TAX-AIDE Other Taxes Pub 4491 – Part 6 – Lesson 28 Pub 4012 – Tab H

TAX-AIDE

TAX-AIDE

Other Taxes

Pub 4491 – Part 6 – Lesson 28 Pub 4012 – Tab H

TAX-AIDE

Other Taxes

● Self-employment tax

● Social security and Medicare taxes on tip income

● Additional taxes on IRAs and other qualified retirement plans

● Repayment of first-time homebuyer credit

● SRP for health insurance—See Lesson 3

Not reduced by nonrefundable credits

NTTC Training – TY2015 2

TAX-AIDE

Self-employment Tax

● A tax in addition to the income tax

● Composed of two elements Social security Medicare

● TaxWise does it automatically when data entered on Schedule C


TAX-AIDE

Self-employment Tax

● Applies if net income from self-employment is $400 or more

● Does not apply to a Notary Public

● Does not apply to statutory employee (already withheld on W-2)

● Special rules for ministers or church workers – out of scope


TAX-AIDE

Self-employment Tax

● The additional tax:The tax Form

In TaxWise


TAX-AIDE

Self-employment Tax

Social Security portion 6.20%

+ Medicare portion 1.45%

= 7.65%

x 2 = 15.30%

Both employer and employee portions paid by self-employed person


TAX-AIDE

Self-employment Tax

“Employer” part is deductible in computing the self-employment tax

Profit from business $10,000Employer part (7.65%) 765Net $ 9,235Tax rate (combined) 15.3%Tax $ 1,413

TaxWise does the math on Sch SE!


TAX-AIDE

Self-employment Tax Adjustment

● The deductible portion of the tax (the “employer’s” part) – Form 1040 Line 27:

● TaxWise does it automatically!


TAX-AIDE

Self-employment Taxes

Special situation:

●Notary public – no Self-employment tax

Input exempt net profit from notary business on Sch SE Line 3


TAX-AIDE

Self-employment Tax

● Notary Public Also check box on 1040 Pg 2 Line 57


TAX-AIDE

Tip Income

● Tip income included in W-2 Box 7 already had FICA and Medicare taxes withheld

● Allocated tips shown in W-2 Box 8 have not

TaxWise automatically calculates add’l FICA and Medicare taxes on Form 4137


TAX-AIDE

Unreported Tip Income

● If employee keeps good records (tip log available free from IRS) Can enter actual amount of all tips on

Form 4137 instead of allocated tip amount

Will need to use a scratch page to adjust line 4 of Form 4137


TAX-AIDE

Unreported Tip Income

If tips <$20/month were not reported to employerPresumed included in allocated tips for

income tax purposes and Not subject to social security / Medicare

tax (Form 4137 Line 5)


TAX-AIDE

Tip Income – Self-Employment

If self-employed, enter tips on Sch C with other business income


TAX-AIDE

Add’l Tax on Tips

● Based on entries in Form 4137, TaxWise computes Social Security and Medicare taxes

● Carries additional tax amount to Form 1040 Line 58


TAX-AIDE

TAX-AIDE

Additional Tax on IRAs, etc.

Pub 4491 – Part 6 – Lesson 28Pub 4012 – Pages H-1 – H-2

TAX-AIDE

Additional Tax on IRAs, etc.Form 5329

● Distributions before 59½ not rolled-over(“early distribution”) (Pt I) – 10%* additional tax

● Required Minimum Distribution (RMD) not taken after 70½ (Pt IX) – 50% additional tax

There are exceptions

* 25% for SIMPLE IRAsNTTC Training – TY2015 17

TAX-AIDE

Additional Tax on IRAs, etc.Form 5329

● Other parts of Form 5329 are out of scope: Part II: 10% tax on education and ABLE

accounts Parts III – VIII: 6% tax on excess

contributions to various qualified accounts not removed by due date of return


TAX-AIDE

Form 5329 in TaxWise

2015


TAX-AIDE

Part I: Early Distribution Exception Codes

● All plans (IRA and employer plans) 02 A series of substantially equal periodic

payments 03 Due to total and permanent disabled 04 Due to death 05 The amount paid for medical

expenses, minus >10% of AGI (or 7.5% if taxpayer or spouse age 65 or older) (same amount as would show on Sch A)

NTTC Training – TY2015

Pub 4012 H-2

TAX-AIDE


● All plans (cont.) 10 Due to IRS levy 11 To reservists on active duty for 180

days or more 12 More than one exception code or

other reason (see form), including distributions incorrectly coded on form 1099-R


Pub 4012 H-2

TAX-AIDE


● IRAs only: 07 The amount paid during the year for

individual health insurance premiums while unemployed (see rules in Pub 590-B)

08 The amount paid during the year for qualified education expenses (including room and board), more details in later slides

09 Used to buy or build first main home (must be used within 120 days of distribution)


Pub 4012 H-2

TAX-AIDE


● Other than IRAs only (employer plans) 01 After separation from service after the

age of 55 (age 50 for public safety employee)

06 Made to an alternate payee under a Qualified Domestic Relations Order


Pub 4012 Tab H

TAX-AIDE

Part I: Early IRA Distribution Exception Code 08

● The amount of higher education expenses – special definition includes: For self, spouse, foster child, adopted child

or descendent of any of these Does not have to be a dependent!

