VITA/TCE INSTRUCTOR GUIDE

For Use in Preparing Tax Year 2004 Returns

VOLUNTEER INSTRUCTOR'S GUIDE

FOR USE IN IRS VOLUNTEER PROGRAMS

• Volunteer Income Tax Assistance (VITA)

• Tax Counseling for the Elderly (TCE)

For the most up-to-date tax products and information visit www.irs.gov.

Department of the Treasury

Internal Revenue Service

Publication 1155 (Rev. 2004)

Catalog Number 61267P IRSCourse Number 3004 P IRS VOLUNTEERS
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Table of Contents i

Notes to Instructor ................................................................................................vii

Introduction and Administrative Guidelines

 Instructor Notes ................................................................................N-i

 Student Text.........................................................................................1

Basic Module

Lesson 1 Getting Started

 Instructor Notes ........................................................................... N-1-1

 Student Text......................................................................................1-1

Lesson 2 Filing Status and Filing Requirements

 Instructor Notes ........................................................................... N-2-1

 Student Text......................................................................................2-1

Lesson 3 Income

 Instructor Notes ........................................................................... N-3-1

 Student Text......................................................................................3-1

Lesson 4 Adjustments

 Instructor Notes ........................................................................... N-4-1

 Student Text......................................................................................4-1

Lesson 5 Standard and Itemized Deductions and Tax Computations

 Instructor Notes ........................................................................... N-5-1

 Student Text......................................................................................5-1

Lesson 6 Miscellaneous Credits

 Instructor Notes ........................................................................... N-6-1

 Student Text......................................................................................6-1

Lesson 7 Finishing the Return

 Instructor Notes ........................................................................... N-7-1

 Student Text......................................................................................7-1

Wage Earner Module

Lesson 8 Credit for Child and Dependent Care Expenses

 Instructor Notes ........................................................................... N-8-1

 Student Text......................................................................................8-1

Lesson 9 Education Credits

 Instructor Notes ........................................................................... N-9-1

 Student Text......................................................................................9-1

Lesson 10 Earned Income Credit

 Instructor Notes ......................................................................... N-10-1

 Student Text....................................................................................10-1

TABLE OF CONTENTS
ii Table of Contents

Lesson 11 Child Tax Credit

 Instructor Notes ......................................................................... N-11-1

 Student Text....................................................................................11-1

Problem A Wage Earner Comprehensive Problems .....................................CW-1

Pension Earner Module

Lesson 12 Sale of Stock

 Instructor Notes ......................................................................... N-12-1

 Student Text....................................................................................12-1

Lesson 13 Sale of Home

 Instructor Notes ......................................................................... N-13-1

 Student Text....................................................................................13-1

Lesson 14 Pensions

 Instructor Notes ......................................................................... N-14-1

 Student Text....................................................................................14-1

Problem B Pension Earner Comprehensive Problems ...................................CP-1

Appendices

Appendix A— Integrated Training

 Instructor Notes ...........................................................................N-A-1

 Student Materials ............................................................................A-1

Appendix B—Class Syllabuses/

Suggested Class Schedules................................................................................B-1

Appendix C—Earned Income Tax Table .........................................................C-1

Appendix D—Tax Tables.....................................................................................D-1

Index .......................................................................................................................E-1
Marie’s Letter iii
iv

IMPORTANT TAX LAW CHANGES FOR 2004

Standard deduction amount increased. The standard deduction (for taxpayers 

that do not itemize deductions on Schedule A (Form 1040)) has increased. 

 Married filing jointly or Qualifying Widow(er) $9,700

 Head of household 7,150

 Single or Married Filing separately 4,850

Exemption amount increased. The amount each taxpayer can deduct for each 

exemption has increased from $3,050 to $3,100.

Standard mileage rate. The standard mileage rate for the cost of operating a car, 

van, pickup, or panel truck in 2004 increases from 36 cents a mile to 37.5 cents a mile 

for all business miles driven. 

Business meal expenses. Business-related meal expenses while traveling away 

from your tax home for business purposes increased in 2004 from 50% to 70% for 

employees subject to Department of Transportation limitations.

Schedule C-EZ allowable business expenses. The maximum amount of allowable business expenses on Form 1040, Schedule C-EZ, Net Profit From Business was 

increased from $2,500 to $5,000.

EIC INCOME AND INVESTMENT LIMITATIONS

For tax year 2004 the maximum credits are: 

• Two or more qualifying children $4,300

• One qualifying child 2,604

• No children 390

Earned Income. To be eligible for a full or partial credit, the taxpayer must have 

earned income of at least $1 but less than:

• $34,458 ($35,458 married filing jointly) and two or more qualifying children; 

• $30,338 ($31,338 married filing jointly) and one qualifying child;

• $11,490 (12,490 married filing jointly) with no qualifying children.

Adjusted Gross Income. The taxpayer’s adjusted gross income (AGI) must also be 

less than the above dollar amounts.

Investment Income. Taxpayers whose investment income is more than $2,650 

cannot claim the EIC. 
v

Education Credits. The maximum Modified Adjusted Gross Income (MAGI) 

increased to $52,000 for single and head of household taxpayers and $105,000 for married filing jointly taxpayers.

Social Security and Medicare Taxes. For 2004, the employer and employee will 

continue to pay: 

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and 

2. 1.45% each for Medicare tax (hospital insurance). 

Wage limits. For social security tax, the maximum amount of 2004 wages subject to 

the tax increases to $87,900. For Medicare tax, all covered 2004 wages are subject to 

the tax. 

Self-Employment Tax. The self-employment tax rate on net earnings remains the 

same for 2004. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). The 

maximum amount subject to the social security part for tax years beginning in 2004 

increases to $87,900. All net earnings of at least $400 are subject to the Medicare part. 

Depreciation and Section 179 Expense. The maximum section 179 deductions 

you can elect for property you place in service in 2004 is increased from $100,000 

to $102,000 for qualified section 179 property ($137,000 for qualified zone property, 

qualified renewal property, or qualified New York Liberty Zone property). This limit 

is reduced by the amount by which the cost of section 179 property placed in service 

during the tax year exceeds $410,000 (increased from $400,000).

Depreciation. Extension of time to claim the 30% special depreciation allowance. You 

still may be eligible to claim the 30% special depreciation allowance for a tax year that 

included September 11, 2001, if you meet the following requirements. 

• You timely filed your tax return for that tax year. 

• You did not claim the 30% special depreciation allowance for qualified property 

placed in service during that tax year. 

• You did not make an election not to claim the special allowance. 

Modified AGI Limit for Traditional IRAs Increases. For 2004, if you are covered 

by a retirement plan at work, your deduction for contributions to a traditional IRA will 

be reduced (phased out) if your modified adjusted gross income (AGI) is: 

• More than $65,000 but less than $75,000 for a married couple filing a joint 

return or a qualifying widow(er), 

• More than $45,000 but less than $55,000 for a single individual or head of 

household, or 

• Less than $10,000 for a married individual filing a separate return. 

For all filing statuses other than married filing separately, the upper and lower limits 

of the phaseout range increase by $5,000. 
vi

New this year all volunteers should complete Form 13615, Standards of Conduct 

Volunteer Return Preparation Program (VRPP). This form confirms the long tradition 

of quality service delivered by our most valued volunteers. In an effort to continue to 

strengthen our volunteer programs, volunteers will be asked to endorse the quality 

initiatives.

The mission of the Volunteer Return Preparation Program is to provide free basic tax 

return preparation for eligible taxpayers. Volunteers are the program's most valuable 

resource. To establish the greatest degree of public trust Volunteers have a responsibility 

to provide high quality service and uphold the highest of ethical standards. 

Participants in the Volunteer Return Preparation Program commit to the following 

standards of conduct

I will treat all taxpayers professionally, with courtesy and respect 

I will safeguard the confidentiality of taxpayer information

I will apply the tax laws equitably and accurately to the best of my ability

I will only prepare returns within the scope of my training and experience 

I will exercise reasonable care in the use and protection of equipment and 

supplies 

I will not solicit business from taxpayers I assist 

I will not accept payment for the services I provide 

Volunteer Name (print) Volunteer Signature and Date

Home Street Address Daytime Telephone Number

City, State and Zip Code E-mail Address

Sponsoring Organization Name

This form is to be retained at the Site or Partner level.

-

Standards of Conduct

Volunteer Return Preparation Program

Department of the Treasury – Internal Revenue Service

•

•

•

•

•

•

•

Cat. No. 38847H Form 13615 (Rev. 9-2004)

The Privacy Act of 1974 requires that when we ask for information we tell you our legal right to ask for the information, why we are asking for it, 

and how it will be used. We must also tell you what could happen if we do not receive it, and whether your response is voluntary, required to obtain 

a benefit, or mandatory.

Our legal right to ask for information is 5 U.S.C. 301.

We are asking for this information to assist us in contacting you relative to your interest and/or participation in the IRS volunteer income tax 

preparation and outreach programs. The information you provide may be furnished to others who coordinate activities and staffing at volunteer 

return preparation sites or outreach activities . The information may also be used to establish effective controls, send correspondence and 

recognize volunteers.

Your response is voluntary. However, if you do not provide the requested information, the IRS may not be able to use your assistance in these 

programs.

Privacy Act Notice

Form 13615

(September-2004)
Introduction vii

Where has the time gone? To our returning instructors—welcome 

back, to our new instructors—welcome. Your personal efforts and 

those of over 100,000 other volunteers are invaluable to those with 

low to moderate income, including persons with disabilities, limited 

English proficiency, and the elderly. 

We welcome your comments and suggestions for improving our 

products and encourage you to respond to the course evaluation 

surveys included in your instructor kit.

This course is designed to allow you the flexibility you need to 

teach to the needs of the students you will be assisting. All students 

must take the basic module and any combination of the other two 

modules—wage-earner or pension-earner.

Your training kit consists of the following products:

1. Publication 1155, Instructor Guide 

(the student guide is embedded)

2. Form 6744, Test

3. Form 6745, Retest

4. Publication 4012, Volunteer Resource Guide

5. Publication 4189, Test/Retest Answer Key

6. Publication 1278, Bag

7. Form 12462, Instructor Evaluation

8. Form 12467, Instructor Comments

9. Document 12107, Business Reply Labels for Evaluations

TAX YEAR 2004 PRODUCT CHANGES

Lessons 1, 6 and 14 Changes. Filing status and filing requirements, which were discussed in Lesson 1, Getting Started, are now 

discussed in Lesson 2, Filing Status and Filing Requirements. The 

Credit for the Elderly or the Disabled is discussed in Lesson 6, 

Miscellaneous Credits. Pensions are discussed in Lesson 14 instead 

of Lesson 13 which is now Sale of Home.

