Scenario #1
SCENARIO #1
TAX LAW TOPICS COVERED
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Review 1040
Who must file
Filing Status
Exemptions: personal exemption
Intro into income- taxable v. nontaxable
W-2, Unemployment Income, Interest income
Standard deduction
Refundable and nonrefundable credits
a. EITC
ACA- full year coverage through employer w/o 1095-B or C
Form 8888 into Savings Account (75%) & Checking (25%)
OBJECTIVES
Students will be able to
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Understand the 1040
Login into TaxWise and start a tax return
Identify the client’s filing status
Explain what a personal exemption is
Input income from a W-2, 1099-G and 1099-INT
Use 4012 to distinguish the difference between taxable and nontaxable income
Explain the EITC for a filer without qualifying children
Finish a basic tax return
MATERIALS
Online
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Interview & Intake Video http://vimeo.com/82165491
Print
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1040 Formula Worksheet
Login Instructions one pager
Volunteer scenario packet for scenario 1 and 2 (homework)
Tax Forms
1. 13614-C Intake and Interview sheet for William Washington- Scenario #1
2. Tax forms for William Washington
a. William’s SSN card
b. W-2, Wage and Tax Statement for The Wash Quarter’s
c. 1099-G, Certain Gov’t Payments for Employment Development Dept.
d. 1099-INT, Interest Income for Bank of Yourtown
e. Bank account numbers
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SCENARIO OVERVIEW FOR INSTRUCTOR
William is a single filer with W-2, Interest Income and Unemployment Compensation.
REVIEWING 1040
Reference Tab K in Pub 4012: Form 1040 Navigation Guide (K-1, 2)
OPENING THE LESSON
Handout Scenario 1 Packet to volunteers
Review the objectives of the scenario with the volunteers and tell them what exactly they will be learning. Go over the
documents included
1. 13614-C Intake and interview form
2. Supporting documents
3. Scenario Interview Notes
Intake & Interview
THREE THINGS YOU NEED TO KNOW ABOUT THE INTAKE AND INTERVIEW PROCESS
1. As a volunteer you must check taxpayer identification and SSN/ITINs for everyone on
return
2. Determine if the client is eligible for VITA services – see Scope of Service chart in
Publication 4012, Pages 8 -10
3. Review Intake and Interview form, making sure all information is filled out correctly
WITH CLASS –
Review taxpayer requirements with the volunteers – Publication 4012, Tab A-1 (and Tabs A-2
through A-3 for reference is helpful).
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Who should file and who must file
Other situations when you must file
Make sure their client has the following- Top of 13614-C
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Photo ID for all persons on the tax return
Original Social Security (SSN) or Individual Taxpayer Identification
Number (ITIN) documents for everyone on the tax return.
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Household income of $54,000 or less. Instruct volunteers to ask their
site coordinator about income restrictions at your site – you may be
able to help higher incomes
Review Job Aid in Publication 4012, Tab K-3 and K-4and the filled out 13614-C and supporting
documents. Thoroughly interview and probe all taxpayers.
Instruct volunteers to:
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Verify and confirm all information on Part I & II.
Ask all questions in their entirety, even if already filled out by client
and confirm accuracy
Confirm taxpayer’s identity and SSN or ITIN with supporting
documents and photo ID
Ensure that the documents are available for each item if taxpayer
answers “Yes” in Parts IV & V
Review part VI regarding health coverage. Use flow charts in Section
ACA 1-3 in your 4012 to determine next steps
Ask the client if there were any questions they didn’t understand
After reviewing above information, confirm that William has completed the following:
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Met the taxpayer requirements
Completed the intake and interview sheet and has supporting documentation
Determine if the client has a filing requirement
Determine if further information is needed in regards to ACA, Part VI of the 13614-C.
Not in this case since William has health coverage all year.
Show volunteers Intake and Interview video – http://vimeo.com/82165491
CONDUCTING THE LESSON
Starting Tax Return - Publication 4012, Tab N
Now that volunteers have determined that William is eligible for VITA, it’s time to start the tax
return. Hand out Login Instructions one pager and take class step by step.
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TAXWISE –
1. Have all students successfully login into TW. Advise your students that their screen
should be a green color and they should see the Help Center page. Refer to
Publication 4012, Tab N 1-3
2. Input information from Part I of Intake Sheet into Main Information sheet. Refer to
Pub. 4012, Tab K-6
3. Taxpayers must choose a five digit PIN number and today’s date- recommend using zip
code. Have the class enter 12345 for taxpayers PIN for practice. This is the client’s efile approval signature.
