Frequently Asked Questions Federal - TaxGarden 

Personal Tax FAQ

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Eligibility & Basics

What is the maximum income to file 1040EZ?
The maximum income range to file the simple Federal form 1040EZ is $100,000.
Who qualifies to file 1040EZ?
To qualify for 1040EZ, you must be:
  • Single or Married Filing Jointly with No Dependents.
  • Your taxable income is less than $100,000.
  • Taxable interest is not over $1,500.
  • You (and your spouse if married filing jointly) must be under the age of 65 and not blind.
Who should file tax return for a deceased person?
The surviving spouse or personal representative should file a tax return on behalf of the deceased. Wages and other income the deceased person received before the Date of Death must be reported to the IRS and the State Tax Department to file the final return of the deceased person.
Who Qualifies as Disabled?
A citizen who cannot engage in any substantial gainful activity because of their physical or mental condition is considered disabled. The condition is usually validated by a physician who will certify that the condition has lasted or is expected to last continuously.
Is it possible to claim charitable donations (tithing) on a 1040EZ?
Charitable contributions must be itemized to be claim for deduction. But, itemizing deductions is not an option in Form 1040EZ.
What Tax Credits can be claimed with 1040EZ?
The only tax credit that can be claimed is the earned income credit (EIC). A refund is possible even if the tax payer does not owe any tax or is without a qualifying child to claim.
What if you are held up at a combat zone and can't file the tax on time?
If you were serving in, or in support of, the U.S. Armed Forces in a designated combat zone or contingency operation, you may be able to file later.
What if there is a Name Change?
If there is a Name Change because of marriage, divorce, or for any other reason, be sure to report the change to the Social Security Administration (SSA) before filing the return.
When is it required to enter P.O. Box Number?
P.O. Box Number is required only if the local post office does not deliver mail to any address.
What if I don't have a Social Security Number?
Social Security Number (SSN) or an Individual Taxpayer ID Number (ITIN) is a compulsory data to file your tax return. If you don't have a SSN or an ITIN, you'll need to apply for one or the other before you can file your return.
How to apply for SSN online?
If you qualify to receive a SSN, applying for one is easy. Go to social security online, the administration's website, and search for form SS-5. This is the form you will have to fill out to get you a Social Security Number.

Form W-2

How to determine a taxpayer’s occupation?
Occupation is determined with what that taxpayer does for a living and their main source of income. Though this does not affect the tax returns, this information is important and is required to file tax return.
What to do in case of missing or incorrect Form W-2?
If you do not get a Form W-2, you still have to report your earnings. If you lose your FormW-2 or if it is incorrect, you should request your employer for a new one.
Who qualifies for Retirement Plan benefits?
This applies to the ones who participate in a retirement plan. Deduction contributions to a traditional IRA may be limited based on the taxpayer’s income.
Who is counted as Dependent?
There are two types of dependents, a qualifying child and a qualifying relative. If a tax payer is a dependent of another person, they cannot claim any dependents on their own return.
Who is a Statutory Employee?
A Statutory Employee is someone whose wages are not subjected to income tax withholding but are subjected to Social Security and Medicare tax withholdings. They are issued a W-2 but certain wages and expenses are reported on a schedule C, even if they do not pay self-employment tax.
What if Box 20 of W-2 is empty?
This means that you are not subjected to any locality tax. If your W-2 Box 20 is blank, you should leave it blank on your tax form as well.
Are Scholarships and Fellowship Grants tax free?
Qualified scholarship and fellowship grants are treated as tax-free amounts if a set of conditions are met.
Where to find Employer Identification Number (EIN)?
This 9 digit number is assigned to tax payers who employ workers and are required to file business tax returns. This can be picked out from line B of a W-2 form that the employer sends at the end of a tax year.
What jobs are listed under Household Employee?
Housekeepers, maids, babysitters, gardeners, cooks and others who work in or around a private residence are the job types that are listed under Household Employee.
Are Scholarships Taxable?
If you are required to work or provide a service as a part of the scholarship, it may be taxable.
What is Medicare Tax Withholding?
Medicare tax withheld is a payroll tax that is deducted from the employee's total pay. It is a part of the Social Security tax system.
Who collects payroll taxes on behalf of the Govt. Tax bodies?
Your employer will act as a collection agency for the IRS until these payroll taxes are submitted properly. The employer is placed in a fiduciary trust relationship for this purpose.
What is Earned Income?
Earned income includes all kinds of taxable income and wages you make from working or get from certain disability payments. This can also be the gross pay and benefits from work for an employer or self-employment earnings- That is your net income from a business you own.
What are Unearned Incomes?
This includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.
What are the earned incomes listed under 1040EZ?
This includes salaries, wages, tips, professional fees, and taxable scholarship or fellowship grants.
What is the State of Residence?
It is the State where the tax payer’s main home is located and it is where they intend to live for most of the tax year, its determined as the State of residence. Residency rules vary by State, it's best to cross check it with the Department of Revenue.
What is tax payer’s foreign address?
When a tax payer spends a greater part of the tax year living and earning in another Country out of the United States, the country and address in which they live and earn is generally considered as their foreign address. Thought this is the tax payer’s foreign address, they may also choose to have a different foreign mailing address for mail correspondence.
What is Part-year Residency?
A part-year resident of a State is someone who has their main home located there for a portion of the tax year. Taxpayers who relocate from one State to a new State will often be part-year residents of both States.
Who are Nonresidents?