Interview Tips for Volunteer Assistors. To assist volunteers 

in asking the right questions, interview tips are included in the 

lessons on filing status (Lesson 2), dependency and exemptions 

(Lesson 1), the earned income credit (Lesson 10) and the child 

tax credit (Lesson 11). The interview tips are also included in 

Publication 4012, Volunteer Resource Guide.

NOTES TO INSTRUCTORS
viii Introduction

Critical Intake Questions. All sites, whether coordinated by a 

partner, individual or IRS SPEC, must ask certain critical intake 

questions. The questions and a recommended format are discussed 

in the Introduction and Administrative Guidelines. 

Expanded Publication 4012, Volunteer Resource Guide. To 

assist volunteers in “asking the right questions” to get the correct 

response from taxpayers, interview questions/tips are added under 

the tabs on filing status, dependency, exemptions, earned income 

credit and child tax credit. Technical charts, narratives, etc. are 

separate from tax software hints. 

Enhancements to Integrated Training Modules. Student and 

instructor feedback resulted in major revisions to the integrated 

training materials, introduced last year. Appendix A contains the 

revised course material, which is a comprehensive approach to 

teaching tax law and tax preparation software. There are three 

different training plans: returning students; new students; and 

military students. 

Test and Retest Modified for Tax Law Changes. The test and 

retest are designed (where appropriate) to allow volunteers to 

complete the problems using tax preparation software. 

Link & Learn Taxes on On-Line. Students can reinforce the 

tax law training in this course at their own pace. This course is 

available on-line at www.irs.gov - keyword: volunteer training. In 

coming years, this e-learning tool will replace the printed products 

being used today. 

TAX YEAR 2004 ADMINISTRATIVE HIGHLIGHTS

Volunteer Standards of Conduct. Volunteers have a responsibility to uphold the highest of ethical standards. This year all volunteers must acknowledge receipt of the Volunteer Standards of 

Conduct (Form 13615) which are discussed in the Introduction and 

Administrative Guidelines. 

Site Identification Number (SIDN) Alpha Character Change.

The letter “S” replaces the letter “P” in all SIDNs. This change is 

discussed in Lesson 7, Finishing the Return. 

Technical Resources at the Tax Preparation Site. The

Volunteer Resource Guide (Publication 4012) and Your Federal 

Income Tax Guide (Publication 17) are tools for use in classroom 

training and at the tax preparation site. Students should take their 

copy of publications 4012 and 17 used in the training class to the 

tax preparation site for technical support. 

Watch for Volunteer Quality Alerts. Volunteer Quality Alerts 

are intended to enhance the quality of volunteer-prepared returns. 

The alerts are published during the filing season (from February 

thru April) and can be accessed at www.irs.gov — Keyword: 

Volunteer Quality Alerts
Introduction ix

CUSTOMIZING THE CURRICULUM

Volunteers differ in the types of returns they prepare. In order to 

determine which modules and lessons will best serve the needs of 

your students, you or the site coordinator will need to know some 

facts about the students and their plans for volunteering. Here are 

some points to consider.

■ What tax knowledge do your students bring to class? Are they 

law school students who have all had basic tax classes? Are they 

members of a social club who have no tax knowledge? Do they 

usually prepare their own return? 

■ Where will they be working? Will students be working at a 

senior center or a shopping mall? Will they be working at the 

community center of a low income housing area?

■ Who will your students serve? Are your students primarily 

interested in working with senior citizens? Are they primarily 

going to assist low income single moms? 

Answers to these questions will help you determine the types of 

returns your students will be preparing. This, of course, will help 

you decide which modules and topics you will need to teach.

Organization of Material

The three separate training modules are comprised of various 

topics. Included in the first three modules are segments of information that are specific to international and military taxpayers. 

Basic — Covers issues all volunteers need. Topics include:

■ Personal and Dependency Exemptions

■ Filing Status

■ Who Must File — Who Should File

■ Income

■ Adjustments

■ Standard Deduction and Itemized Deductions

■ Tax Computations

■ Miscellaneous Credits

■ Finishing the Return

Wage Earner — Covers issues working families and 

individuals might have, including:

■ Child and Dependent Care Credit

■ Education Credits

■ Earned Income Credit

■ Child Tax Credit and Additional Child Tax Credit
x Introduction

Pension Earner — Contains more complex issues, those generally 

encountered by retirees and senior citizens, including:

■ Sale of Stock

■ Sale of Home

■ Pensions

■ Credit for the Elderly or Disabled (see Lesson 6, 

Miscellaneous Credits)

PLANNING THE COURSE

While every class is unique, we strive for consistency in the training that is presented to the volunteers. After customizing your 

curriculum to meet the needs of your students (see customizing 

the curriculum above), the class syllabuses in Appendix B will be 

helpful in determining how to present the information. 

The syllabuses cover a variety of training situations and are 

divided into three basic categories: New Students, Returning 

Students and a Combination of New and Returning Students. 

There is also a suggested Tax Law Refresher schedule. 

Most classes will include the Basic Module and either the Wage 

Earner or Pension Earner Module. However, in addition to covering 

the Basic Module and one other module, a class could include one 

or more topics from the other (non-covered) module. For instance, 

a Tax Counseling for the Elderly (TCE) class might include the 

Earned Income Credit lesson in addition to the Basic and Pension 

Earner modules.

CERTIFICATION AND TESTING

It is very important for volunteers to assist only with returns, 

supporting schedules and forms for which they have been trained. 

Testing and certification is mandatory for all volunteer return 

preparers. Certification and testing can be accomplished using one 

of the three methods that follow:

■ IRS’ traditional paper tests (Form 6744, Test and Form 6745, 

Retest)

■ IRS’ on-line testing (using Link & Learn Taxes) or a

■ Partner’s test approved by the IRS
Notes to

Instructors N-i

OVERVIEW AND OBJECTIVES

This section sets the stage for the course by helping volunteers 

understand and internalize the goal of the Volunteer Return 

Preparation Programs —“To provide free, top-quality service to 

eligible taxpayers.” Students can reinforce the tax preparation and 

tax law training in this course at their own pace. See the back cover 

for additional information about Link and Learn Taxes.

After completing this section the students should:

• Understand the importance of privacy and confidentially in 

their volunteer capacity

• Solicit accurate information from the taxpayers 

• Answer frequently asked taxpayer questions

• Understand the scope and sequence of this course

See Appendix B for suggested class schedules and approximate 

teaching times.

TRAINING MATERIALS AND ON-SITE RESOURCES

This section will refer to the following IRS publications and forms. 

• Form 13615, Volunteer Standards of Conduct

• Form 13614, Volunteer Return Preparation Program 

“Critical Intake Data”

See Publication 1084, Volunteer Site Coordinators handbook or the 

IRS Volunteer web site (referenced below) for additional program, 

administrative and technical information.

Publication 4012, Volunteer Resource Guide is included in 

each student training kit. The publication is designed for 

both classroom and actual site usage. 

The IRS Volunteer Web Site

Information for partners and volunteers is available on the 

Partnering Opportunities section of the IRS Web site, which 

is available by entering the key word “community network” at 

www.irs.gov.

TEACHING TIP – THE SCOPE OF THE PROGRAM

They are part of a nationwide program that boasts almost 14,000 

sites and 70,000 volunteers reaching nearly 2 million low-income 

and elderly taxpayers with needed tax preparation assistance. 

Taxpayers appreciate the assistance provided by volunteers, and 

the IRS recognizes and applauds these efforts.

INTRODUCTION AND ADMINISTRATIVE

GUIDELINES NOTES TO INSTRUCTORS
Notes to N-ii Instructors

TEACHING TIP – TAX YEAR 2004 PROGRAM CHANGES

This year the IRS is focusing on making changes that strengthen 

its business model for volunteer return preparation programs. 

Highlight each of the enhancements listed in the student guide:

• Standard intake process (Form 13614)

• Structured fact-gathering process 

• Standards of conduct (Form 13615)

TEACHING TIP – THE PROGRAM IS CONTINUALLY EVOLVING

• While quality has always been important to the volunteer 

program, the definition of quality is shifting from one based 

solely on tax return information to one encompassing the full 

range of taxpayer/volunteer interaction.

• Volunteers must ensure that they obtain complete and 

accurate information when they interview each taxpayer so 

that they have the proper basis for preparing each return. 

• Since high quality service is critical to the volunteer return 

preparation program, we must continually evolve the way we 

deliver and assess quality in these programs.

• Encourage students to monitor the IRS volunteer web site 

(see above).

TEACHING TIP – STANDARDS OF CONDUCT (FORM 13615)

Using the student text which includes an exhibit of Form 13615 

discuss all components of the “Standards of Conduct” including 

the importance of the taxpayer identifying him/herself prior to 

receiving service.

1. Caution students to gracefully decline any token of appreciation offered by a taxpayer while acknowledging the generous 

intention.

2. Convey to your students that the information they receive from 

taxpayers in their volunteer capacity is confidential and under 

no circumstances should they discuss or share the information 

with unauthorized individuals. Volunteers should contact the 

local IRS coordinator for additional information.

3. In addition to protecting taxpayer rights to privacy during the 

tax return preparation process, IRS employees are required to 

adhere to provisions of the Privacy Act of 1974 during collection 

of personal information from volunteers.
Notes to

Instructors N-iii

TEACHING TIP - CRITICAL INTAKE DATA (FORM 13614)

Using the student text which includes an exhibit of Form 13614 

discuss all components of the “Critical Intake Data” including 

the importance of the taxpayer identifying him/herself prior to 

receiving service.

TEACHING TIP - VOLUNTEER HOTLINE

Why is the Volunteer Hotline available only to participants

in this program? The hotline is available as part of the IRS’ 

commitment to providing volunteers with ongoing technical 

assistance. Emphasize that the line is not available to the general 

public. Advise volunteers to check with their Site Coordinator for 

the exact hours and days of operation.

VOLUNTEER PRODUCT INFORMATION

Using the text in student materials, advise volunteers of the tools 

available to their site coordinator (via their IRS contact) regarding 

the availability of products. See Volunteer Product Information in 

the student text.

TEACHING TIP — TRAINING EVALUATION

Evaluation forms are included in both the instructor and student 

kits. 

Table 1 lists IRS SPEC offices by Area and the corresponding 

training class number. The training class number must be entered 

on the top portion of both the student and instructor evaluations 

on the line “ACES Class Number.” This will ensure each SPEC 

Territory Office receives their applicable feedback. 