Tuition, fees, books, supplies and equipment required to enroll or attend

Special needs services expenses for special needs student


TAX-AIDE

Part I: Early IRA Distribution Exception Code 08 (Cont)

● The amount of higher education expenses- special definition includes (cont.): If student is at least ½ time, room and

boardCan be at-home room and board!!

Reduced for nontaxable scholarships, grants or ESA distributions

See Pub 970 Chapter 9 for more details


TAX-AIDE

Part I Exercise

Joyce, age 50, has no medical insurance. She took a $10K distribution (code 1) from her traditional IRA in June 2015 when she broke her arm. Her total unreimbursed medical expenses for the year were $8K. Her AGI is $50K.Q: What, if any, is the additional tax due on

this distribution?


TAX-AIDE

Line Entry1 $10,000 [Early distribution included in income]

Part I Exercise Answer: $700


2

Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000


2

Code 5 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of Medical Expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000

3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2


2

Code 05 and $3,000 [Amount of early distribution not subject to additional tax] which is the $8,000 of medical expenses less 10% of her $50K AGI or $8,000 minus $5,000 = $3,000

3 $7,000 [Amount subject to additional tax] which is $10,000 minus $3,000 from Line 2

4 $700 [Additional tax = 10% of Line 3]


TAX-AIDE

Part IX: Waiver Request for Failure to Take RMD

● Taxpayer can request waiver of the additional tax for failure to take Required Minimum Distribution (RMD) from qualified retirement plan, including traditional IRAs

Counselor NOT expected to review all taxpayer plans and verify that required distributions were taken


TAX-AIDE

Part IX: Waiver Request for Failure to Take RMD

● Taxpayer needs to remedy the distribution shortfall by taking an additional distribution Will result in more than one year’s

distribution in the year of remedy

● Then ask for waiver


TAX-AIDE

Waiver Request – Failure to Take RMD

● Part IX of Form 5329 pg 2

● Note: Select 5329 for taxpayer or spouse


TAX-AIDE

Part IX of Form 5329 pg 2From all plans – not just one(s) missed

Link to Explanation for Request of Waiver of Tax form and explain reason for request


Moved to Part IX for TY 2015

TAX-AIDE

Part IX of Form 5329 pg 2

● Possible explanations (examples): Clerical error (math goof) Relied on Trustee who failed to make the

RMD TP impaired by health Beneficiary not notified by Trustee that

RMD had not been taken

IRS accepts most reasonable explanationsNTTC Training – TY2015 32

TAX-AIDE

TAX-AIDE

First Time HomebuyersCredit Payback

TAX-AIDE

Intake/Interview – First Time Homebuyers Credit

● Did taxpayer receive FTHC in 2008


TAX-AIDE

First Time Homebuyers Credit Payback…

● Taxpayers who claimed First Time Homebuyer’s Credit in 2008 Started repayment in 2010 Continue to make payments until full

amount of credit is repaid

● Can look up amount of credit still owed on irs.gov

● Can pay more than the minimum due


TAX-AIDE

FTHC Payback – 2008

● In TaxWise – enter original credit claimed in 2008, amount repaid to date and amount paying with this return – Form 5405, Pt II

● Also add note to Taxpayer Diary or Taxpayer Reminder section of Prep Use form as reminder for next year


TAX-AIDE

Form 5405 in TaxWise

Total Credit Received in 2008

Credit repaid in previous tax years

Amount repaying in current tax year, usually $500 but can pay more


TAX-AIDE

FTHC Payback

● If disposed of home purchased in 2008 or home ceased to be main home, must generally repay balance of un-repaid credit with current tax return

● Complete Part I of Form 5405


TAX-AIDE

Exceptions

● If home sold to someone not related to taxpayer, repayment limited to gain on sale – Part III of Form 5405

● If home destroyed or sold through condemnation, and if new main home purchased within 2 years of event, can continue with annual payments (out of scope)


TAX-AIDE

Home Sold or No Longer Main Home

● If taxpayer and spouse claimed the credit on joint return, each must file a separate Form 5405 claiming half the credit (and half of any repayments) to notify IRS of status change

● If taxpayer claimed the credit on joint return for 2008 or 2010, but spouse died, enter half of credit (and half of any repayments) The remaining half (deceased spouse’s half)

does not have to be repaid


TAX-AIDE

Home Ceases to be Main Home

● Conversion to rental property; condemnation; foreclosure – Out of Scope

● See the general instructions for Form 5405 for additional repayment information


TAX-AIDE

Quality Review

● Self-Employment Tax Is the correct amount of self-

employment tax shown on 1040 Page 2 Is ½ of the tax deducted on 1040 Page 1


TAX-AIDE

Quality Review

● Early Withdrawal Penalty Verify Form 5329 not applicable if not

used Verify Form 5329 if used

● Verify First Time Homebuyers Credit if applicable – read instructions carefully


TAX-AIDE

Taxpayer Summary

● Explain any additional tax Type Amount Why


TAX-AIDE

Other Taxes

Questions?

Comments?


Documents

TAX-AIDE Other Taxes Pub 4491 – Part 6 – Lesson 28 Pub 4012 – Tab H