A non-resident of a state is someone who lived there for a temporary reason or when you didn't live there during the tax year but received income from another State because you:

  • Worked there;
  • Received income from sources located in that state, such as rental property;
  • Received income from sources located in that state as a beneficiary of an estate or trust.
Who are Residents?
A resident is someone who lives in a State for the entire tax year.
What are Supplemental Unemployment Benefits?
These are benefits that are received from a company financed fund are not to be confused with unemployment compensation from the government. These benefits are wholly taxable like the wages earned, and are reported on Form W-2.

Form 1099-INT

What happens to Early Withdrawal Penalty?
When a certificate or bond is terminated and an early withdrawal is made, a penalty is charged by the bank and withheld directly from your proceeds from the certificate.
What is Investment Expense?
This is an amount of Interest you paid for your share of investment expenses of a single-class REMIC.
What is Foreign Tax Paid?
This is nothing but any foreign tax paid on interest. This amount in always reported in U.S. dollars.
What is Foreign Tax Withheld?
This is an amount you report towards Foreign Taxes. Double taxation can be avoided if you claim an itemized deduction or a tax credit on your Income Taxes. Always remember to covert foreign tax into US dollars.
What is Tax Exempt Interest?
This is the amount of interest income that is earned by a certain way and is not subjected to Federal Income Tax. This amount may still be taxed at the state or local levels and may also be subject to the alternative minimum tax. Municipal bonds are one of the most common types of investments that pay tax-exempt interest.
What is Specified Private Activity Bond Interest?
This is an interest earned from private activity bonds and is generally is not taxable. On the other hand, any private activity bond defined in section 141 and issued after August 7, 1986 must be added to income.

Form 1099-OID

What is Original Issue Discount?
When a bond or note is issued at an amount lesser than its face value, the discount earned is Original Issue Discount. The issuer of the bond or the broker who sold the OID will file Form 1099-OID with the IRS, and send a copy to the tax payer.
Is Original Issue Discount taxable?
Original Issue Discount is assimilated when an amount of discount is earned while buying a bond or notes at a rate that is lesser that its original value. A portion of this discount is annually recognized as taxable interest.
What is Other Periodical Interest?
This is the Extra Periodical Interest amount that you might have earned during this Tax year. This interest amount is generally reported in box 2 of form 1099-OID.
What is OID on US Treasury Obligation?ddfd
Original Issue Discount on a U.S. Treasury Obligation for the part of the year you owned it is reported as interest income.

Form 1099-G

When to expect a form 1099-G?
If a refund, credit, or offset of state or local income taxes is received, you may receive a Form 1099-G.
What is Unemployment Compensation?
Unemployment compensation is any amount received under the unemployment compensation laws of the Federal and State Government. It comprises of the State Unemployment insurance benefits and benefits paid by any State or the District of Columbia.
What are the ways by which Unemployment Compensation are repaid?
Unemployment Compensation is repaid through deductions from paychecks if you are working, or from any lottery winnings or from any tax refunds.
What is Voluntary Federal Tax withheld?
Total amount of Federal Income Tax that is withheld from your benefits. Voluntary withholding is only for Federal taxes and not applicable for State or Local Taxes.