Ask your students to not answer questions 1 and 2. These questions

contain demographic information applicable to IRS employees only. 

Each instructor will collect the student evaluations and comments, 

complete an instructor evaluation and comment form, then mail 

to HQ SPEC using the business reply label included in your 

instructor kit.

These evaluation forms are scannable so they should not be folded, 

stapled, or photocopied. Please use an envelope large enough to 

accommodate the 8 1⁄2 x 11 size.

Please ensure your students use blue or black pen or pencil when 

completing these forms. Emphasize the importance of darkening 

the circles rather than placing an “X” or check mark in them. 
Notes to N-iv Instructors

Table 1: 

VITA/TCE Class Numbers (for Use with Form 12466 and Form 12462)

SPEC Office Class Number SPEC Office Class Number

Area 1 Greensboro North Carolina

Albany NY WI-2005-14 Baltimore MD WI-2004-15

Boston MA WI-2005-16 Buffalo NY WI-2005-17

Burlington VT WI-2005-18 Charleston WV WI-2005-19

Charlotte NC WI-2005-20 Columbia SC WI-2005-21

Greensboro NC WI-2005-22 Hartford CT WI-2005-23

Manchester NH WI-2005-24 Newark NJ WI-2005-25

New York City NY WI-2005-26 Norfolk VA WI-2005-27

Philadelphia PA WI-2005-28 Pittsburgh PA WI-2005-29

Portland ME WI-2005-30 Providence RI WI-2005-31

Raleigh NC WI-2005-32 Richmond VA WI-2005-33

Washington DC WI-2005-34 Wilmington DE WI-2005-35

Area 2 Indianapolis Indiana

Atlanta GA WI-2005-36 Chicago IL WI-2005-37

Cincinnati OH WI-2005-38 Cleveland OH WI-2005-39

Columbus OH WI-2005-41 Detroit MI WI-2005-42

Guaynabo PR WI-2005-44 Indianapolis IN WI-2005-58

Jacksonville FL WI-2005-60 Louisville KY WI-2005-62

Maitland FL WI-2005-63 Memphis TN WI-2005-64

Miami FL WI-2005-65 Milwaukee WI WI-2005-66

Nashville TN WI-2005-67 Panama City FL WI-2005-68

Plantation FL WI-2005-69 Tampa FL WI-2005-70

W Palm Beach FL WI-2005-71

Area 3 Dallas Texas

Austin TX WI-2005-72 Birmingham AL WI-2005-73

Dallas TX WI-2005-74 Des Moines IA WI-2005-75

El Paso TX WI-2005-76 Fargo ND WI-2005-77

Houston TX WI-2005-78 Jackson MS WI-2005-79

Kansas City MO WI-2005-80 Little Rock AR WI-2005-81

Lubbock TX WI-2005-82 New Orleans LA WI-2005-83

Oklahoma City OK WI-2005-84 Omaha NE WI-2005-85

San Antonio TX WI-2005-86 Sioux Falls ND WI-2005-87

St. Louis MO WI-2005-88 St. Paul MN WI-2005-89

Wichita KS WI-2005-90

Area 4 Phoenix Arizona

Albuquerque NM WI-2005-92 Anchorage AK WI-2005-93

Boise ID WI-2005-94 Cheyenne ND WI-2005-95

Denver CO WI-2005-96 Helena MT WI-2005-97

Honolulu HI WI-2005-98 Las Vegas NV WI-2005-99

Los Angeles CA WI-2005-100 Phoenix AZ WI-2005-101

Portland OR WI-2005-102 Sacramento CA WI-2005-103

Salt Lake City UT WI-2005-104 San Diego CA WI-2005-105

San Francisco CA WI-2005-106 San Jose CA WI-2005-107

Seattle WA WI-2005-108

Other

Overseas VITA WI-2005-109
Introduction and

Administrative Guidelines 1

BASIC

INTRODUCTION AND

ADMINISTRATIVE GUIDELINES

Welcome to the Internal Revenue Service’s (IRS) 

Volunteer Income Tax Assistance (VITA) and Tax 

Counseling for the Elderly (TCE) programs! These 

volunteer programs are very important to the IRS, 

our partners and the community. As an IRS volunteer, 

you provide a tremendous service to the American 

public and to your community. You are about to 

embark on a very challenging and rewarding task 

as an important player in tax administration.

Every year thousands of volunteers assist millions 

of taxpayers with their federal return. The people 

receiving your assistance need it the most. They 

are those with low to moderate incomes, individuals 

with disabilities, limited English proficient, and 

elderly taxpayers. Thank you for your hard work 

and dedication! 

TAX YEAR 2004 ADMINISTRATIVE ENHANCEMENTS

Standardized intake process

To complete accurate returns, you must ask certain 

questions about the taxpayers and their families. An 

intake form (Volunteer Tax Preparation Information 

Sheet-Form 13614) is available to assist you in this 

process. Form 13614 is used to screen taxpayers 

to make sure they have the necessary documents 

and that their returns are within the scope of the 

volunteer program. 

The use of Form 13614 (exhibit 1) is optional. 

However, the “critical intake data” must be captured 

at any time prior to the completion of each taxpayer’s 

return. 

A statement on page 2 contains information about 

what is expected from the taxpayer, such as treating 

the volunteers with courtesy and respect, and 

providing complete and correct information from 

which to prepare their return.

The intake form should not be signed by taxpayers. 

It should be provided to the taxpayer and attached 

to their copy of their tax return as part of their tax 

records.
Introduction and 2 Administrative Guidelines

BASIC

Structured fact-gathering process 

The following tools are available to assist volunteers in gathering 

the data necessary to prepare accurate returns. 

■ Form 13614, Volunteer Tax Preparation Information Sheet 

discussed earlier. 

■ Effective interviewing techniques discussed later in this lesson. 

■ Interview tips in Lesson 2, Filing Status and Filing 

Requirements, Lesson 10, Earned Income Credit, 

Lesson 11, Child Tax Credit and Lesson 1, Getting Started.

Standards of conduct for volunteers

Volunteers have a responsibility to provide quality service and 

to uphold ethical standards. Form 13615 (the last page of the 

highlights of changes) depicts the standards of conduct for 

volunteers. The standards of conduct will be part of the testing 

and certification process.

Site Identification Number (SIDN) Changes 

Each paper or electronically filed return should be identified with 

the appropriate “SIDN”. This will ensure that all volunteer prepared returns are correctly counted once received by the Internal 

Revenue Service. 

Your SIDN is an 8-digit number preceded by the “letter S” that 

must be entered on all returns (Forms 1040, 1040A, and 1040EZ) 

you prepare—both paper and electronic. Your site coordinator 

provides this number along with other necesary guidelines for 

completing the return.

The SIDN should appear in the “Paid Preparer’s Use Only” 

section of the return and will be discussed in detail in Lesson 7, 

Finishing the Return.
Introduction and

Administrative Guidelines 3

BASIC

Exhibit 1 —Form 13614—Page 1

TAXPAYER IDENTIFICATION

VOLUNTEER RETURN PREPARATION PROGRAM

CRITICAL INTAKE DATA

TAXPAYER MARITAL STATUS

DEPENDENTS

TAXPAYER'S INCOME 

TAXPAYER'S EXPENSES

OTHER TAXPAYER INFORMATION

1.

2.

3.

4.

5.

6.

Valid picture identification for taxpayer and spouse

Taxpayer/spouse’s name 

Taxpayer/spouse’s address

Taxpayer/spouse’s phone number

Taxpayer/spouse’s Social Security Number (SSN) or Taxpayer Identification 

Number (TIN) (need to see official documentation)

Taxpayer/spouse's birth dates

1.

2.

3.

4.

Was taxpayer single as of December 31st of the tax year?

Was taxpayer legally married and living with their spouse as of December 31?

Has taxpayer’s spouse died within the past two calendar years?

Can someone else claim the taxpayer/spouse as a dependent on his or her tax 

return? 

1.

2.

List all persons who lived in your home during the tax year and anyone living 

outside your home that you supported during the tax year.

For each listed person, please note:

a. Person’s name as shown on taxpayer identification number documents

b. Person’s birth date 

c. Person’s social security number or taxpayer identification number

d. Person’s relationship to taxpayer

e. Number of months person lived in taxpayer’s home

f. Support provided by taxpayer for each person

1.

2.

3.

How many jobs did the taxpayer/spouse have during the tax year?

Did taxpayer/spouse bring W-2s or other proof of income for the jobs noted above?

Did the taxpayer/spouse receive income not reported on a W-2? (i.e. Social Security 

payments, interest, dividends, Form 1099s, etc.)

Did the taxpayer/spouse pay for childcare during the tax year that allowed them to work? 

If yes, did the taxpayer bring the address and the identification number of the provider?

Did the taxpayer/spouse or any member of their household attend college or 

vocational school in 2004?

Did the taxpayer/spouse or any member of their family pay student loan interest? 

1.

2.

Have you ever had the Earned Income Tax Credit disallowed by the IRS?

Do you want to use Direct Deposit to your checking or savings account? If yes, 

did the taxpayer bring the account number and the routing number of the 

financial institution? 

1.

2.

Form 13614 Page 1 (Rev. 9-2004)

Instructions: These questions must be asked of each taxpayer and documented on Page 2 of this form or on a 

partner developed form.

Catalog Number 38836A Department of the Treasury – Internal Revenue Service
Introduction and 4 Administrative Guidelines

BASIC

Exhibit 1 —Form 13614—Page 2

TAX PREPARATION INFORMATION SHEET

a) Valid Picture I.D.

b) Copies of ALL W-2, 1099 Forms and proof of other income received by you and your spouse 

c) Social Security Cards or Individual Tax Identification Number (ITIN) Cards or ITIN Letters for you,

 your spouse and any others shown on the tax return 

 Did you bring a copy of your prior year's tax return? 

You will need:

YOUR INFORMATION:

First Name M.I. Last Name Social Security No. / ITIN 

SPOUSE INFORMATION:

First Name M.I. Last Name Social Security No. / ITIN 

ADDRESS: 

Street Apt. City State ZIP

Telephone Numbers: YOU SPOUSE OCCUPATION & # Jobs 

Your Home

Spouse

Cell

Date of Birth:

MARITAL STATUS:

Were you legally married as of December 31st? 

If so, were you living with your spouse as of December 31st? 

-

Did your spouse die within the last 2 years? If yes, date of death 

Can someone else claim you or your spouse as a dependent on their tax return? 

