Top Frequently Asked Questions for Interest, Dividends, Other Types of Income

Answer:

If payment for services you provided is listed on Form 1099-NEC, Nonemployee Compensation, the payer is treating you as a self-employed worker, also referred to as an independent contractor.

  • You don't necessarily have to have a business for payments for your services to be reported on Form 1099-NEC. You may simply perform services as a non-employee.
  • The payer has determined that an employer-employee relationship doesn't exist in your case.

If you weren't an employee of the payer, where you report the income depends on whether your activity is a trade or business. You're in a self-employed trade or business if your primary purpose is to make a profit and your activity is regular and continuous.

If you believe you may be an employee of the payer, see Publication 1779, Independent Contractor or Employee PDF for an explanation of the difference between an independent contractor and an employee. For more information on employer-employee relationships, refer to Chapter 2 of Publication 15, (Circular E), Employer's Tax Guide, Chapter 2 of Publication 15-A, Employer's Supplemental Tax Guide, Independent Contractor (Self-Employed) or Employee? and Tax Topic 762, Independent Contractor vs. Employee.

Answer:

To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

For information on the FMV of inherited property on the date of the decedent’s death, contact the executor of the decedent’s estate. Also, note that in 2015, Congress passed a new law that, in certain circumstances, requires the recipient’s basis in certain inherited property to be consistent with the value of the property as finally determined for Federal estate tax purposes. Check What's New - Estate and Gift Tax for updates on final rules being promulgated to implement the new law.

If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.

Report the sale on Schedule D (Form 1040), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets:

Under the new law passed by Congress in 2015, an accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for Federal estate tax purposes. Again, check What's New - Estate and Gift Tax for updates on final rules being promulgated to implement the new law.

For estates of decedents who died in 2010, basis is generally determined as described above. However, the executor of a decedent who died in 2010 may elect out of the Federal estate tax rules for 2010 and use the modified carryover of basis rules.

Under this special election, the basis of property inherited from a decedent who died during 2010 is generally the lesser of:

  • The adjusted basis of the decedent, or
  • The FMV of the property at the date of the decedent’s death.

Under this special election for estates of decedents who died in 2010, the executor of the decedent’s estate may increase the basis of certain property that beneficiaries acquire from a decedent by up to $1.3 million (plus certain unused built-in losses and loss carryovers, if applicable), but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor may also increase the basis of certain property that the surviving spouse acquires from a decedent by up to an additional $3 million, but the increased basis cannot exceed the FMV of the property at the date of the decedent’s death. The executor of the decedent’s estate is required to provide a statement to all heirs listing the decedent’s basis in the property, the FMV of the property on the date of the decedent’s death, and the additional basis allocated to the property. Contact the executor to determine what the basis of the asset is.

Report the sale on Schedule D (Form 1040) and on Form 8949, as described above.

Answer:

A minister's housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.

If you receive as part of your salary (for services as a minister) an amount officially designated (in advance of payment) as a housing allowance, and the amount isn’t more than reasonable pay for your services, you can exclude from gross income the lesser of the following amounts:

  • the amount officially designated (in advance of payment) as a housing allowance;
  • the amount actually used to provide or rent a home; or
  • the fair market rental value of the home (including furnishings, utilities, garage, etc.).

The payments officially designated as a housing allowance must be used in the year received.

Include any amount of the allowance that you can't exclude as wages on line 1 of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors. Enter “Excess allowance” and the amount on the dotted line next to line 1.

If your congregation furnishes housing in kind as pay for your services as a minister instead of a housing allowance, you may exclude the fair market rental value of the housing from income, but you must include the fair market rental value of the housing in net earnings from self-employment for self-employment tax purposes.

For more information on a minister’s housing allowance, refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

For information on earnings for clergy and reporting of self-employment tax, refer to Tax Topic 417, Earnings for Clergy.

Answer:

No and maybe.

Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you're required to file a tax return, don't include child support payments received.

Under divorce or separation instruments executed on or before December 31, 2018, alimony payments are deductible by the payer and taxable to the recipient. When you calculate your gross income to see if you’re required to file a tax return, you should include alimony payments received under such an instrument.

However, under divorce or separation instruments executed after December 31, 2018, and under certain instruments executed on or before December 31, 2018 but later modified, if the modification expressly states the repeal of the deduction for alimony applies to the modification, alimony payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you’re required to file a tax return, don’t include alimony payments received under such an instrument.

Answer:

You may need to make quarterly estimated tax payments. For information on estimated tax payments, refer to Form 1040-ES, Estimated Tax for Individuals.

Note: You may also have state and local requirements for estimated tax payments. See your state's individual website for additional information. To access information for your state, refer to our State Government Websites page.

Answer:

  • Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them.
  • However, any interest you receive is taxable and you should report it as interest received. See Topic 403 for more information about interest.
  • If the policy was transferred to you for cash or other valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule. Generally, you report the taxable amount based on the type of income document you receive, such as a Form 1099-INT or Form 1099-R. For additional information, see Publication 525, Taxable and Nontaxable Income.

Answer:

Box 10 of your W-2 shows the total amount of dependent care benefits that your employer paid to you or incurred on your behalf. Amounts over $5,000 ($2,500 in the case of a separate return filed by a married individual) are also included in box 1.

You must complete Part III of Form 2441, Child and Dependent Care Expenses to figure the amount, if any, that you can exclude from your income.

Answer:

Certain distributions commonly referred to as dividends actually should be reported as interest, including "dividends" on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan associations, and mutual savings banks.

Interest income can be reported on Form 1040, U.S. Individual Income Tax Return, Form 1040-SR, U.S. Tax Return for Seniors or Form 1040-NR, U.S. Nonresident Alien Income Tax Return.

If your taxable interest income is more than $1,500 or you received interest as a nominee for the real owner, you must also include that income on Schedule B (Form 1040 or 1040-SR), Interest and Ordinary Dividends and attach it to your tax return. Please refer to the Instructions for Form 1040-NR for specific reporting information when filing Form 1040-NR.

Answer:

Whether or not your state income tax refund is taxable on your federal income tax return depends on whether you took an itemized deduction (Schedule A (Form 1040)) for the tax that was later refunded.

  • Don't report any of the refund as income if you didn’t itemize your deductions on your federal tax return for the tax year that generated the refund.
  • If you took an itemized deduction in an earlier year for taxes paid that were later refunded, you may have to include all or part of the refund as income on your tax return. Use Worksheet 2, Recoveries of Itemized Deductions in Publication 525, Taxable and Nontaxable Income to determine the taxable amount of your state or local refunds to report on your tax return.

Frequently Asked Question Subcategories for Interest, Dividends, Other Types of Income