =

Adjusted Gross Income (AGI)

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Adjustments on Intake/Interview Booklet Pub 13614-C

Page 3

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Baker

Caldwell

Caldwell

�Student Loan Interest Adjustment�NTTC 4012 page E-17�NTTC 4491 page 17-11 to 17-14�

• Interest paid on qualified student loan for post secondary education expenses
• Maximum $2,500 per year per return
• Phases out as AGI increases
• If >$600, should receive Form 1098-E

�Form 1098-E for Student Loan Interest�

Qualified Student Loan

• Expenses of taxpayer, spouse, or dependent when loan originated
• For education expenses paid within reasonable time since loan was opened
• For education provided when student enrolled at least ½ time in degree program
• Loan cannot be from relative
• Taxpayer cannot file MFS
• Taxpayer not a dependent on someone else’s return
• Loan cannot be from qualified retirement plan
• Taxpayer must be liable for the loan

Adjustment for Traditional IRA Contributions�(no example in exercises)�NTTC 4012 page E-15 to E-16�NTTC 4491 pages 17-5 to 17-8

• Allowable IRA contribution can never be more than taxable compensation: taxable W-2 income, self-employment income, and grandfathered alimony (pre 2019)
• Use combined compensation for limit if filing MFJ
• Nonworking spouse is IRA eligible
• No contribution age limit for Traditional or Roth IRA

IRA Contribution Limits

• Contribution and deduction limit for TY2025
• $7,000 ($8,000 if age 50 or over)
• For each taxpayer and spouse
• Only traditional IRA contributions can be used for deduction
• Allowable contribution amount applies to all IRAs (including Roth IRA)
• Allowable Roth IRA contributions are phased out at higher incomes

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Deduction for Traditional IRA Contribution

• Some or all of traditional IRA contribution may be nondeductible
• If taxpayer or spouse participates in an employer’s plan and/or AGI is too high
• Allowable contribution in excess of deduction becomes basis in the IRA
• Form 8606 records IRA basis
• Advise taxpayer to keep Form 8606 until IRAs fully distributed
• Taxpayer has until the April due date of the tax return to make a contribution for the current tax year and still include on this year’s return

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Credits: Child Tax Credit�NTTC 4012 pages G-4 to G-6�NTTC 4491 pages 24-1 to 24-5

• For a dependent:
• A Qualifying Child - NOT a qualifying relative
• Under age 17
• U.S. citizen, national or resident alien
• Subject to AGI phase out (not common for taxpayers we serve)

Child Tax Credit and “Additional Child Tax Credit”

• The child tax credit has two parts.
• One part is a non-refundable credit that can only be used to pay income tax
• The second part is a refundable credit called the “Additional Child Tax Credit”
• TaxSlayer will automatically calculate both credits based on the dependent information entered

Child Tax Credit Child of Divorced Parents

• Child must be a dependent.
• A noncustodial parent will get the child tax credit if form 8332 is signed allowing them to claim the dependent.
• Review NTTC 4012 page C-8 for more information

Child and Dependent Care Credit�NTTC 4012 pages G-12 to G-16�NTTC 4491 pages 21-1 to 21-9

• Care for qualifying child under age 13 or a spouse or dependent who is physically or mentally unable to provide their own care
• Taxpayer must provide receipt for expenses with required care provider information for the return
• Must live with taxpayer half the year, so in case of a divorce credit goes to custodial parent (if he or she paid the expense)
• Employer may provide benefits shown in W-2 box 10 (Taxpayer must complete form 2441 or this amount will be considered income).

Child and Dependent Care Credit

• Expenses paid for taxpayer and spouse to work or look for work
• Expenses paid for care – not education
• Both taxpayer and spouse (if MFJ) must have earned income
• Unless incapable of self-care or full-time student
• Special rule for deceased spouse
• Cannot file MFS (exceptions rare)

Child and Dependent Care Credit

• Employer Provided Benefits
• Reported in box 10 �on the W-2
• TaxSlayer automatically� carries to Form 2441
• Reported as other �income if more than �actual expenses

Child and Dependent Care Credit

• Includes:
• Below kindergarten
• After school if not educational
• Day camp only (overnight camp does not qualify)
• Adult day care
• In-home care
• Care may also qualify as medical deduction – same amount can be used for one or the other, but not both (no double dipping)