FAMILY / DEPENDENT INFORMATION – Do not include yourself or your spouse. 

Please list all persons who lived in your home and anyone living outside your home that you supported during the tax year.

Did you or your spouse have income during the tax year that was not reported on a W2? 

Did you receive Social Security payments during the tax year?

Did you receive unemployment payments during the tax year?

Did you pay for childcare during the tax year that allowed you to work? 

If yes, did you bring the address and tax identification number for the provider?

Did you or anyone in your family attend college or vocational school during the tax year?

Did you or anyone in your family pay student loan interest?

Did you own your own home during the tax year?

Have you ever had the Earned Income Credit disallowed by the IRS?

Do you want to use Direct Deposit to a savings or checking account?

If so, did you bring the account number and the routing number of the financial institution?

-

- -

/ / / /

YES

YES

YES

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

NO

YES

YES

YES

YES

YES

YES

YES

YES

YES

YES

YES

YES NO

YES NO

Name Birth Date Social Security 

Number or ITIN Relationship Months person lived with you in 2004

Did you provide more 

than 50% support for 

this person in 2004

AFTER YOUR TAX RETURN HAS BEEN COMPLETED, ATTACH THIS COMPLETED FORM TO 

YOUR COPY OF YOUR TAX RETURN.

I understand that this is a free service by volunteers. I will be patient and treat volunteers with courtesy 

and respect. I agree to provide all information necessary to complete an accurate tax return. I have 

reviewed the information contained in this document and agree that all the information is complete and 

correct. 

Business

Form 13614 Page 2 (Rev. 9-2004) Catalog Number 38836A Department of the Treasury – Internal Revenue Service
Introduction and

Administrative Guidelines 5

BASIC

TAXPAYER IDENTIFICATION

Prior to assisting a taxpayer, the volunteer must request proof of 

identity from the taxpayer. Two forms of identification are required. 

One must be photo identification such as:

• Passport

• National Identity Card

• Drivers License (U.S.)

• State Identification Card (U.S.)

• Military Identification Card

• School Photo ID

• Visa

The second form of identification must be the original or a copy of 

the Social Security Card, the ITIN Card or Letter as applicable.

One or both of the forms of identification should reflect the 

taxpayer’s current mailing address. If the taxpayer cannot 

substantiate their identity, or if the volunteer is uncomfortable 

accepting the items presented as proof of identity, the taxpayer 

should seek professional tax assistance.

PRIVACY AND CONFIDENTIALITY GUIDELINES

All volunteers involved in the Volunteer Tax Preparation Program 

must adhere to Privacy and Confidentiality Guidelines. Volunteers 

ask several personal questions in order to complete an accurate 

tax return. Taxpayers provide confidential information and trust 

it will be protected. To maintain this trust, DO NOT disclose any 

personal tax information gained as a result of the service provided. 

DO NOT openly discuss taxpayers by name in the presence of 

other volunteers or taxpayers.

Fully complete the taxpayer’s return at the time of service. DO

NOT retain taxpayer(s) documents for a follow-up visit. DO NOT 

take the taxpayers information for completion of the return outside 

the presence of the taxpayer.

In addition to protecting taxpayer rights to privacy during the tax 

return preparation process, IRS employees are required to adhere 

to provisions of the Privacy Act of 1974 during collection of personal information from volunteers.

Any gathering of volunteer name, address or other applicable personal information including any system of records are subject to 

and require the issuance of a Privacy Act Statement as follows:
Introduction and 6 Administrative Guidelines

BASIC

IRS Volunteer Income Tax Preparation and Outreach Programs 

Privacy Act Notice

Privacy Act Notice- The Privacy Act of 1974 requires that when 

we ask for information we tell you our legal right to ask for the 

information, why we are asking for it, and how it will be used. We 

must also tell you what could happen if we do not receive it, and 

whether your response is voluntary, required to obtain a benefit, or 

mandatory.

Our legal right to ask for information is 5 U.S.C. 301.

We are asking for this information to assist us in contacting you 

relative to your interest and/or participation in the IRS volunteer 

income tax preparation and outreach programs. The information 

you provide may be furnished to others who coordinate activities 

and staffing at volunteer return preparation sites or outreach 

activities. The information may also be used to establish effective 

controls, send correspondence and recognize volunteers.

Your response is voluntary. However, if you do not provide the 

requested information, the IRS may not be able to use your 

assistance in these programs.

The statement is a statutory requirement, whether the 

person being asked to supply information is an employee 

or a taxpayer or a potential volunteer.

EVALUATION PROCESS

We welcome your comments and suggestions for improving our 

products and encourage you to respond to the course evaluation 

surveys included in your kit.

Your instructor will give you specific instructions on completing 

the form. If you are taking this course self-study, please contact 

your local IRS SPEC office or your site manager for details. Your 

instructor will also give you information on how to complete this 

form on the internet and transmit directly to the vendor who will 

compile the evaluations.

SCOPE AND SEQUENCE OF THE COURSE

Most taxpayers are either wage earners or pension earners. Therefore, 

we have organized this training material in three modules: basic, 

wage earner, and pension earner. There are instances where a site 

serves both wage earners and pension earners. Your instructor has 

worked closely with the coordinator(s) at the site where you will assist 

taxpayers to determine which lessons you should learn.
Introduction and

Administrative Guidelines 7

BASIC

Basic Module

All volunteers must complete the following lessons:

Introduction

Lesson 1— Getting Started

Lesson 2—Filing Status and Filing Requirements

Lesson 3— Income

Lesson 4— Adjustments

Lesson 5— Standard and Itemized Deductions and Tax 

Computations

Lesson 6—Miscellaneous Credits

Lesson 7— Finishing the Return 

Wage Earner Module

Volunteers who will be assisting wage earners need to complete 

the following lessons:

Lesson 8—Credit for Child and Dependent Care Expenses

Lesson 9— Education Credits

Lesson 10—Earned Income Credit

Lesson 11— Child Tax Credit

Pension Earner Module

Volunteers who will be assisting pension earners are required to 

complete the following lessons:

Lesson 12—Sale of Stock

Lesson 13—Sale of Home

Lesson 14—Pensions

Those who are taking this training with the expectation of becoming instructors themselves must learn all lessons.

The sequence of lessons generally follows the order of topics on the 

tax returns which you will complete at the volunteer site. In a few 

instances, this does not parallel the order of the tax form itself. For 

example, while the entity section (taxpayer’s name, address, and 

social security number) appears first on the form, it is covered in 

the lesson on finishing the return since it is one of the last things to 

do when completing the return. (Have you ever tried to peel off one 

of the stick-on labels after you have found an error on the return?)

It is very important for you to assist only with returns and supporting schedules and forms for which you have been trained. If 

you go beyond your training, you risk making errors and causing 

difficulties for those you wish to help. Refer taxpayers with difficult 

returns, or with portions of returns that are beyond the scope of 

your training to a paid professional tax preparer.
Introduction and 8 Administrative Guidelines

BASIC

There are separate training materials available for the following 

categories of taxpayers:

Publication 678FS—Foreign Students and Scholars

Publication 678M—Military/International Student Text

Publication 678PR—Tax Issues for Puerto Rico

As a volunteer, you are not allowed to charge for your services. This 

includes taxpayer return preparation advice and return preparation. You may at times need to remind taxpayers that the assistance that you are providing is FREE. Do not solicit or accept 

donations on behalf of your sponsor, or any other individual or 

organization, while providing assistance in this program.

Assisting taxpayers includes helping to make sure they are aware 

of their rights. Publication 1, Your Rights as a Taxpayer, is available 

free, from the IRS. Taxpayers can help ensure that they receive fair 

treatment in tax matters when they are aware of their rights.

Testing and Certification

All volunteers must take the applicable test to show that they can 

complete returns accurately. You may use this text and all reference materials to complete the test. Volunteers who do not pass the 

test may take the appropriate retest. Instructions on taking and 

grading the test are in the Test and Retest Booklets.

Proof Copies of Forms

Forms imprinted in this publication were current as of the “draft” 

date shown on each form. Final forms may be found at www.irs.gov 

and may have supplemental changes. Be sure to compare the 

final forms with those in this publication and make sure 

you understand processing changes (if any) before helping 

taxpayers with their returns.

Exercises and Exhibits

It is important that you take the time to complete the exercises 

to achieve the objectives in each lesson. Studies have shown that 

long-term retention of information increases dramatically if you 

put pencil to paper in responding to questions and problems. The 

Volunteer Assistor’s Guide is your learning tool and you may mark 

it up in any way you wish.

Note: Answers to all exercises are available at the end of the 

lesson.

Each exercise is separated from the rest of the text by a border 

design. Write out your answer to each exercise, and then check it 

immediately against the answer provided. If your answer is different, work the problem again. If you need additional reinforcement, 

review any parts of the text that apply.
Introduction and

Administrative Guidelines 9

BASIC

The exercises are designed to give you practice, to emphasize what 

we think is important, and to help you complete your training successfully.

The coursebook contains a large number of exhibits of the various 

tax forms and schedules. These exhibits are numbered starting at 

the beginning of each lesson. Many of the exercises contain exhibits 

of blank forms, or part of the form, that you must complete.

Lesson Features

Introduction and Objectives 

There is a brief Introduction to each lesson or segment which provides an overview of the topics to be covered, as well as how 

to apply the information when assisting taxpayers. 

Summing Up This Section, Segment or Lesson

This boxed feature appears at the end of each lesson. It provides 

you with a summary of the main points covered in the lesson. Used 

together, the lesson summaries provide a comprehensive overview 

of the course content.

Sidebar Features

Sidebar features appear in the outer margins (left and right) of the 

text. These boxed features emphasize important points presented 

in the lesson, or provide additional, related information. Potential 

Pitfalls point out commonly made errors and indicate ways to 

avoid these errors. Alert! identifies pending legislation, tax law 

changes, or tax form changes that were expected, but not enacted or 

in final form when this publication went to print. Interview Tips 

encourages volunteers to ask probing questions to get complete 

and accurate information from the taxpayer. As a volunteer please 

confirm that you have the latest information on the tax law and 

forms before assisting your clients.

QUALITY OF SERVICE

The goal of the Volunteer Return Preparation Program is to provide high quality service. The following list suggests some ways to 

ensure that each return is prepared correctly:

■ Where possible, prepare the return using electronic filing 

software.

■ Use the fact-gathering tools described earlier, the intake form, 

Interview tips, etc.

■ Use a calculator to check your math (paper returns).

■ Refer to Publications 4012 and 17 and technical resources for 

help with complicated topics.