Filing Status - Publication 4012, Tab B
THREE THINGS YOU NEED TO KNOW ABOUT FILING STATUS:
1. Filing status—is based on marital status and family situation, and determines the rate
at which income is taxed.
2. A taxpayer may be able to claim more than one filing status. The taxpayer should
choose the filing status that results in the lowest tax. The list below is in order from
the most beneficial to the least.
3. The five filing statuses are:
 Married filing jointly- married and filing the same return
 Qualifying widow(er) with dependent child- for widows/widower with
dependent children. See Pub 4012, Tab B-1
 Head of household (HOH)- Usually an “unmarried” or “considered unmarried”
person who maintains household with children. Rules are complex – See Pub
4012, Tab B-3
 Single- unmarried, legally divorced or legally separated
 Married filing separately- legally married but filing separate returns
WITH CLASS –
1. Review Part II, numbers 1 and 2 of Intake and Interview Sheet
2. Review all 5 filing statuses and use Decision Tree in Publication 4012, B-1 to identify
William’s filing status.
3. Ask volunteers what William’s filing status is? SINGLE
TAXWISE –
1. Back to Main Info on TaxWise and input William’s filing status. Refer to Publication
4012, Tab K, 6-11
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Exemptions- Publication 4012, Tab C
THREE THINGS YOU NEED TO KNOW ABOUT EXEMPTIONS:
1. There are two types of exemptions: Personal and Dependency. For this scenario, we
are only addressing a personal exemption.
2. This year’s exemption amount is $4,000. This amount is deducted from your taxable
income for every person that is claimed on your return, thus decreases the amount of
tax owed.
3. Only one exemption can be claimed per person. An exemption for a particular person
cannot be claimed on more than one tax return.
WITH CLASS Determine William’s Exemption(s) amount using the Pub. 4012, Tab C-1 $4,000
2. Review personal exemptions. Remind volunteers that exemptions reduce the income
that is subject to tax and that an exemption for a particular person cannot be claimed
on more than one tax return.
3. Ask the volunteers how many exemptions William can claim- 1 PERSONAL
1.
TAXWISE –
1. Back to Main Info on TaxWise. Refer to Pub. 4012, Tab K 6-11
2. Show that one exemption was automatically populated in box 6a and the amount is
found on the 1040 Page 2, line 42.
Income- Publication 4012, Tab D
THREE THINGS YOU NEED TO KNOW ABOUT INCOME
1. There are two types of income: taxable and nontaxable. All income, such as wages and
tips are taxable unless the law specifically excludes it. See a list of types of income in
Pub. 4012, Tab D-1.
2. Employers report wage, salary and tip income on Form W-2, Wage and Tax Statement.
Other documents you may see are: 1099-INT/DIV, 1099-G, 1099-MISC, etc.
3. Another form of income is self-employment income. Typically this is
4. Income is reported on lines 7-21 on the 1040
WITH CLASS –
Review the types of income this scenario presents- Wages, Unemployment and
interest from a savings account.
2. Instruct volunteers to turn to Publication 4012, Tab D-1 and D-3. D-1 lists taxable and
nontaxable income. Remind volunteers that they don’t need to memorize this, but to
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know where to look it up. D-3 is the main reference for types of income documents
volunteers will see and what line to input them on the 1040.
3. Identify what types of income William has. Use Pub 4012, Tab D-3 for reference, intake
sheet and supporting documents- W-2, 1099-INT and 1099-G
TAXWISE –
1. Access the forms tree on the left side of the screen and click on 1040 Page 1.
2. Show how to link from the 1040, line 7 to the form W-2 on TaxWise. Refer to Pub.
4012, Tab D-4
3. Input William’s W-2. Refer to Pub. 4012, Tab D 6-7
4. Link from 1040 line 8a to Interest Statement. Refer to Pub. 4012, Tab D-8 to D-9
5. Input William’s 1099-INT
6. Link from 1040 line 19 to the form 1099-G.
7. Input William’s 1099-G
Deductions- Publication 4012, Tab F
THREE THINGS YOU NEED TO KNOW ABOUT DEDUCTIONS
1. A deduction is a set amount (based on your filing status) that decreases your taxable
income, thus decreasing the amount of tax you owe.
2. Tax filers have the choice to take the standard deduction or itemize their deductions.
For this scenario we are only going to focus on the standard deduction.