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Child/Dependent Care Credit - Caregiver

The caregiver:

• Cannot be spouse or dependent
• Cannot be taxpayer’s child who is �under age 19
• Cannot be child’s parent (with some exceptions for adults needing care)
• TaxSlayer requires caregiver information (provider’s name, address and identifying number)

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Retirement Savings Contribution Credit: Non-Refundable�NTTC 4012 pages G-17 to G-21�NTTC 4491 pages 25-1 to 25-4

• For lower-income taxpayers who made contributions to qualified retirement plans (IRA, Roth IRA, 401K, 403B, etc.)
• Ask if taxpayer made (or plans to make) contribution to a retirement account, a traditional IRA, or a Roth IRA
• Might not show on any tax document (e.g. IRA contributions)
• TaxSlayer computes credit based on input data and generates form 8880

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Retirement Savings Contribution on Form W-2

• Some entries in box 12 of W-2 will generate Form 8880 automatically if qualified
• Entries in block 14 require taxpayer interview to see if entry qualifies for Form 8880 (must be a VOLUNTARY contribution)
• Texas teacher TRS is NOT voluntary, and Harris county and City of Houston retirement system contributions are not voluntary

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Credits: Retirement Savings Contributions W-2 Box 14

For voluntary contributions

For mandatory contributions

W-2 Box 14 pull down menu

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Earned Income Credit (EIC)�NTTC 4012 pages I-3 to I-7�NTTC 4491 pages 29-1 to 29-6

• EIC is a refundable credit that can generate a refund even if the taxpayer has no tax liability
• Review NTTC Modified Pub 4012 Tab I
• Review the EIC Eligibility Rules
• Review the Interview Sheets
• General Rules
• EIC with Qualifying Child
• EIC without a Qualifying Child

TaxSlayer will automatically calculate EIC based on the relevant information entered for the return

EIC Rules If You Have a Qualifying Child

• Child must meet the relationship, age, residency test and joint return tests but not the support test. The child doesn’t have to be your dependent (see resource tool).
• Qualifying child can’t be used by more than one person to claim the EIC.
• The taxpayer can’t be a qualifying child of another person.

Earned Income Credit For taxpayers with “no qualifying children”�

• Minimum age is 25
• Maximum age is <65

Changes to Earned Income Credit

• Taxpayer with SSN and with a child who does not have SSN can claim EIC with no children
• Certain separated spouses are eligible for credit
• Disqualifying investment income increased to $11,950 (for TY 2025)

Amount of the Earned Income Credit – 2025 Return

Healthcare – Market Place Insurance

• Taxpayers who purchase health insurance through the Market place must provide Form 1095-A
• Most taxpayers will receive Advanced Premium Tax Credit (APTC)
• APTC is reconciled on the tax return
• If taxpayer has received too little, they receive a refundable credit
• If the taxpayer received too much, it is repaid on the return

Form 1095-A�

What is Premium Tax Credit?�NTTC 4012 pages H-12 to H-18�NTTC 4491 pages 26-1 to 26-11

• Premium Tax Credit (PTC) helps to pay the policy premiums
• Marketplace estimates PTC at time of purchase based on taxpayer estimate of income
• PTC can be paid in advance (APTC) to insurance company or applied as refundable credit on federal tax return

Modified AGI (MAGI) for PTC

• PTC is computed based on the taxpayer’s modified AGI reported on their return
• AGI as shown on the return
• Plus social security or tier 1 railroad retirement benefits not taxed
• Plus excluded foreign income (Form 2555) (out-of-scope)
• Plus tax-exempt interest
• No reductions
• Not even for one-time income (lump-sum SS, lottery)

MAGI Limits for PTC

• Modified adjusted gross income (MAGI) must be at least 100% but not more than 400% of the federal poverty line (FPL)
• See FPL table in NTTC 4012 page H-26
• There are exceptions
• See your Local Coordinator if MAGI is outside these limits

Final PTC – Form 8962

• Final PTC is calculated on Form 8962 once information from Form 1095-A has been entered
• TaxSlayer will compute final PTC
• Return may show more PTC than APTC – additional credit on the return, or
• Return may show excess APTC – to be repaid with the return

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