■ Use the checklists and worksheets provided.
Introduction and 10 Administrative Guidelines

BASIC

■ Consult with other, more experienced volunteers.

■ Call the Volunteer Hotline (described below).

■ Use the information conveyed in Volunteer Quality Alerts

Volunteer Hotline

There is a toll-free hotline available for volunteer use only. This 

hotline is a source of tax information for volunteers. When you use 

the hotline, identify yourself as a volunteer.

The hotline number is 1-800-829-8482 (829-VITA). Do not give 

this number to taxpayers. This service is generally available 

between February 1 and April 15th.

Do not use this hotline to order forms or schedules. Instead, contact 

your IRS Territory Manager.

EFFECTIVE INTERVIEWING

To complete accurate returns, you must ask certain questions about 

the taxpayers and their families. The Volunteer Resource Guide 

(Publication 4012) included in this training kit contains interview questions and decisions trees to assist you in obtaining specific technical information from taxpayers. It is important to set the 

appropriate climate to obtain this information.

It is also important to be sensitive to the needs of all taxpayers you 

assist, especially those with disabilities. All references to taxpayers 

with disabilities should reflect the individuality, equality and 

dignity of the person.

■ Refrain from using such terms as “handicapped, physically or 

mentally challenged, differently challenged”. It would be better 

to use:

■ Person(s) with a disability;

■ Persons who are blind; persons who are visually impaired;

■ Persons who are deaf; persons who are hearing impaired or 

hard of hearing;

■ Persons who use a wheelchair;

■ Persons who are physically disabled; or persons with mental 

retardation.
Introduction and

Administrative Guidelines 11

BASIC

Steps to Effective Interviewing:

1. Make necessary introductions and engage in small talk.

2. Preface what will take place during the interview.

3. Share your intentions and any hopeful results/benefits for the 

taxpayer.

4. Allow the taxpayer to share any expectations, needs, and/or 

concerns.

5. Respond with active listening skills.

A. Create a “safe” climate.

B. Remember your nonverbal listening clues.

C. Listen, then respond by:

1. restating,

2. paraphrasing, (and/or)

3. encouraging

6. Ask the first key tax question, creating an awareness about 

why the tax information is needed.

A. Make no assumptions.

B. Ask no leading questions.

C. Ask, “What have you brought with you today?”

7. Continue to ask questions. Define any terms that may be unfamiliar to the taxpayer.

8. Check your own comfort level.

9. Respond to any misunderstandings.

10. Continue with effective questioning and active listening.

11. Overcome any communication barriers.

A. Stay on track. (“I hear you.”/repeat question)

B. Allow adequate response time.

C. Avoid making assumptions.

D. Deal with taxpayers.

1. Silent (“tell me more about...”)

2. Upset (paraphrase)

E. Concentrate.

12. Indicate the taxpayer’s next steps. Inform the taxpayer about 

the VITA/TCE Programs and stress the benefits of accurate 

record keeping.

A. Express confidence in having completed an accurate tax 

return. 

B. Part cordially.
Introduction and 12 Administrative Guidelines

BASIC

WHAT IF . . . ?

Use these questions and answers to provide quick and accurate 

information to taxpayers who have administrative questions.

1. What is the CHIP Program?

The Children’s Health Insurance Program (CHIP) is designed to 

help millions of children of working families obtain affordable and 

much-needed health insurance. CHIP informational materials are 

available at IRS Tax Assistance Centers and Volunteer Income

Tax Assistance (VITA) sites. CHIP information (i.e. brochures, flyers) should be provided to VITA sites prior to the filing season. 

Volunteers at VITA site locations are not expected to answer any 

questions pertaining to this program, just to make information 

available to taxpayers visiting their sites.

2. How can I direct someone to their closest AARP 

sponsored Tax-Aide Site?

AARP Tax-Aide operates a toll-free nationwide number to help 

people find their closest Tax-Aide Site. The number is 1-888-227-

7669. The information is also available on the AARP web page. The 

address is www.aarp.org/taxaide.

3. What if a taxpayer or dependent does not have a social 

security number?

Taxpayer Identification numbers are required for all taxpayers and 

dependents. Taxpayers who do not have a social security number 

and are eligible, must apply for one by using Form SS-5, Application 

for a Social Security Card. This form is available from the Social 

Security Administration and U.S. Citizens must show proof of age, 

identity, and citizenship when they apply for a social security number. Individuals who are age 18 or older must apply at the Social 

Security Administration office in person rather than by mail.

4. Who needs an Individual Taxpayer Identification (ITIN) 

Number?

An ITIN is available for certain resident and nonresident aliens, 

their spouses, and their dependents who are not eligible for a 

SSN. To obtain an ITIN, you must complete, sign, and submit IRS 

Form W-7, Application for IRS Individual Taxpayer Identification 

Number to the Internal Revenue Service with proper documentation to support your status.

5. What if the taxpayer needs an IRS form or publication?

Most IRS offices and many post offices and libraries have IRS forms 

that taxpayers may take or photocopy. They also have the instruction 

booklets for specific forms and publications. Remind the taxpayer 

that forms can also be ordered by calling the IRS on 1-800-829-3676 

(1-800-TAX FORM) or from a fax machine dial (703) 368-9694.
Introduction and

Administrative Guidelines 13

BASIC

The IRS Internet site (www.irs.gov) provides instant access 

to federal income tax forms, instructions, publications, and 

information on free tax assistance programs, electronic tax filing, 

and more 24 hours a day. Current and prior year federal tax 

products and information are available for downloading.

6. What if the taxpayers move?

Taxpayers should use Form 8822, Change of Address, to notify the 

IRS of any change of address. If the taxpayers plan to move after 

sending the return and before a refund is received, they should 

notify their old post office and the IRS of their new address. (See 

item #5 for information on how to order Form 8822.)

7. Which address should taxpayers use, their street address 

or their post office box?

If the post office delivers mail to the post office box rather than 

to a street address, enter the P.O. box number on the line for the 

present home address.

8. What if the taxpayer needs a copy of a prior year return?

If the taxpayer needs an exact copy of a previously filed and 

processed return and all attachments (including Forms W-2), 

they must complete Form 4560, Request for Copy of Tax Return 

and mail it to the IRS address in the instructions along with the 

applicable fee for each tax year requested. 

Copies are generally available for returns filed in the current 

and past 6 years. If an exact copy of the return is not needed, 

the taxpayer may order a transcript of their return by calling 

(800) 829-1040 or completing and mailing Form 4506-T, Request 

for Transcript of Tax Return. See www.irs.gov for additional 

information — keyword: prior year return. 

9. What if the taxpayer wants to make a voluntary 

contribution to reduce the public debt?

Voluntary contributions to reduce the public debt should be made 

payable to “Bureau of the Public Debt.” The contribution may be 

sent in the tax return envelope. If the taxpayer is making a payment of tax due, as well as a contribution, there should be two 

checks or money orders in the tax-return envelope—one to pay the 

tax due and one to make the voluntary contribution. Voluntary 

contributions to reduce the public debt are considered charitable 

contributions and may be entered as an itemized deduction on 

Schedule A of Form 1040 in the year paid.

10. How long should taxpayers keep their tax returns?

Taxpayers should keep a copy of the tax return, worksheets used, 

and records of all items appearing on it (such as 1099 forms) until 

the statute of limitations runs out for that return. Usually, this is 

3 years from the date the return was due or filed, or 2 years from 

the date the tax was paid, whichever is later. They should keep 

Form W-2 until the Social Security Administration has recorded 

the earnings reflected on the forms. Keep property records 
Introduction and 14 Administrative Guidelines

BASIC

(including those on a home) as long as they are needed to figure the 

basis of the original or replacement property. Closing statements 

for a home should be kept until the home is sold. Brokerage 

statements showing the purchase price of stock should be kept 

until the stock is sold. Also, contributions to nondeductible IRAs 

should be kept until all IRA funds are withdrawn. Calculations 

determining the nontaxable portion of pension income should 

be kept until all of the pension income is taxable. For additional 

record keeping information, see Publication 552, Recordkeeping for 

Individuals.

11. What is On-Line filing?

On-line filing allows a taxpayer to file their tax return from 

home through an Internet Web site or third-party transmitter. 

Information about filing from home is included in many commercial tax preparation software packages. Also, many software companies offer tax preparation and electronic filing software that can 

be downloaded from the Web; or they provide the option for individuals to prepare their returns while logged on to the Internet.

All that is needed is a personal computer (PC), software and a 

modem to send the return data. On-line filing accommodates the 

same basic forms and schedules as electronic filing. The taxpayer is 

responsible for sending their signature document (Form 8453-OL) 

accompanying paper documents to IRS after they receive notification from the Internet on-line provider or transmitter that their 

return has been accepted by IRS. If IRS rejects the return, the taxpayer will either have to correct the information and retransmit 

the return or print it and send it as a paper return to IRS. Credit 

card and direct debit payment options are available for balance due 

returns. 

12. Are there any publications or forms that can assist a 

taxpayer that owes prior year taxes or previously had their 

refund offset to satisfy another’s debt?

IRS offers various publications and forms that are specific to these 

issues.

A. The IRS Collection Process, Publication 594, explains a 

taxpayers right and responsibility regarding payment of federal taxes. Installment Agreement Request, Form 9465, gives 

the taxpayer the option to pay a balance due through monthly 

installment payments.

B. Innocent Spouse Relief, Publication 971, addresses how one 

spouse may request relief from past taxes due solely based on 

the other spouse’s debt. Request for Innocent Spouse Relief, 

Form 8857, explains various forms of relief and who may 

qualify.
Introduction and

Administrative Guidelines 15

BASIC

C. Injured Spouse Claim and Allocation, Form 8379, allows 

a taxpayer to request relief from their spouse’s past due federal debts including back child support and past due taxes. An 

injured spouse can get a refund for his or her share of the overpayment that would be used to pay the past due amount. 

Additional information on these topics can be obtained by contacting the IRS at 1-800-829-1040, accessing their web page at 

www.irs.gov, or by visiting a Tax Assistance Center in your area.

13. Are Your Civil Rights Protected?

Publication 4053, explains that under no circumstances will 

the Internal Revenue Service tolerate discrimination by its 

employees, grantees, contractors, and/or subcontractors. These 

provisions extend to VITA and TCE Programs. Publication 4053 

or other IRS Civil Rights information should be displayed or made 

available to all taxpayers.

