VITA Tax Preparer Training Slides Set #2

Volunteer Tax Assistance at
United Way of
Washtenaw County
Requirements for VITA volunteers
All VITA volunteers must adhere to IRS volunteer
standards of conduct, which requires them to view a
presentation & take a 10 question certification test.
All VITA volunteers must also review a Powerpoint
presentation regarding the intake form we use to
help clients with their taxes.
Return preparers/reviewers/site coordinators must
obtain additional training.
What do I do next?
Go to
to access training for “Return
Steps 1-4,6,8 & 9 are done. Now,
steps 5,7,11 & 13
Pathway for Preparers
5. You must take and pass either the Basic test (recommended for
new volunteers) or the Advanced test (required for reviewers
and recommended for returning volunteers). You must get at
least 80% of the questions correct. You may only take test
twice, so contact Gina Torielli or Melissa Gilchrist for
assistance if you do not pass the first time. A print copy of the
tests is available [6744]. We recommend you work through the
relevant test and retest on the print copy, note your answers,
then complete the test online. Note, online questions will come
from either the printed test or retest, but will be questions will
only come from one of those tests.
Lesson 3 – Filing Basics
6. IRS has online course modules for all certification
tests on Vita Central for learning the substantive tax
law you are likely to see on returns we prepare. If
you are unfamiliar with the EITC, filing status, the
various child care and educational credits and
deductions you should review the IRS courses.
There are also hardcopy materials that are very
helpful. Publication 4012 has flowcharts and
checklists for common topics. You likely will use
this publication a lot for the test and also on the
VITA site.
Lesson 3 – Filing Basics
1. How many completed the “homework” –
Scenarios 1-5?
2. How many want to practice on returns
right now?
Lesson 3 – Filing Basics
Pathway for preparers
7. The tests require you to prepare tax returns on the Taxwise
software. There is a practice lab you should use for this
purpose. To access the practice lab enter below the
password “learntwo” (case sensitive). You will be prompted
to create an account (not the same as your IRS certification
test account.) We have prepared a step by step guide to
using this software, which is available here*. We also have
prepared a packet of Michigan documents* that you may use
to prepare State returns for some of the scenarios. You will
save time doing the federal and state returns together, and
recording your answers on the Michigan certification test
mentioned below.
Lesson 3 – Filing Basics
1. Using only IE or Chrome go to
2. Use Client ID 2736072
3. Use your last name and first
initial for both username &
4. Create a new password.
Lesson 3 – Filing Basics
Scenario 1
Q 1? – Personal exemptions.
See 4012, Tab C, pp C-2 and C-3
“Can” not “Did”
Q 2? – Filing requirements.
See 4012, Tab A, pp A-2
Lesson 3 – Filing Basics
Scenario 2
Q 3? – Filing Status
See 4012, Tab B, p B-2
[Bonus question – Can Agnes be
Joanne’s dependent?]
Q 4? – ACA, Minimum essential
Let’s talk about ACA
Affordable Care Act
Most people will be required to prove health insurance
coverage for themselves and their dependents.
If a taxpayer does not have proof of insurance coverage for
anyone, a Personal Responsibility Payment will be added
to the return.
Taxpayers cannot choose to not claim someone as a
dependent to avoid this payment. It will be levied on the
taxpayer who could have claimed the uninsured person as
a dependent, even if the taxpayer chose not to claim the
dependent exemption.
ACA – Minimal Essential Coverage
MEC includes:
• Medicare/Medicaid
• Employee or Retiree coverage
• Private health insurance purchased directly or
through the Marketplace
ACA – Minimal Essential Coverage
MEC does not include:
•Limited plans, such as dental, vision, or worker’s
•Limited Medicaid, such as pregnancy or familyplanning only plans
•Accident or disability insurance
For full list, see ACA-4 in Pub 4012
ACA - Exemptions
If TP does not have MEC, TP will be required to make a Personal
Responsibility Payment, unless TP qualifies for an exemption:
• No filing requirement
• Single short gap (less than three months)
• Member of Indian tribe
• Undocumented alien
• Incarcerated
• Religious conscience
• Not affordable (premiums exceed 8% of Household Income)
For full list, see ACA-5 in Pub 4012
Lesson 3 – Filing Basics
ACA - Marketplace
• Private insurance may qualify for a credit.
• Most private insurance is currently being sold
on the government-run Marketplace.
• Premiums on the Marketplace include an
estimate of the credit.
• In these situations, IRS requires a reconciliation
between credit included in the premium &
actual credit calculated on the tax return.
• These returns will be handled by specialists.
Lesson 3 – Filing Basics
Two major issues for preparers:
1. Did every person in the household have MEC in each
month of 2014? - If NO, get help
For the basic test, you must know what MEC is.
For advanced, you must know whether there is an
exception to the requirement and who might be liable for
the SRP penalty.
