Hi,
My mom has a job and earns around 10k. On top of that, she gets paid $8000 by the government as an untaxed income / pension. Do I combine this and put it under her wages (10,000 from job + $8000 by govt) section or list it separately? I have a W2 wage paper for the untaxed income and am now confused because it’s not really a wage.
No, it is not wage. There might be another question where you are supposed to put other non-taxed benefits. On he FAFSA, some benefits are not listed or included. You have to look at exactly what the question asks for.
Are you sure you have a W2 for the pension. I collect a pension…and I don’t get a W2 for that.
@thumper1 It is actually given by the government to my mother for taking care of our grandmother. I thought it was pension, but I must not know the proper word?
If your mother is being paid to take care of your grandmother, than it is wages for services she is performing, it is not a pension, and that is why it is reported on a W-2.
Add the $10k from the other job and the $8k for this job, and you have her total wages (unless there are also more jobs for which she was paid).
@BelknapPoint I’m confused. My parents filed their taxes together. For line 7 on our tax return (wages, salary, tips), the number is the sum of my dad’s job, my mom’s job ($10k one), and then also the 8k from this service.
However, my AGI doesn’t account for the 8k as this is an untaxed income, so whatever is from line 7 is 8k less for our AGI.
My issue/question becomes: the $8000 (along with being in the wages,salaries sum) is also reported under the “Untaxed income” sector of the tax returns. It wasn’t added twice to the summation of total wages (line 7), but I’m assuming that it’s listed here because it technically is BOTH an untaxed income as well as a Wage since it has a W2.
So, for CSS Profile and FAFSA, do I report this as either Untaxed or a Wage? I currently have only reported it as an untaxed income, because it technically is. Or should I report it as a wage? Or does it not matter.
Also, some of my colleges are asking for a W2. Should I send the W2 for my mother’s “service” if I report it as untaxed income?
Thank you!
Look at the W2. Was it taxed?
Yes, it’s in Box 1 of the W-2. Yes, it’s on Line 7 of the 1040. But then it gets subtracted out of AGI (probably on Line 21, because it’s not technically an “adjustment,” but I don’t have the forms instructions handy). There’s a special rule for family members providing care that’s paid for by the state.
I don’t know what the proper FAFSA presentation is, although my guess would be to include it both as wages and as untaxed income, because it’s both of those things. Wages gives you an adjustment for the FICA taxes; untaxed income adds it back to AGI. There’s no double-counting by reporting it as both.
The OP is accurately describing an unusual tax situation that didn’t exist until the last couple of years. The W-2 looks like an entirely normal W-2.
@conflictedkang which line on the tax return is used to deduct the $8k from total income and come up with a lower AGI?
@thumper1 No, it was not taxed. Specifically, no federal or state tax. There is a Social Security and Medicare tax, but that shouldn’t impact the federal tax return?
@BelknapPoint Line 21 “Other Income” … I don’t think there’s a specific line for “Untaxed income” but my mom doesn’t pay any federal or state tax (only social security and medicare but I heard those are different from federal government taxes/stuff FAFSA is looking at, please correct me if I’m wrong)
Line 21 “Other income” on the 2017 form 1040 is used to report income that is added to the total income on line 22. If you are saying that the $8k that is reported somewhere on line 7 through 21 of the 1040 is not included in the Adjusted Gross Income (AGI) found on line 37, that means it must also appear somewhere on line 23 through 35 that make adjustments to total income. Does it? Which line?
No. OP is saying, as did I, that the $8k which is included on Line 7 is backed out on Line 21. It’s therefore not included in Line 22.
Line 21 is used for all manner of odd things, some of which are negative.
What is the rule and which IRS publication provides guidance on backing the amount out on line 21 of form 1040?
Notice 2014-7 (which constitutes substantial authority, whereas Pubs are merely advisory). https://www.irs.gov/pub/irs-drop/n-14-07.pdf
See also Q&As here: https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income
Thanks allyphoe, this is information that I was not aware of it, and it’s always good to get it directly from the source. It is interesting, though, that the Q&A answer says to “include the full amount of the payments reported in box 1 of Form W-2 as wages on line 1 of Form 1040.” Line 1 of the 1040 for at least the past decade has been simply a check box for filers who are choosing the filing status “Single;” it’s not possible to enter a dollar amount on line 1.
Yeah, they mean Line 7. There’s a reason that random commentary on the IRS website isn’t considered substantial authority. It just tells you what they’re thinking and roughly what they’d prefer.