VOLUNTEER PRODUCT INFORMATION

As a volunteer, you may have questions about when some of IRS’ 

volunteer products will be available. You may also want to share 

any ideas you have about improving the IRS products you are currently using in your role as a volunteer. Your site coordinator’s IRS 

contact can access several tools that can answer some of your questions or help you capture your product ideas and comments.

1. How can I order IRS volunteer products? Work with your 

site coordinator. They can request most volunteer products by 

completing a Form 2333 V, Volunteer Order Form. The site coordinator forwards their order form to their IRS contact so the 

order can be filled.

2. Is there a way for me to know when IRS’ volunteer 

products will be in stock? Yes, your site coordinator’s IRS 

Contact can provide you with an IRS Status At-A-Glance report. 

See exhibit 2. This report can tell you if an IRS volunteer 

product is in stock or when stock is expected.

3. How do I tell IRS if I find a serious problem with IRS’ 

volunteer products? Your site coordinator’s IRS contact has 

access to a Problem Tracking Sheet. This can be used by your 

IRS contact to forward problems to the appropriate IRS office 

for action.

4. There are some products that I used to use. What happened

to them? Sometimes products are combined with others for 

efficiency. Others are dropped because of program changes, or there 

wasn’t much demand for the product. Your site coordinator’s IRS 

contact can give you a list of products that are no longer in use.

5. I have an idea for a new IRS product that can help me 

in my role as a volunteer. How do I get that to IRS? Your 

site coordinator is welcome to forward your product idea to their 

IRS contact, who can get the idea to the appropriate IRS staff 

for action.
Introduction and 16 Administrative Guidelines

BASIC

Exhibit 2 Sample Page from Status-At-A-Glance

TAX RETURN LESSON REFERENCES

The following pages show forms 1040EZ, 1040A, and 1040. For a 

discussion about what to put on a line, turn to the lesson in this 

text that is shown in the circle.
Introduction and

Administrative Guidelines 17

BASIC

Form 1040EZ Lesson References for Each Topic

Proof as of

June 18, 2004

(subject to change)

Do you, or your spouse if a joint return, want $3 to go to this fund? 

Taxable interest. If the total is over $1,500, you cannot use Form 1040EZ.

Department of the Treasury—Internal Revenue Service

Form Income Tax Return for Single and 1040EZ Joint Filers With No Dependents 2004 OMB No. 1545-0675

Note. Checking “Yes” will not change your tax or reduce your refund.

Presidential

Election

Campaign

(page 12)

Wages, salaries, and tips. This should be shown in box 1 of your Form(s) W-2.

Attach your Form(s) W-2.

1

1

Attach

Form(s) W-2

here.

Enclose, but

do not attach,

any payment.

2 2

Add lines 1, 2, and 3. This is your adjusted gross income.

5 Can your parents (or someone else) claim you on their return? Note. You

must check

Yes or No.

Yes. No.

5

Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0-.

This is your taxable income. 

6

6

Payments

and tax

Earned income credit (EIC).

7 7

Tax. Use the amount on line 6 above to find your tax in the tax table on pages

24–28 of the booklet. Then, enter the tax from the table on this line.

10

10

Refund

11a 11a

If line 10 is larger than line 9, subtract line 9 from line 10. This is

the amount you owe. For details on how to pay, see page 20. 

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 23.

Income

Cat. No. 11329W



4 4

12

12

Add lines 7 and 8. These are your total payments. 

8 8

9 9

Federal income tax withheld from box 2 of your Form(s) W-2.

Unemployment compensation and Alaska Permanent Fund dividends

(see page 14).

3

3

Amount

you owe

b Routing number

Account number

c Type: Checking

Enter amount from

worksheet on back.

If single, enter $7,950.

If married filing jointly, enter $15,900.

See back for explanation.

Have it directly

deposited! See

page 19 and fill

in 11b, 11c,

and 11d.

 d



Form 1040EZ (2004)

(99)

Yes No Yes No

You Spouse

Savings

Under penalties of perjury, I declare that I have examined this return, and to the best of my knowledge and belief, it is true, correct, and

accurately lists all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based

on all information of which the preparer has any knowledge.

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 11.

Daytime phone number

( )

Spouse’s occupation

( )

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 20)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

Your first name and initial Last name Your social security number

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Home address (number and street). If you have a P.O. box, see page 12. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 12.

Important! 



Label

(See page 12.)

Use the IRS

label.

Otherwise,

please print

or type.



If line 9 is larger than line 10, subtract line 10 from line 9. This is your refund. 

7

7

7

7

5

7

10

7

6

3

3

3

7

Enter Site Identification Number S

Note: Contact IRS

for site ID
Introduction and 18 Administrative Guidelines

BASIC

Form 1040A Lesson References for Each Topic

Proof as of

June 18, 2004

(subject to change)

Head of household (with qualifying person). (See page 20.)

If the qualifying person is a child but not your dependent,

enter this child’s name here.  Married filing separately. Enter spouse’s SSN above and

full name here. 

Form Department of the Treasury—Internal Revenue Service

1040A 2004 U.S. Individual Income Tax Return

OMB No. 1545-0085

Your social security number

Your first name and initial Last name Label L

A

B

E

L

H

E

R

E

(See page 19.)

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the

IRS label. Home address (number and street). If you have a P.O. box, see page 20. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 20.

Filing

status

Boxes

checked on

6a and 6b

Yourself. If someone can claim you as a dependent, do not check

box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 23)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 23)

If more than six

dependents,

see page 21.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2. 7

8a Taxable interest. Attach Schedule 1 if required. 8a

b Tax-exempt interest. Do not include on line 8a. 8b

Attach

Form(s) W-2

here. Also

attach

Form(s)

1099-R if tax

was withheld.

9a Ordinary dividends. Attach Schedule 1 if required. 9a

IRA

distributions.

11a Taxable amount

(see page 25).

11b

Enclose, but do

not attach, any

payment.

11a 11b

Taxable amount

(see page 26).

12a Pensions and 12b

annuities. 12a 12b

13 Unemployment compensation and Alaska Permanent Fund dividends. 13

14a Taxable amount

(see page 28).

Social security

benefits.

14b

14a 14b

15 Add lines 7 through 14b (far right column). This is your total income.  15

17 IRA deduction (see page 28). 17

Student loan interest deduction (see page 31).

Income

18

Add lines 16 through 19. These are your total adjustments. 20

Subtract line 20 from line 15. This is your adjusted gross income. 

18

21

Dependents:



Check only

one box.

If you did not

get a W-2, see

page 24.

Form 1040A (2004)

IRS Use Only—Do not write or staple in this space.

(3) Dependent’s

relationship to

(1) First name Last name you

20

21

Adjusted

gross 

income

Important! 

Cat. No. 11327A

Otherwise,

please print

or type.

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 57.

(99)

10 Capital gain distributions (see page 25). 10

Presidential

Election Campaign

(See page 20.)  Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund?  No Yes

You Spouse

19 Tuition and fees deduction (see page 31). 19

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child (see page 21)

4

5

16 Deduction for clean-fuel vehicles (see page 28). 16

b Qualified dividends (see page 25). 9b

7

2

1

3

3

3

3

4

3

14

14

14
Introduction and

Administrative Guidelines 19

BASIC

Form 1040A Lesson References for Each Topic

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration

of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

5

5

8

15

9

6

11

6

10

7

7

10

11 7

7

7

7

7

7

7

7 Enter Site Identification S

Note: Contact IRS

for site ID
Introduction and 20 Administrative Guidelines

BASIC

Form 1040 Lesson References for Each Topic

Proof as of

June 18, 2004

(subject to change)

Department of the Treasury—Internal Revenue Service 1040 U.S. Individual Income Tax Return

For the year Jan. 1–Dec. 31, 2004, or other tax year beginning , 2004, ending , 20 OMB No. 1545-0074

Your first name and initial Last name Your social security number

(See

instructions

on page 19.)

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the IRS

label.

Otherwise,

please print

or type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

Presidential

Election Campaign

1 Single

Filing Status 2 Married filing jointly (even if only one had income)

Check only

one box.

3

Qualifying widow(er) with dependent child (see page 20)

6a Yourself. If someone can claim you as a dependent, do not check box 6a

Exemptions b Spouse

(4) if qualifying

child for child tax

credit (see page 21)

c Dependents: (2) Dependent’s

social security number

(3) Dependent’s

relationship to (1) First name Last name you

If more than four

dependents, see

page 21.

d Total number of exemptions claimed

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7

Income 8a Taxable interest. Attach Schedule B if required 8a

b Tax-exempt interest. Do not include on line 8a 8b Attach

Forms W-2 and

W-2G here.

Also attach

Form(s) 1099-R

if tax was

withheld.

9a Ordinary dividends. Attach Schedule B if required 9a

10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) 10

11 Alimony received 11

12 Business income or (loss). Attach Schedule C or C-EZ 12

Enclose, but do

not attach, any

payment. Also,

please use

Form 1040-V.

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 Other gains or (losses). Attach Form 4797 14

15a IRA distributions 15a 15b b Taxable amount (see page 25)

16a Pensions and annuities 16a b Taxable amount (see page 25) 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F 18

19 Unemployment compensation 19

20a Social security benefits 20a b Taxable amount (see page 27) 20b

21 21

22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22

IRA deduction (see page 29) 25

23

27

26

One-half of self-employment tax. Attach Schedule SE

29

Self-employed health insurance deduction (see page 33)

27

30

29

Self-employed SEP, SIMPLE, and qualified plans

31

30

Penalty on early withdrawal of savings

32

31

Alimony paid b Recipient’s SSN 

Add lines 23 through 34a 35

32

Subtract line 35 from line 22. This is your adjusted gross income 

33

Adjusted

Gross

Income

36

If you did not

get a W-2,

see page 22. Form

Married filing separately. Enter spouse’s SSN above

and full name here. 

Cat. No. 11320B





Label

Form 1040 (2004)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) If

the qualifying person is a child but not your dependent, enter

this child’s name here. 

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

25

26

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

Boxes checked

on 6a and 6b

No. of children

on 6c who:

Dependents on 6c

not entered above

Add numbers on

lines above 

● lived with you

● did not live with

you due to divorce

or separation

(see page 21)

34a 34a

Student loan interest deduction (see page 31)

33

35

Important!

Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund? 

You must enter

your SSN(s) above.