2. Did the taxpayer buy insurance on a healthcare
exchange? – If YES, get help.
Lesson 3 – Filing Basics
Scenario 3
Q 5? Dependents
Q 6? EITC Let’s talk about that.
(Is child a qualifying child?)
(Is grandchild?
Lesson 3 – Filing Basics
What is the EIC?
• A refundable tax credit available to eligible TPs who do not earn
high incomes
• Qualifying TPs can receive a refund even if they have no filing
requirement, owe no tax, & had no income tax withheld
• 2014: Maximum EIC for families with three or more children is
Lesson 29
3 ––Filing
Income Credit (EIC)
Qualifying for the EIC
• Three sets of rules:
1. General eligibility rules for everyone
2. Rules for TPs with one or more qualifying children
3. Rules for TPs who do not have a qualifying child
• Review Pub 4012 (Tab i), Summary of EIC Eligibility
Requirements; focus on Part A & Part D
• Avoid common EIC filing errors:
• Incorrectly reported income
• Incorrectly reported SSNs
• Married TPs incorrectly filing
as Single or Head of Household
• Claiming a non-qualifying child
Lesson 29
3 ––Filing
Income Credit (EIC)
Rules for Taxpayers with Qualifying Children
• Claiming a child who is not a qualifying child is one of
the most common EIC errors; make sure you apply
the rules correctly.
• Review Pub 4012 (Tab I, page I-4):
• Summary of EIC Eligibility Requirements, Part B
• EIC General Eligibility Rules Interview Tips
• EIC with a Qualifying Child
Interview Tips
• Qualifying Child of More than
One Person
Lesson 29
3 ––Filing
Income Credit (EIC)
Rules for Taxpayers without Qualifying Children
Rules are presented in Pub 4012 (Tab i) Part C, & in the Interview
•Must be at least age 25 but under age 65 as of December 31
•Cannot be the dependent of another person
• Check Part I, question 13 on Form 13614-C
•Must have lived in the U. S. more
than half the year
Lesson 29
3 ––Filing
Income Credit (EIC)
Scenario 4
ITIN return:
Q 7? Filing Requirements
Q 8? EITC.
Q9? Dependents
Lesson 3 – Filing Basics
Determining Alien Status
• Nonresident aliens taxed differently from resident aliens
• See Pub 4012 (Tab L), ITIN returns Determining
Residency Status decision tree
• Green card test
• An individual with a green card is,
for tax purposes, a resident alien
• But not the only test!
Lesson 73 – Unique
Filing Basics
Filing Status & Exemption Situations
Exemption for Nonresident Alien Spouse
• What are two ways a citizen or resident alien who is married to a
nonresident alien can claim the personal exemption for their spouse?
• Treat the spouse as resident alien on a joint return, or
• Treat the spouse as a nonresident alien on a Head of Household or
Married Filing Separately return.
• TPs must declare in writing that they are choosing to treat a spouse as
a resident alien on a joint return.
Lesson 73 – Unique
Filing Basics
Filing Status & Exemption Situations
Dependency Exemptions
The dependency tests for a qualifying relative or qualifying child apply
in the same way to citizens or resident aliens
• There may be unique issues with the support test & the
citizen/resident test. Refer to:
• Pub 4012 (Tab C) Personal Exemptions Interview Tips
• Pub 17, Chapter 3, Citizen or Resident Test
• Interactive Tax Assistant: Who Can I Claim as a Dependent? & How
Much Can I Deduct for Each Exemption I Claim?
• Special rules for children born overseas & adopted children
Lesson 73 – Unique
Filing Basics
Filing Status & Exemption Situations
Scenario 5
Q 10? Filing Status
Q 11? EITC
Lesson 3 – Filing Basics
Scenario 6
Q 12? Education Credits
Q 13? Let’s talk about education.
