Topic #7 – 2011 Form 1040 Exclusive – Income Part I

Line 7 - Wages, salaries, tips, etc. Attach Form(s) W-2

Enter the total of your wages, salaries, tips, etc. If a joint return, also include your spouse’s income. For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2. But the following types of income must also be included in the total on line 7.

·         Wages received as a household employee for which you did not receive a Form W-2 because your employer paid you less than $1,700 in 2011. Also, enter “HSH” and the amount not reported on Form W-2 on the dotted line next to line 7.

·         Tip income you did not report to your employer. This should include any allocated tips shown in box 8 on your Form(s) W-2 unless you can prove that your unreported tips are less than the amount in box 8. Allocated tips are not included as income in box 1. See Pub. 531 for more details. Also include the value of any noncash tips you received, such as tickets, passes, or other items of value. Although you do not report these noncash tips to your employer, you must report them on line 7. You may owe social security and Medicare or railroad retirement (RRTA) tax on unreported tips. See the instructions

·         Dependent care benefits, which should be shown in box 10 of your Form(s) W-2. But first complete Form 2441 to see if you can exclude part or all of the benefits.

·         Employer-provided adoption benefits, which should be shown in box 12 of your Form(s) W-2 with code T. But see the Instructions for Form 8839 to find out if you can exclude part or all of the benefits. You may also be able to exclude amounts if you adopted a child with special needs and the adoption became final in 2011.

·         Scholarship and fellowship grants not reported on Form W-2. Also, enter “SCH” and the amount on the dotted line next to line 7. However, if you were a degree candidate, include on line 7 only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel must be reported on line 7.

·         Excess salary deferrals. The amount deferred should be shown in box 12 of your Form W-2, and the “Retirement plan” box in box 13 should be checked. If the total amount you (or your spouse if filing jointly) deferred for 2011 under all plans was more than $16,500 (excluding catch-up contributions as explained below), include the excess on line 7. This limit is (a) $11,500 if you only have SIMPLE plans, or (b) $19,500 for section 403(b) plans if you qualify for the 15-year rule in Pub. 571. Although designated Roth contributions are subject to this limit, do not include the excess attributable to such contributions on line 7. They are already included as income in box 1 of your Form W-2. A higher limit may apply to participants in section 457(b) deferred compensation plans for the 3 years before retirement age.

·         Contact your plan administrator for more information. If you were age 50 or older at the end of2011, your employer may have allowed an additional deferral (catch-up contributions) of up to $5,500 ($2,500 for section 401(k)(11) and SIMPLE plans). This additional deferral amount is not subject to the overall limit on elective deferrals. You cannot deduct the amount deferred. It is not included as income in box 1 of your Form W-2.

·         Disability pensions shown on Form 1099-R if you have not reached the minimum retirement age set by your employer. But see Insurance Premiums for Retired Public Safety Officers in the instructions for lines 16a and 16b. Disability pensions received after you reach minimum retirement age and other payments shown on Form 1099-R (other than payments from an IRA*) are reported on lines 16a and 16b. Payments from an IRA are reported on lines 15a and 15b.

·         Corrective distributions from a retirement plan shown on Form 1099-R of excess salary deferrals and excess contributions (plus earnings). But do not include distributions from an IRA* on line

·         Instead, report distributions from an IRA on lines 15a and 15b.

·         Wages from Form 8919, line 6.*This includes a Roth, SEP, or SIMPLE IRA.

Were You a Statutory Employee?

If you were, the “Statutory employee” box in box 13 of your Form W-2 should be checked. Statutory employees include full-time life insurance salespeople, certain agent or commission drivers and traveling salespeople, and certain homeworkers. If you have related business expenses to deduct, report the amount shown in box 1 of your Form W-2 on Schedule C or C-EZ along with your expenses.

Missing or Incorrect Form W-2?

Your employer is required to provide or send Form W-2 to you no later than January 31, 2012. If you do not receive it by early February, use Tele Tax topic 154 to find out what to do. Even if you do not get a

Form W-2, you must still report your earnings on line 7. If you lose your Form W-2 or it is incorrect, ask your employer for a new one.