No Yes

You Spouse

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

36

4

5

Deduction for clean-fuel vehicles (see page 29) 23

b Qualified dividends (see page 23) 9b

2004

24 Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

28 Health savings account deduction. Attach Form 8889 28

7

2

1

3

3

3

3

3

3

3

14

14

4

4 4

4

13

12
Introduction and

Administrative Guidelines 21

BASIC

Form 1040 Lesson References for Each Topic

Proof as of

June 18, 2004

(subject to change)

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 63 through 69. These are your total payments 

Form 1040 (2004) Page 2

37 Amount from line 36 (adjusted gross income) 37

Check

if:

38a

Tax and

Credits

38a

Single or

Married filing

separately,

$4,850

If you are married filing separately and your spouse itemizes deductions, or

you were a dual-status alien, see page 34 and check here 

b

38b

39 39

40 Subtract line 39 from line 37 40

41

If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on

line 6d. If line 37 is over $107,025, see the worksheet on page 35

41

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 43

47

48

53

Education credits. Attach Form 8863

46

51

Other credits. Check applicable box(es):

50

55

56

Add lines 46 through 54. These are your total credits

50

Subtract line 55 from line 45. If line 55 is more than line 45, enter -0- 

55

Self-employment tax. Attach Schedule SE

56

Other

Taxes

57

71

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59

58

60

Add lines 56 through 61. This is your total tax 

61 61

63 Federal income tax withheld from Forms W-2 and 1099 63

64 2004 estimated tax payments and amount applied from 2003 return 64

Payments

65

Amount paid with request for extension to file (see page 56) 68

67

Excess social security and tier 1 RRTA tax withheld (see page 56) 66

68

70

69 Other payments from:

72a 72a

73 73

If line 70 is more than line 62, subtract line 62 from line 70. This is the amount you overpaid

74 74

Amount of line 71 you want refunded to you 

Refund

75

Amount of line 71 you want applied to your 2005 estimated tax 

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and

belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

75

You were born before January 2, 1940, Blind.

Spouse was born before January 2, 1940, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

59

Household employment taxes. Attach Schedule H

60

69

Amount

You Owe

Sign

Here Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 70 from line 62. For details on how to pay, see page 57 

b

Direct deposit?

See page 56

and fill in 72b,

72c, and 72d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

b

d





70

49

46

Retirement savings contributions credit. Attach Form 8880

57

58

Advance earned income credit payments from Form(s) W-2

71



Child tax credit (see page 40)

49 Credits from:

53

51

Additional child tax credit. Attach Form 8812

66

67

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

Joint return?

See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

44

45

47

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 43 and 44 

Credit for child and dependent care expenses. Attach Form 2441

48

If you have a

qualifying

child, attach

Schedule EIC.

44

45

65

Spouse’s occupation

( )

Form 1040 (2004)

● People who

checked any

box on line

38a or 38b or who can be

claimed as a

dependent,

see page 34.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 58)? Third Party

Designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

54

Foreign tax credit. Attach Form 1116 if required

54

a Form 8396 b Form 8859

52 52

Adoption credit. Attach Form 8839

62 62

Type:

c Form 8885

Total boxes  checked 

7

7

7

7

11

10

7

7

14

3

11

6

9

15

8

6

5

5

5

S

Note: Contact IRS

for site ID
Introduction and 22 Administrative Guidelines

BASIC

TAXWISE HINTS

Each year the Internal Revenue Service contracts with a tax preparation software vendor to provide free software to our volunteers. 

This year you will find TaxWise hints integrated throughout the 

text. They will be at the end of each lesson just before “Summing 

Up This Lesson” or “Summing Up This Section.”

  SUMMING UP THIS SECTION  

 Remember that the information used to prepare an individual’s income tax return must be treated as confidential.

 Use the steps for effective interviewing.

 The “critical intake questions” must be asked of the taxpayer 

prior to preparing the return. See Form 13614.
Notes to

Instructors N-1-1

LESSON OVERVIEW AND OBJECTIVES

This lesson will explain what is needed to begin to prepare an individual federal income tax return. Emphasis is placed on the importance of insuring that the taxpayer’s (or dependent’s) name and 

social security number match IRS records. 

See Appendix B for suggested class schedules and approximate 

teaching times.

After completing this lesson the student should be able to:

• Explain the importance of requiring a social security card for 

the tax preparation.

• Identify the documents that could be used in lieu of a social 

security card.

• Determine which taxpayers need an Individual Taxpayer 

Identification Number (ITIN).

• Use the 5 tests for a qualifying dependent.

TRAINING MATERIAL AND ON-SITE REFERENCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publications or forms, you can download the files 

from www.irs.gov.

■ Form 1040A, U. S. Individual Income Tax Return and Form 

1040, U. S. Individual Income Tax Return Exemptions section 

■ Form W-7, Application for IRS Individual Taxpayer 

Identification Number 

■ Form 2120, Multiple Support Declaration 

■ Form 8332, Release of Claim to Exemption for Child of Divorced 

or Separated parents 

■ Publication 4012, Volunteer Resource Guide, is included in each 

student training kit. The publication is designed for both classroom and actual site usage. Direct the student to the tab for this 

lesson and make sure the student is aware of the content of the 

tab and how it should be used when assisting taxpayers. 

Remind volunteers how important it is to avoid overly complicated 

tax returns. If a volunteer does not feel qualified to determine if the 

taxpayer is entitled to an exemption, the volunteer should suggest 

that the taxpayer see a paid professional tax preparer.

GETTING STARTED NOTES TO INSTRUCTORS Lesson 1
Notes to N-1-2 Instructors

TEACHING TIP - TAXPAYER IDENTIFICATION NUMBERS

It is important to stress to students that they must explain the 

reason for asking a taxpayer questions of a personal nature. The 

loss of a child, even if that child was stillborn or only lived briefly, 

can still be painful for a taxpayer. Similarly, other deaths in the 

household can remind taxpayers of painful experiences.

GUIDED QUESTION - TAXPAYER IDENTIFICATION NUMBERS (ITINS)

FOR ALIENS

IRS Individual Taxpayer Identification Numbers (ITINs) for Aliens

Nonresident or resident aliens who do not have and are not eligible 

to get a SSN, must apply for an ITIN. The Internal Revenue 

Service issued a revised Form W-7, Application for IRS Individual 

Taxpayer Identification Number (ITIN), with new processing rules 

and procedures on December 17, 2003. The new procedures require 

ITIN applicants to file a federal (U.S.) income tax form with the 

Form W-7 unless certain exceptions are met. For more details, see 

Form W-7 and its instructions. It usually takes about 4–6 weeks to 

get an ITIN.

If they already have an ITIN, enter it wherever the SSN is 

requested on the tax return.

Note: An ITIN is for tax use only. It does not entitle one to social 

security benefits or change employment or immigration status 

under US law.

1. Who must have an ITIN? An ITIN is required for individuals 

who have US income and do not have and are not eligible to get 

a SSN. 

2. If a U.S. resident’s spouse is not eligible for a social 

security number but the couple want to file a joint 

return, does the spouse need to apply for an ITIN? Yes.

IRS INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER FOR

THE MILITARY

Exception for Overseas Military:

All military personnel stationed overseas (not currently assigned to 

a U.S. base or post) may apply for an ITIN for their spouse and/or 

dependent(s) without attaching a tax return (procedure described 

below). The IRS suggests, however, that whenever possible they do 

file the application with their return so IRS can process both the 

application and the return together. 
Notes to

Instructors N-1-3

Procedure For Filing An ITIN Application Without Attaching a Tax 

Form:

If an ITIN applicant is a spouse or dependent (reason “d” of “e” 

on Form W-7) of a member of the U.S. military stationed oversees, 

they may apply for the ITIN in advance of filing the related tax 

return. The applicant must indicate their relationship by marking the appropriate reason for applying, Spouse of (check box “e”) 

or Dependent of (check box “d”) and notate on the adjacent line the 

name of the U.S. person and their SSN. In addition, you must check 

box “h” (Other) and notate on the adjacent line “Overseas Military.” 

(Dependents must be otherwise eligible and appropriate identification documents must be provided.) Once the application is sent, you 

should wait for the ITIN to be issued before filing the tax return.

GUIDED QUESTION - DEPENDENCY TEST

1. Define the term dependent. (For federal income tax purposes, 

a dependent is a person who meets the five qualification tests 

prescribed by the Internal Revenue Service.) 

2. How does the relationship or member of household test 

apply to adopted or foster children? (An adopted child 

meets the relationship test. If a child is adopted and begins living with the taxpayer in the middle of the year, the taxpayer 

may claim an exemption for the child even though the child did 

not live with the taxpayer for the entire year.) (A foster child or 

children must live with you as a member of your household for 

the entire year to qualify as your dependent.) 

3. Name the different ways that a person can meet the 

citizen or resident test. (A person can meet this test if he 

or she, for some part of the tax year, is either a U.S. citizen or 

resident, or a resident of Canada or Mexico.) 

4. Generally, how does someone meet the joint return test?

(A person generally meets this test by being married and not 

filing a joint return or married filing jointly only to claim a 

refund.)

5. To what types of income does the term gross income

refer? (Gross income refers to all taxable income in the form 

of money, property, and services, including all unemployment 

compensation and certain scholarships.) 

6. What are the two exceptions to the gross income test?

(The test does not apply to the taxpayer’s children under the age 

of 19 or to the taxpayer’s children under the age of 24 who are 

full-time students.)
Notes to N-1-4 Instructors

GUIDED QUESTIONS - SUPPORT TEST

1. How much of a person’s support must a taxpayer provide 

in order to claim that person as a dependent? (In general, 

a taxpayer must provide more than half of a person’s total 

support for the entire year.) 

2. What are the two exceptions to the support test? (Multiple 

support and children of divorced or separated parents are the 

two exceptions to the support test.) 

3. When can capital items, like cars, be included as 

support? (When they are solely for the dependent’s own use.) 

4. How does the amount used to decide whether a person 

meets the support test differ from that used for the gross 

income test? (The gross income test considers taxable income 

only, whereas the support test considers all of the dependent’s 

income-both taxable and nontaxable.)

GUIDED QUESTIONS - DIVORCED OR SEPARATED PARENTS

1. In the case of separated or divorced parents who, 

together, provide over half of a child’s support, which 

parent can claim the dependency exemption? (The parent 

who has custody of the child for the greater part of the year, 

unless a divorce decree or separation agreement provides 

otherwise.) 

2. What is the purpose of Form 8332? (Form 8332 is signed by 

the custodial parent in order to allow the non-custodial parent 

to claim the dependency exemption.)

TEACHING TIP - DEPENDENCY EXEMPTIONS

1. When determining the number of exemptions, volunteers 

should not assume that taxpayers will have the same number 

of exemptions on their current return as they did on last year’s 

return. Information about deaths or births in a taxpayer’s 

household might not be volunteered right away and may require 

some probing on the part of the assistor/counselor.