Lesson 3 – Filing Basics
Taxable Scholarship Income
• Taxable scholarship income may be reported on Form W-2 & Form
• If the TP did not receive a
Form W-2, the taxable amount
should still be reported
• Review Pub 4012 (Tab D) Tax
Treatment of Scholarship &
Fellowship Payments
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Education Credits Introduction
• Education credit amounts are based on qualified education
expenses paid during 2014
• For an overview of education credits, see Pub 4012 (Tab J),
Highlights of Education Tax Benefits
• To help guide your interview, use Pub 4012 (Tab J),
Education Credits
• Disqualifying conditions include if a TP:
• Can be claimed as dependent on someone else’s return
• Files as Married Filing Separately
• Has an AGI above the limit for the TP’s filing status
• Was a nonresident alien for any part of 2014, & did not
elect to be treated as a resident alien for tax purposes
Lesson 23
3 ––Filing
Dependents / Eligible Institutions
• To claim the credit for a student’s qualified expenses, the
TP must claim the student as a dependent
• Expenses must have been paid to an eligible educational
• A searchable database of all accredited schools is available
Lesson 23
3 ––Filing
Qualifying Expenses
• Qualified education expenses are tuition & certain related expenses
required for attendance at an eligible educational institution
• The definition for “certain related expenses” differs between the
lifetime learning credit & the American opportunity credit
• Necessary proof of expenses includes such documents as receipts or
Form 1098-T, Tuition Statement, issued by the school
• Qualified expenses must be reduced by the
amount of any tax-free educational
assistance TPs receive
• TPs can claim payments that were
prepaid for the academic period that begins
in the first three months of the next year
Lesson 23
3 ––Filing
American Opportunity Tax Credit
• Available for the first 4 years of college per eligible student
• The credit covers 100% of the first $2,000 & 25% of the
second $2,000 of eligible expenses, up to the amount of tax
or a maximum of $2,500
• 40% of the credit is a refundable credit
• See Form 8863 Instructions for more information
Lesson 23
3 ––Filing
Lifetime Learning Credit
• The credit is 20% of the first $10,000 of eligible expenses,
up to the amount of tax or a maximum of $2,000
• The credit is non-refundable
• Eligible students are not required to be enrolled at least
half-time or in a degree program, & a felony drug
conviction is not a disqualification
• Refer to Pub 4012 (Tab J), Education Benefits for basic
Lesson 23
3 ––Filing
Choosing Between the Credits / No Double Benefits
TPs cannot receive multiple benefits for the same student’s
TPs have several options for
claiming education expenses:
1. American opportunity credit
or lifetime learning credit
2. Tuition & fees deduction
3. Itemizing on Schedule A
4. Reporting as business expenses
on Schedules C or C-EZ
Lesson 23
3 ––Filing
Scenario 7
Q 14? IP-TIN
Q 15? Interest income.
Q 16? Social Security.
Lesson 3 – Filing Basics
Identity Protection
• The IRS Identity Protection PIN (IP PIN) is a unique 6 digit number
that is assigned annually to victims of identity theft for use when
filing their federal tax return to show that taxpayer is the rightful
filer of the return. For the 2013 filing season, IRS expects to provide
more than 1.2 million IP PINs. The IP PIN will allow these individuals
to avoid delays in filing returns and receiving refunds.
• When assisting taxpayers who are victims or may be victims of
identity theft at VITA/TCE site, you should:
• Consult Tab P of the 4012
• Contact site coordinator for help with state issues.
Lesson 3 – Filing Basics
Determining Taxable & Nontaxable Income
What are the differences between taxable & nontaxable income?
• Nontaxable (excludable)
• Gifts & inheritances
• Exempt income
• Earned
• Received for work, such as
wages, business income
• Unearned
• Interest income from
• Review Pub 4012 (Tab D) for
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Determining Taxable & Nontaxable Income
• Remember: Volunteers probe taxpayers to determine all sources of
• Media: Videos & Audio for topic
• FAQ, Taxable & Nontaxable Income
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Reporting Wages, Salaries, Tips, etc.
• Form W-2: Issued to employees by January 31, reports wages & other
• Pub 4012 (Tab D) How/Where to Enter Income
• Pub 4012 (Tab D) Form W-2 Instructions
• Pub 4012 (Tab D) How to Enter Tips
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Reporting Wages, Salaries, Tips, etc.
• Remember:
• Household employees earning less than $1,700 may not
receive a Form W-2, but the income must be reported
• Self-employed TPs who receive tips should include their
tips in gross receipts on Schedule C
• Media: Videos & Audio for topic
• Tax Map: Tip Income
• Missing Form W-2 (YouTube video & Podcast)
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Interest Income
• Interest income (unearned income) is reported on Form 1099-INT
• Common sources: savings accounts, CDs, saving certificates,
government bonds, interest on insurance proceeds, loan interest
• Use TaxWise Interest Statement worksheet
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
State & Local Refunds
• On Form 1099-G, refund will be in box 2
• Report only if:
• TP itemized deductions last year, &
• Received an income tax benefit.
• Do not report if state sales tax was deducted.
• Taxable refund is reported on Form 1040, line 10
• Link to state tax
refund worksheet
in TaxWise
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
• Do not confuse child support payments with alimony
• Where do you get alimony information?
• Ask the TP
• Alimony payments under an agreement
executed before 1985 are out of scope
Lesson 83 – Income
Filing Basics
from Form 1040 Lines 7-11
Lesson 9 – Business Income
See Tab D, pD12-14 for
Form 1099- MISC will
not automatically flow
to the return. You must
add it your self.
