8. Income – Wages, Interest and Dividends. 2025

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Pub 4012 – Tab D

Pub 4491 – Lesson 8

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NTTC Training – TY2025

Wages – W2 (Wage & Tax Statement)

• Reported on Form W-2
• Are wages earned or unearned income? Why do we differentiate? (Example EIC)
• Earned income – Any income received for work, such as wages or business/self-employment income
• Unearned Income – Any income not produced from work, such as unemployment income or income produced by investments
• What taxes are applied to wages?

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NTTC Training – TY2025

Form W-2

NTTC Training – TY2025

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Missing W-2

• All employers are encouraged to file Forms W-2 electronically. The due date is January 31.
• Substitute W-2 can be used to complete return if employer contact unsuccessful – Comprehensive topic

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W-2 Box 12 Codes

• Refer to Pub 4012 Tab D W-2 section for list of common codes
• Most Common:
• D – Elective deferrals to 401(k) retirement plan
• Often generates Retirement Savings Credit (separate lesson)
• DD – Cost of employer-sponsored health coverage

- W - Health Savings Account

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W-2 – Box 13

• Statutory employee – special status – Very rare
• FICA taxes taken out by employer
• Taxpayer can report income and deduct expenses using Schedule C
• TaxSlayer moves income from Line 1 to Schedule C when box is checked (see Income – Business lesson)
• Retirement plan – participant
• See IRA deduction in Adjustments to Income lesson

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W-2 Box 14

• Most Box 14 entries are information only
• State and local government W-2s often report retirement plan contributions (usually mandatory contributions)
• Use best choice in drop-down list

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W-2 Out of Scope

• W-2 Box 12 is out of scope for: (Refer Pub 4012 page D-11)
• Code FF and is eligible for premium tax credit (Form 8962)
• Code R – Archer Medical Savings Acct (MSA)
• Code T – adoption benefits
• Code Q – nontaxable combat pay (unless certified for Military)

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W-2 Out of Scope (cont.)

• Ministers/church workers’ returns are out of scope – special tax rules
• Very high wages that are subject to the additional Medicare tax are out of scope (In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income,

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• MFJ: >$250,000
• MFS: >$125,000
• S, HoH or QW: >$200,000

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Comprehensive Topics

• ITIN W-2
• Substitute W-2
• Unreported tip income

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• Scholarship income
• Household employee income
• Prison income

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ITIN* Returns

• TaxSlayer recognizes ITIN return
• ITIN returns can be e-filed
• W-2 may have erroneous SSN
• Enter SSN from W-2
• Not eligible for all benefits (e.g. EIC)
• See lesson IRS Issued Identification Numbers

* IRS assigned ID number, not a Social Security number

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Substitute W-2

• Very rare – Taxpayers should contact employer to obtain their W-2
• Complete W-2 using prior year W-2 employer data or last paycheck stub
• Taxpayer provides year-end totals if not on pay stub
• If taxpayer provides copy of Form 4852 (Substitute for Form W2), transfer to TaxSlayer

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Substitute W-2 (cont.)

• TaxSlayer: substitute W-2 leads to Form 4852 questions
• If taxpayer gets W-2 later with different information, may need to amend return
• Taxpayer reports FICA taxes paid to Social Security Administration

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Entering Zero Wage W-2 – Special Situation

• W-2 with zero wages (Box 1)
• May be reporting sick or disability pay
• Need to enter only if tax withheld
• Cannot enter zero-wage W-2 into TaxSlayer
• Cannot enter withholding > wages without amount in Box 1
• Enter withheld tax per W-2:
• Go to Payments and Estimates > Other Federal Withholding

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Tip Income

• All tip income is taxable
• Employees report tips to employer
• If reported tips are greater than $20 any month, they are included on W-2, boxes 1, 5, and 7
• Some employers use IRS approved program to “allocate tips” for employees W-2

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Pub 531

Allocated Tips – W-2 box 8

• Employer elects allocated tips method (employer not relying on employee reporting of tips)
• Not included in W-2, box 1 or 3
• TaxSlayer adds allocated tip amount to Form 1040 wages and completes Form 4137 (Unreported Tip Income)
• Taxpayer can use “employee’s reliable written record” if different than Allocated Tips in W-2, box 8
• Can add incremental tips as “unreported” on W-2 screen
• May need to change allocated tips in box 8 if less than allocated

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Unreported Tips

• Tips not reported to employer
• Ask taxpayer if they have tip income not reported to employer
• Include noncash tips as taxable income at fair market value
• If taxpayer is self-employed, include tips on Schedule C
• Subject to federal income tax
• TaxSlayer: find on Wages Input Sheet directly enter

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Pub 4012 Tab D

Unreported Tips

• Tips less than $20 per month not reported to employer:
• Subject to federal income tax
• Not subject to Social Security and Medicare taxes
• TaxSlayer: enter on W-2 input screen and directly on Form 4137
• Other Taxes > Tax on Unreported Tip Income (Form 4137)

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“No Tax on Tips” Deductions

Pub 4012 F20

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Pub 4012 Tab D

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Summary – Allocated and Unreported Tips

• Tip Income in wages line:

+ W-2, Box 1, Wages & tips

+ W-2, Box 8, Allocated tips

+ Unreported tips from

TaxSlayer W-2 Input

= Taxable Income for Tips

• Form 4137:

+ W-2, Box 8, Allocated tips

+ Unreported tips from� TaxSlayer W-2 Input

- Unreported tips < $20/month

= Unreported Income for Social Security Tax

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Taxable Scholarships or Grants – Not on W-2