Line 8a – Taxable interest

Each payer should send you a Form 1099-INT or Form 1099-OID. Enter your total taxable interest income on line 8a. But you must fill in and attach Schedule B if the total is over $1,500 or any of the other conditions listed at the beginning of the Schedule B instructions apply to you.

Interest credited in 2011 on deposits that you could not withdraw because of the bankruptcy or insolvency of the financial institution may not have to be included in your 2011 income. For details, see

Pub. 550. If you get a 2011 Form 1099-INT for U.S. savings bond interest that includes amounts you reported before 2011, see Pub. 550.

Line 8b – Tax-exempt interest. Do not include on line 8a

If you received any tax-exempt interest, such as from municipal bonds, each payer should send you a Form 1099-INT. Your tax-exempt interest, including any exempt-interest dividends from a mutual fund or other regulated investment company, should be included in box 8 of Form 1099-INT. Enter the total on line 8b. Do not include interest earned on your IRA, health savings account, Archer or Medicare Advantage MSA, or Coverdell education savings account.

Line 9a – Ordinary dividends. Attach Schedule B if required

Each payer should send you a Form 1099-DIV. Enter your total ordinary dividends on line 9a. This amount should be shown in box 1a of Form(s) 1099-DIV. You must fill in and attach Schedule B if the total is over $1,500 or you received, as a nominee, ordinary dividends that actually belong to someone else.

Nondividend Distributions

Some distributions are a return of your cost (or other basis). They will not be taxed until you recover your cost (or other basis). You must reduce your cost (or other basis) by these distributions. After you get back all of your cost (or other basis), you must report these distributions as capital gains on Schedule D. For details, see Pub. 550. Dividends on insurance policies are a partial return of the premiums you paid. Do not report them as dividends. Include them in income on line 21 only if they exceed the total of all net premiums you paid for the contract.

Line 9b – Qualified dividends

Enter your total qualified dividends on line 9b. Qualified dividends are also included in the ordinary dividend total required to be shown on line 9a. Qualified dividends are eligible for a lower tax rate than other ordinary income. Generally, these dividends are shown in box 1b of Form(s) 1099-DIV. See Pub. 550 for the definition of qualified dividends if you received dividends not reported on Form 1099-DIV.

Exception

Some dividends may be reported as qualified dividends in box 1b of Form 1099-DIV but are not qualified dividends. These include:

·         Dividends you received as a nominee. See the Schedule B instructions.

·         Dividends you received on any share of stock that you held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock but not the day you acquired it. See the examples that follow. Also, when counting the number of days you held the stock, you cannot count certain days during which your risk of loss was diminished. See Pub. 550 for more details.

·         Dividends attributable to periods totaling more than 366 days that you received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days you held the stock, you cannot count certain days during which your risk of loss was diminished. See Pub. 550 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule just described.

·         Dividends on any share of stock to the extent that you are under an obligation (including a short sale) to make related payments with respect to positions insubstantially similar or related property.

·         Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.

Example 1

 You bought 5,000 shares of XYZ Corp. common stock on July 8, 2011. XYZ Corp. paid a cash dividend of 10 cents per share. The ex-dividend date was July 15, 2011. Your Form 1099-DIV from XYZ

Corp. shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). However, you sold the 5,000 shares on August 11, 2011. You held your shares of XYZ Corp. for only 34 days of the 121-dayperiod (from July 9, 2011, through August 11, 2011). The 121-day period began on May 16, 2011 (60 days before the ex-dividend date), and ended on September 13, 2011. You have no qualified dividends from XYZ Corp. because you held the XYZ stock for less than 61 days.

Example 2

Assume the same facts as in Example 1 except that you bought the stock on July 14, 2011 (the day before the ex-dividend date), and you sold the stock on September 15, 2011. You held the stock for 63 days (from July 15, 2011, through September 15, 2011). The $500 of qualified dividends shown in box 1b of Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 15, 2011, through September 13, 2011).