Lesson 3 – Filing Basics
Social Security & Railroad Retirement Benefits
• Pub 4012 (Tab D, p D-25) Railroad Retirement, Civil Service, & Social
Security Benefits shows how to enter data in TaxWise
Lesson 14
3 ––Filing
– Social Security Benefits; Form 1040 Line 20a
Finding the Taxable Portion
The taxable amount, if any, depends upon:
•Filing status & other reportable income
•Whether the benefits were the TP’s only source of income
• If the benefits were the only source of income, the benefits are
generally not taxable, & the TP need not file a federal income tax
• If the TP received other income, complete the Social Security Benefits
Worksheet to calculate the taxable portion.
Lesson 14
3 ––Filing
– Social Security Benefits; Form 1040 Line 20a
Scenario 7
•Q 17? Standard Deduction
•Q 18? Balance Due.
Amount Owed
• Payment options for taxes owed are:
• Check or money order submitted with Form 1040-V,
Payment Voucher
• Electronic funds withdrawal
• Credit card
• Electronic Federal Tax Payment System (EFTPS)
Lesson 30
3 ––Filing
& Amount of Tax Owed
Amount Owed
• Review Pub 4012 (Tab K), Balance Due Returns
whenever you prepare a return that has an
amount owed
• TPs who cannot pay the full amount owed may
request one of the following agreements:
1. Pay in full within 60 or 120 days with no fee
2. Monthly installment payments using Form 9465,
Installment Agreement Request, with a fee
• Balance due payments must be made by the
April filing due date to avoid penalties &
Lesson 30
3 ––Filing
& Amount of Tax Owed
Scenario 8
•Q 19? Filing Status
•Q 20? “Child”?
•Q 21? Taxes Withheld?
•Q 22? Child & Dependent Care Expenses?
•Child Tax Credits
•Deduction for Child & Dependent Care
•Let’s talk about that.
A Nonrefundable Credit
• Child tax credit allows TPs to claim a nonrefundable tax credit of up to
$1,000 per child
• TPs who claim the child tax credit, but do not qualify for the full
amount, may be able to also take the refundable additional child tax
credit by completing Form 8812, Additional Child Tax Credit
• Review Pub 4012 (Tab G), Child Tax Credit
Lesson 25
3 ––Filing
Tax Credit
• To be a qualifying child for the child tax credit, the child must be
claimed as the TP’s dependent
• A child must meet certain criteria to qualify for the credit
• Review Pub 4012 (Tab G), Child Tax Credit Interview Tips
• There are special rules for children of divorced or separated parents, as
well as children of parents who live apart
• TaxWise automatically determines a TP’s eligibility based on entries for
children on the
Main Information Screen
Lesson 25
3 ––Filing
Tax Credit
Calculating the Credit
• TaxWise will automatically calculate the credit, provided
you have correctly completed the:
• Dependent section of the Main Information Screen
• Form 1040 through the retirement savings contribution
credit line
• Part I of Form 5695, & Schedule R
Lesson 25
3 ––Filing
Tax Credit
Refund or Tax Due
Form 8888, Allocation of Refund, is used to deposit a refund
into up to three bank accounts
• For more information, review Pub 4012:
• Tab K, Split Refund Option
• Tab K, Pointers for Direct Deposit of Refunds
• Tab K, Balance Due Returns
• Double-check accuracy of routing & account numbers for
direct deposit refunds
• Refund status can be checked at “Where’s
My Refund” feature on, or
calling 1-800-829-1954
Lesson 30
3 ––Filing
& Amount of Tax Owed
U.S. Savings Bonds
• TPs may purchase U.S. savings bonds with their tax refunds for
themselves or for co-owners, such as children or grandchildren
• Form 8888 is used to buy savings bonds
• Series I bonds are sold at face value &
accrue interest until redeemed or until
they reach their final maturity in 30 years
• Series I bonds pay interest based on a
combination of a fixed rate & a
semiannual inflation rate
Lesson 30
3 ––Filing
& Amount of Tax Owed
Third Party Designees
• TPs may choose to authorize another person to
discuss their tax return with the IRS
• Volunteer tax preparers must never be designated
as the 3rd party designee
Lesson 30
3 ––Filing
& Amount of Tax Owed
Printing & Storing Returns
• TPs must receive copy of their tax return. To prepare packet:
• Print the entire return using TaxWise
• Ensure names & social security numbers are legible on every sheet
• Assemble the packet starting with Form 1040, followed by each form,
schedule, & attachment in order, based on the sequence number
• Show TP printed copy of return, & verify key information is correct
• Advise TPs to keep tax-related documents for at least 3 years
• Review Pub 4012:
• Tab K, Last page, Distributing Copies of the Return
Lesson 32
3 ––Filing
Basics the Interview
Completing the Return
• What are the final steps to completing a return?
1. Run diagnostics on the return
2. Print the return
3. Give the return to your designated quality
4. Assemble the return & all necessary
Lesson 31
3 ––Filing
Review of the Tax Return
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