3. Your standard deduction increases if you are 65 or over and/or blind. See Publication
4012, Tab F-1 for deduction amounts. TaxWise populates this automatically.
WITH CLASS –
1. Use Pub 4012, Tab F and review the standard deduction amounts based on filing
status, filers born before Jan. 2, 1951, and filers who are blind.
2. Using Pub 4012, Tab F-3, determine if William should take the standard deduction or
itemize? STANDARD DEDUCTION.
TAXWISE1. Show volunteers William’s deduction on William’s 1040 – PAGE 2, LINE 40
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Affordable Care Act, Publication 4012, Tab D
THREE THINGS YOU NEED TO KNOW ABOUT ACA:
1. Most people are covered by insurance through their employer, Medi-Cal, Medicare,
etc.
2. Taxpayers who receive insurance through the marketplace may be eligible for a
refundable premium tax credit.
3. Many low-to-moderate income taxpayers who do not have medical coverage will be
eligible for an exemption
WITH CLASS –
1. Review taxpayer answers on Part VI on 13614-C using the Job-Aid in Pub 4012 K 3-4
2. Identify applicable flowchart in ACA tab. Ask students which one they would use for
William? (Determining ACA- Next Steps Insurance all year. ACA-1)
3. Go through flowchart (ACA-1) with students
4. Review Minimum Essential Coverage on ACA-4 (he qualifies)
5. Finish reviewing flowchart (ACA-1) with students
6. Have students complete 13614-C gray box in part VI
TAXWISE –
1. Indicate on the tax return that taxpayer had insurance all year (Form 1040, line 61) by
checking the box.
Reviewing the Federal Tax Return
Review the 1040, line by line pointing out the different amounts and where they came from. Tie
it back to the documents and information input by the volunteers.
TaxWise –
1. Review all lines of the 1040 that have amounts in them.
2. Point out that on 1040 Pg. 2, line 66 1040 will have an amount of $xxx and introduce
EITC
Earned Income Tax Credit- Publication
4012, Tab I
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This credit is called the "earned income" credit because to qualify, you must work and have
earned income and meet certain eligibility requirements. Earned Income includes wages,
salaries, and tips that are includible in gross income and net earnings from self-employment
earnings.
THINGS YOU NEED TO KNOW ABOUT EARNED INCOME TAX CREDIT (EITC):
1. It is refundable credit = FREE MONEY
2. You have to have earned income to qualify. Earned Income includes wages, salaries,
and tips that are includible in gross income and net earnings from self-employment
earnings. Credit amount is based on earned income and family size. Pub. 4012, Tab I2. Refer to Pub. 4012, Tab I-2 Summary of EIC Eligibility Requirements Part D.
3. Taxpayer and spouse (if applicable) and all qualifying children must have a valid social
security number issued by the Social Security Administration.
WITH CLASS –
1. Show the volunteers to refer to Publication 4012, Tab I-3 to determine is Cheryl is
eligible for the EITC.
2. Does Cheryl qualify for the EITC? Yes, she has earned income and falls below the
income requirement.
TAXWISE1. Information should automatically populate if qualifying dependent information was
entered on the Main Information Sheet.
2. Select Schedule EIC Worksheet on forms tree (left) and answer all questions in RED.
Pub. 4012, Tab I-7
3. Review the return to see if the information populated – 1040 Pg. 2, Line 64a
Finishing the return- Publication 4012, Tab K
THINGS YOU NEED TO KNOW ABOUT FINISHING A RETURN
1. All returns will be e-filed
2. Bank account information needed for direct deposit- refer to Part VII of the Intake
Sheet
3. Identity Protection PIN- if client checked the “yes” in box 12 of the Intake Sheet, refer
to Pub. 4012, Tab P-4
REFUNDS:
1. Using the filers bank account and routing number, enter it into TW on Main Info Sheet
and Page 2 of the 1040.
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2. Always double check account numbers!
TAXWISE1. Enter William’s bank account information on Main Information sheet and 1040 Pg.2.
Refer to Pub. 4012, Tab K-14
2. Ensure that all federal forms are green (you don’t want to see any red!)
Then…
1. Click the “Run Diagnostics” button at the top of the page to check for mistakes or missing information. Address
any issues and click the button again until it is clear.
2. Click E-file button below the Diagnostics summary
FINISHING THE LESSON
After all volunteers have entered all documents into TaxWise for Scenario 1, ask them whether that have
any questions about the information that was taught. Review all topics that were covered and be sure to
use the questions in the PowerPoint to gauge student comprehension.
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