Form 1099-MISC

What is Alaska Dividend?
Soon after the Trans-Alaska Pipeline System initiated its processes, a permanent fund was formed to support the livelihood of the future generations of that region, who will no longer have oil as a resource.
Who Pays Alaska Dividend?
This Permanent Dividend Fund is paid directly by the Alaska State Government to the residents who have lived within the State for a full calendar year.
Can we consider Alaska Dividend Tax-free?
This is a non-taxable income under the State Government but is subjected to Federal Income Tax.
Where to include Alaska Permanent Fund dividends?
If you received Alaska Permanent Fund dividends, include them in the total on line 3 for your 1040EZ

Penalties & Late Payment

What if the tax can’t be paid due to certain reasons?
If the Tax can’t be paid in full amount as shown on line 12, the tax payer can ask for:
  • An installment agreement, or
  • An extension of time to pay.
What if there is a disaster situation?
While taxpayers are impacted by a disaster, the tax code may offer essential relief. Additional time is given when the original or extended due date of the return falls within the disaster period.
Why should you file an extension?
Filing a tax extension is free, easy and automatic. By submitting Form 4868 electronically or on paper by the April filing deadline, you will get more time to review your tax return.
What if there is no sufficient fund to pay the return on time?
In most cases, inability to pay is the worst reason to file an extension. The IRS also offers some payment alternatives to aid this situation. A short extension to pay, of 60 to 120 days- in this method a taxpayer still pays penalties and interests, but at a lower rate.
Can we pay the return with a credit card?
Yes! A taxpayer can consider paying the tax due with a credit card or loan. The interest on these accounts will be lower than the total penalties and fees that will be paid to the IRS in most cases.
What is the percentage of late payment penalties?
The IRS penalty is calculated at a rate of one-half percent each month on the amount of tax you still owe after the deadline. If you owe them the full amount, the penalty increases to 5 percent per month, for a maximum penalty of 25 percent.
What if the tax can’t be paid due to certain reasons?
If the Tax can’t be paid in full amount as shown on line 12, the tax payer can ask for: An installment agreement or an extension of time to pay.
What if there is a disaster situation?
While taxpayers are impacted by a disaster, the tax code may offer essential relief. Additional time is given when the original or extended due date of the return falls within the disaster period.
Why should you file an extension?
Filing a tax extension is free, easy and automatic. By submitting Form 4868 electronically or on paper by the April filing deadline, you will get more time to review your tax return.
What if there is no sufficient fund to pay the return on time?
In most cases, inability to pay is the worst reason to file an extension. The IRS also offers some payment alternatives to aid this situation. A short extension to pay, of 60 to 120 days- in this method a taxpayer still pays penalties and interests, but at a lower rate.
Can we pay the return with a credit card?
Yes! A taxpayer can consider paying the tax due with a credit card or loan. The interest on these accounts will be lower than the total penalties and fees that will be paid to the IRS in most cases.
What is the percentage of late payment penalties?
The IRS penalty is calculated at a rate of one-half percent each month on the amount of tax you still owe after the deadline. If you owe them the full amount, the penalty increases to 5 percent per month, for a maximum penalty of 25 percent.

Refund & Banking Details

When to expect a refund from the IRS?
Refunds are generally issued within 21 days after the IRS receives the tax return.
What is the fastest way to get a refund from the IRS?
If you e-file your return and choose direct deposit, you will increase the chance of receiving a fastest refund possible.
What are the ways to get tax refunds?
Direct deposit, Paper check, prepaid debit card, IRS credit and U.S. savings bonds are a few of the other ways in which you can get your hands on the taxes you overpaid.
Why should a taxpayer give the bank account details?
Banking details like, account number, Bank name, routing number and type of account is shared so that the refund is dropped in to the right person.

Miscellaneous

Who is a Third Party Designee?
Third Party Designee is someone who is authorized by you to discuss regarding your taxes with the IRS. This can be a tax preparer, a friend, a family member, or any other person you choose.
What is Taxpayer Advocate Service (TAS)?
It is an independent organization within the IRS, which ensures all tax payers are treated fairly and understand their rights.
Who is a Care Person?
Care Person is the one who takes care of all your taxation troubles. This might be your attorney, executor, personal assistant or anyone who does your math.
Why do we ask for your Designee's Phone Number?
Give the Phone Number of the person who is designated to discuss your return with IRS. Let us pass this information along with your tax form to the IRS.