Example 3

You bought 10,000 shares of ABC Mutual Fund common stock on July 8, 2011. ABC Mutual Fund paid a cash dividend of 10 cents a share. The ex-dividend date was July 15, 2011. The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of

$1,000 and qualified dividends of $200. However, you sold the 10,000 shares on August 11, 2011. You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. Use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax

Worksheet, whichever applies, to figure your tax. See the instructions for line 44 for details.

Line 10 – Taxable refunds, credits, or offsets of state and local income taxes

None of your refund is taxable, if, in the year you paid the tax, you either (a) did not itemize deductions, or (b) elected to deduct state and local general sales taxes instead of state and local income taxes. If you received a refund, credit, or offset of state or local income taxes in 2011, you may receive a Form 1099-G. If you chose to apply part or all of the refund to your2011 estimated state or local income tax, the amount applied is treated as received in2011. If the refund was for a tax you paid in 2010 and you deducted state and local income taxes on line 5 of your 2010 Schedule A, use the worksheet below to see if any of your refund is taxable.

Exception

See Itemized Deduction Recoveries in Pub. 525 instead of using the worksheet below if any of the following applies:

·         You received a refund in 2011 that is for a tax year other than 2010.

·         You received a refund other than an income tax refund, such as a general sales tax or real property tax refund, in 2011 of an amount deducted or credit claimed in an earlier year.

·         The amount on your 2010 Form 1040, line 42, was more than the amount on your 2010 Form 1040, line 41.

·         You had taxable income on your2010 Form 1040, line 43, but no tax on your Form 1040, line 44, because of the 0% tax rate on net capital gain and qualified dividends in certain situations.

Your 2010 state and local income tax refund is more than your 2010 state and local income tax deduction minus the amount you could have deducted as your 2010 state and local general sales taxes.

 

·         You made your last payment of 2010 estimated state or local income tax in 2011. 
         

-   You owed alternative minimum tax in 2010.
 
·         You could not use the full amount of credits you were entitled to in 2010 because the total credits were  more than the amount shown on your 2010 Form 1040, line 46.
 
·         You could be claimed as a dependent by someone else in 2010.
 
·         You received a refund because of a jointly filed state or local income tax return, but you are not filing a joint 2011 Form 1040 with the same person.

Line 11 – Alimony received

Enter amounts received as alimony or separate maintenance. You must let the person who made the payments know your social security number. If you do not, you may have to pay a penalty. For more details, see Pub. 504.

Line 12 – Business income or (loss). Attach Schedule C or C-EZ

If you operated a business or practiced your profession as a sole proprietor, report your income and expenses on Schedule C or C-EZ.

Line 13 – Capital gain or (loss). Attach Schedule D if required

If you had a capital gain or loss, you must complete and attach Form 8949 and Schedule D. Exception 1. You do not have to file Form 8949 or Schedule D if both of the following apply.

·         You have no capital losses, and your only capital gains are capital gain distributions from Form(s) 1099-DIV, box 2a (or substitute statements).

·         None of the Form(s) 1099-DIV (or substitute statements) have an amount in box 2b (unrecaptured section 1250 gain), box 2c (section 1202 gain), or box 2d (collectibles (28%) gain).

Exception 2.

You must file Schedule D, but generally do not have to file Form 8949, if Exception 1 does not apply and your only capital gains and losses are:

·         Capital gain distributions,

·            -  A capital loss carryover from 2010,

·         - A gain from Form 2439 or 6252 orPart I of Form 4797,

·         - A gain or loss from Form 4684, 6781, or 8824, or

·         - A gain or loss from a partnership, S corporation, estate, or trust. If Exception 1 applies, enter your total - capital gain distributions (from box 2a of Form(s) 1099-DIV) on line 13 and check the box on that line. If you received capital gain distributions as a nominee (that is, they were paid to you but actually belong to someone else), report on line 13 only the amount that belongs to you. Include a statement showing the full amount you received and the amount you received as a nominee. See the Schedule B instructions for filing requirements for Forms 1099-DIV and 1096.

If you do not have to file Schedule D, use the Qualified Dividends and Capital Gain Tax Worksheet in the line 44 instructions to figure your tax. 

Next topic: Income Part II