• Scholarships and Grants
• TaxSlayer: Income > Less Common Income > Other Compensation > Scholarships and Grants
• Included on Form 1040 Line 7

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Taxable Scholarships or Grants – Not on W-2

• Earned income for
• Filing requirement
• Standard deduction calculation
• Unearned income for all other purposes
• Kiddie tax, EIC, child tax credit, dependent care credit, etc.
• See Education Benefits lesson

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Household Employee – Income Not on W-2

• Amount less than $2,800 per employer for 2025
• No withholding or FICA taxes apply
• Can have multiple employers so long as each less than $2,800 (enter total amount)
• If household employee income not on W-2 is more than $2,800 per employer, TP may show as a business
• See Income – Business lesson

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Household Employee – Income Not on W-2

• Household workers can include
• Housekeepers
• Nannies
• Babysitters
• Caregivers
• Among others

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Household Employee – Income Not on W-2

• Household Employee Income
• TaxSlayer: Income > Less Common Income > Other Compensation> Household Employee Income
• Will be included on Form 1040 Line 1b

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Interest Income

Forms 1099-INT and 1099-OID

Interest Income

• Interest income accrues on
• Bank and credit union deposits
• Interest paid on credit union accounts is often called dividends, but it’s interest
• Bonds
• Corporate or government
• Loans
• Interest is unearned income

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Interest Income

• Interest received from institutions reported on
• Form 1099-INT
• Form 1099-OID
• Brokerage statement (substitute Form 1099-INT)
• Schedule K-1

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Interest Income

• No form issued if interest received from
• Seller financed mortgage interest income – see comprehensive topics at end of this lesson
• Private or foreign payer
• Interest less than $10
• All interest must be entered on return
• Even if no reporting document received
• Including tax-exempt interest

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Interest Income

• All interest taxable except
• State or municipal obligations
• Other state municipal bonds may be taxable to state of residence
• U.S. obligations: T-Bills, Savings Bonds, etc.
• Taxable on federal return
• Exception: Certain EE or I bonds used for education expense – out of scope

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Interest Income Early Withdrawal Penalty

• Early withdrawal penalty adjustment
• Penalty assessed on some interest account when funds withdrawn before maturity, such as a certificate of deposit
• Penalty subtracted from AGI as adjustment to income
• Penalty located in box 2 Form 1099-INT or box 3 on �Form 1099-OID

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Form 1099 – INT �Scope

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FATCA is out of scope

All boxes are in scope except for FATCA filing requirement

Form 1099-OID (Original Issue Discount)

• Report as regular interest
• Out of scope if:
• Requires OID adjustment
• Entry in Box 6, Acquisition Premium

NTTC Training – TY2021

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OID Interest Income

• TaxSlayer Form 1099-OID entry section

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Interest Income – Sample Brokerage Statement

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FATCA filing requirement �out of scope

Dividend Income

Form 1099-DIV

Dividend Income

• Dividend income reported on
• Form 1099-DIV
• Brokerage or mutual fund statements (substitute �Form 1099-DIV)
• Schedule K-1

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Dividend Income

• Dividends are paid out of earnings and profits from corporations
• Dividends paid to equity shareholders
• “Total ordinary dividends” includes two subsets
• Qualified dividends
• 199A dividends

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Dividend Income

• Ordinary dividends that are not qualified
• Taxed at marginal tax rate
• Qualified dividend subset
• Qualify for lower capital gain tax rate
• 199A dividend subset
• Qualify for qualified business income (QBI) deduction – see Standard and QBI Deduction lesson
• May need to look at codes in “other” areas of Schedule K-1
• E.g. Code I in Box 14 of Form 1041 K-1

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Dividend Income

• Capital gain distributions
• Paid by mutual funds and Real Estate Investment Trusts (REITs)
• Qualify for lower capital gain tax rate regardless of how long shares held
• Sec. 1250 gains (box 2b)
• A subset of box 2a total capital gain
• In scope for Tax-Aide

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Dividend Income

• Out of scope
• Section 1202 gain (box 2c)
• 28% gain (box 2d)
• Section 897 ordinary dividends (box 2e)
• Section 897 capital gain (box 2f)
• Liquidation distributions (boxes 9 and 10)

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Form 1099-DIV Out of Scope

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OOS

OOS

OOS

OOS

FATCA – Out of Scope

OOS

OOS

Form 1099-DIV Brokerage Statement

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Lines 2c and 2d �Out of Scope

Lines 9 and 10 �Out of Scope

FATCA filing requirement

Out of Scope

Net Investment Income Tax

• Net Investment Income Tax (NIIT) out of scope
• 3.8% net investment tax on lesser of net investment income or amount MAGI exceeds
• $250,000 MFJ and QW
• $200,000 S and HoH
• $125,000 MFS
• NIIT will generate in TaxSlayer automatically
• Screen for this with high income taxpayers before starting the return

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Prisoner Earned Income

• Income earned while
• An inmate in a penal institution
• In a work release program
• While in a halfway house
• Not treated as earned income for child and dependent care, earned income credit, or additional child tax credits

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Prisoner Earned Income

• After inputting W-2, go to TaxSlayer > Income > Less Common Income > Other Compensation > Prisoner Earned Income
• Input total prisoner earned income as a positive amount
• TaxSlayer reduces the earned income applicable for:
• Child and dependent care credit
• Earned income credit
• Additional child tax credit
• Does not reduce taxable income

NTTC Training – TY2021

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Pub 4012 Tab D

Income – Wages

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