2. You may wish to remind students that a taxpayer who can be 

claimed as a dependent on another person’s return cannot claim 

a personal exemption for himself or herself on his or her own 

return. This is true even if the other taxpayer does not claim the 

dependency exemption.

SUBJECT REVIEW - DEPENDENTS AND SSNS/ITIN

Emphasize that all dependents must have a taxpayer identification 

number. Tell students that taxpayers who need to acquire a social 

security number for a dependent should contact their local social 

security office. 
Notes to

Instructors N-1-5

Volunteers should also tell taxpayers that a certified copy of the 

dependent’s birth certificate will be required in order to get a social 

security number. 

The application process will take a few weeks, in most cases. 

In addition, a resident or nonresident alien who does not have, or 

cannot get, an SSN should file a Form W-7 with the IRS to apply for 

an individual tax identification number (ITIN). The ITIN is entered 

on the return wherever the SSN is requested, and is used for tax 

purposes only. A taxpayer who has an ITIN and later receives a 

SSN, should no longer use the ITIN on tax returns.

GUIDED QUESTION - IDENTITY VALIDATION

What items are required to validate a taxpayer, spouse or 

dependent’s identity when preparing a tax return? A photo 

ID and social security card or other identifying document for each 

person is required.

TEACHING TIPS - ALIENS/COMMUNITY PROPERTY

1. When confronted with a situation in which the taxpayer is a 

United States resident or citizen who is married to a nonresident alien, volunteers should know that the taxpayer can file a 

joint return as long as both spouses agree to be taxed on their 

worldwide income. IRS Publication 519, Tax Guide For Aliens,

deals with this type of situation.

2. If more information is needed to answer students’ questions 

about community property states (Arizona, California, Idaho, 

Louisiana, Nevada, New Mexico, Texas, Washington, and 

Wisconsin) refer to IRS Publication 555, Community Property.
Notes to N-1-6 Instructors

STUDENT NOTES
Lesson 1 1-1

BASIC

GETTING STARTED

INTRODUCTION AND OBJECTIVES

In this lesson you will learn what you need to know 

when you begin to prepare an individual’s federal 

income tax return. Please note that two of the objectives concern the importance of insuring that the 

taxpayer’s (or dependent’s) name and social security 

number (SSN) match IRS records. 

Each person listed on a U.S. Federal individual income 

tax return must be identified by a number. Each person refers to the taxpayer, the taxpayer’s spouse if the 

taxpayer is married, and any dependent claimed on 

the return. The taxpayer identification number (TIN) 

will be a social security number for those persons 

who qualify to be issued one. All others must have an 

individual taxpayer identification number (ITIN) or 

adoption individual taxpayer identification number 

(ATIN).

After completing this lesson you should be able to: 

■ Explain the importance of requesting a social 

security card for tax preparation. 

■ Determine which taxpayers need an Individual 

Taxpayer Identification Number (ITIN)

■ Use the 5 tests for a qualifying dependent. 

SOCIAL SECURITY NUMBER

 It is extremely important that each person use the 

correct social security number. The most accurate 

information is usually located on the taxpayer’s 

original social security card. Each year hundreds 

of thousands of returns are delayed in processing 

or credit/deductions disallowed because names and 

social security numbers do not match Social Security 

Administration (SSA) records. To prevent processing 

delays in paper returns and rejected electronically 

filed returns, volunteers must check the accuracy of 

each Social Security number, as well as the spelling 

of the name associated with the number. If a taxpayer does not have a valid SSN, direct them to Form 

SS-5, Social Security Number Application. This form 

should be submitted to the nearest Social Security 

Administration Office. Explain to him/her that they 

must have a taxpayer identification number before 

you can assist them with filing the tax return.

Lesson 1

POTENTIAL

PITFALLS

Canadians have a 

number that is like 

a social security 

number, but it is 

for their old age 

pension. Do not 

use this number on 

a U.S. tax return.

Canadians often 

have both a U.S. and 

Canadian Social 

Security Number.

ALERT

Ask the taxpayer 

to show the Social 

Security Cards for 

self, spouse and 

dependents.
1-2 Lesson 1

BASIC

To verify that the taxpayer’s name and social security number 

match the government’s records, volunteers should ask for one of 

the following documents for each individual on the return. 

■ Social Security Card (original or copy) 

■ SSA 1099 benefit statements 

■ SSA letter OR a copy of last years’s tax return showing the 

needed information (if no Notice of Exception was received).

Note: Driver’s licenses and passport may not depict the name or 

number as it appears on SSA records.

INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITIN)

What is an ITIN?

An ITIN is an individual taxpayer identification number. The IRS 

issues an ITIN to individuals who are required to have a U.S. taxpayer identification number (TIN) but who do have and are not 

eligible to obtain an SSN. Federal law requires individuals with 

U.S. income, regardless of immigration status, to have to file a U.S. 

tax return. The ITIN, a nine-digit number that begins with the 

number 9 is formatted like an SSN (NNN-NN-NNNN). The ITIN 

was created for use on tax returns only for those taxpayers who do 

not qualify for a Social Security Number.

Who Needs an ITIN?

If a taxpayer must file a U.S. tax return or can be listed on a U.S. 

tax return as a spouse or dependent they must have a taxpayer 

identification number (TIN), in the form of an SSN or an ITIN. 

SSNs were discussed earlier. The issuance of an ITIN does not:

• Entitle the recipient to Social Security benefits or the Earned 

Income Credit (EIC);

• Create an inference regarding the individual’s immigration 

status;

• Give the individual the right to work in the U.S. Any individual 

who is legally eligible for employment in the U.S. must have 

an SSN.

ALERT

The Internal 

Revenue Service 

has taken several 

steps to strengthen

controls over the 

issuance of ITINs. 

ITIN applications 

(Form W-7) are now 

being processed 

by the IRS if they 

are submitted with 

original tax returns 

(this includes 

amended and 

late fi led returns). 

For exceptions to 

this requirement 

please refer to the 

instructions on the 

back of Form W-7.

The changes will 

help ensure that

ITINs are issued 

for their intended 

tax administration 

purpose for

administering

the tax code 

and not for other 

reasons, such as 

providing personal 

 identifi cation. 
Lesson 1 1-3

BASIC

Except for overseas military personnel (descibed below), all new 

ITIN applicants will have to show a federal tax purpose for seeking 

the ITIN. For those seeking an ITIN to meet their income tax filing 

obligations, this will require attaching a federal tax return to the 

Form W-7 when they are ready to file their tax return with the IRS. 

ITIN applications without proof of need for tax administration 

purposes will be rejected.

A small number of non-U.S. residents apply for an ITIN to report 

income under a tax treaty, and a small number of U.S. resident 

and non-resident applicants apply for an ITIN to report income 

from a U.S. bank or brokerage account. Neither type of applicant 

will be required to file a tax return along with their ITIN application. Non-resident applicants will be required to furnish evidence 

of their ownership of the asset that gave rise to the reporting obligation. Resident applicants will be required to furnish evidence of 

actual rather than intended ownership of the bank or brokerage 

account.

GUIDANCE ON PREPARATION OF A RETURN WHEN THE TAXPAYER

HAS AN ITIN AND PRESENTS W-2’S WITH AN INVALID SSN

What is an ITIN/SSN Mismatch?

Individual Taxpayer Identification Number (ITIN) holders 

frequently file tax returns under their ITIN with attached Forms 

W-2 showing Social Security Numbers (SSN) of other individuals 

to substantiate their withholding claims, creating an ITIN/SSN 

mismatch. A mismatch return causes IRS’ document-matching 

program to erroneously attribute the income and resulting tax to 

the SSN owner, rather than the ITIN holder. This creates inaccuracies in both the SSN owner’s tax account and Social Security 

Administration records. 

ITIN Tax Preparation Guidelines (Effective January 1, 2004)

When an individual comes to a volunteer tax preparation site 

with a W-2 reflecting an SSN requesting return preparation and 

produces an ITIN, the volunteer may prepare the tax return with 

the documents provided.
1-4 Lesson 1

BASIC

Reminder: Prior to completion of any tax return, the volunteer 

must request proof of identity. Two forms of identification are 

required. One must be photo identification such as:

Passport 

National Identity Card 

Drivers License (U.S.) 

State Identification Card (U.S.) 

Military Identification Card 

School Photo ID 

VISA

For ITIN holders, the second form of identification must be the 

original or a copy of the ITIN Card or Letter.

One or both of the forms of identification should reflect the 

taxpayer’s current mailing address. If the taxpayer cannot 

substantiate their identity, or if the volunteer is uncomfortable 

accepting the items presented as proof of identity, the taxpayer 

should seek paid professional tax assistance.

Returns prepared with an ITIN/SSN mismatch cannot be 

filed electronically. Do not change any information on the 

Form W-2. Volunteers may prepare a paper return for the 

taxpayer once identity has been verified.

The return should reflect the ITIN for the taxpayer. The erroneous 

SSN on the Form W-2 should not be used on the return.

A paper return must be filed. Publication 1345, Handbook 

for Authorized IRS e-file Providers of Individual Income Tax 

Returns, states that the information on a W-2 should never be 

altered. In order to e-file, the taxpayer identification number 

(TIN) on the W-2 must match the TIN on the federal return. 

Since the W-2 shows an SSN and the return shows an ITIN, 

these returns cannot be electronically filed. As a precaution and 

reminder to the volunteers, if the volunteer is using electronic 

return preparation software (e.g. TaxWise), the ITIN/SSN mismatch should show up as an error and the program will not 

allow the return to be e-filed. Volunteers should NOT attempt to 

override this error. The return must be printed and given to the 

taxpayer to be mailed to the IRS.

The taxpayer is not eligible for the Earned Income Tax Credit 

(EITC). Based on Chief Counsel Advice, dated May 15, 2001, if the 

taxpayer becomes a permanent resident of the United States and 

secures a valid SSN at a later date, he/she can later file amended 

returns and claim the EITC for all years for which the statute of 

limitations has not expired.
Lesson 1 1-5

BASIC

Returns prepared with no ITIN:

The new ITIN application requirements announced by IRS 

Commissioner Everson on December 17, 2003, require a federal 

tax return be associated with all Form W-7 applications (with 

some exceptions as noted in the instructions for Form W-7). 

Federal tax returns cannot be filed using electronic return 

preparation software without a TIN (taxpayer identification 

number). Therefore, guidance is being provided to allow the 

use of electronic return preparation software when completing paper returns for these taxpayers. These returns cannot 

be electronically transmitted. In this scenario, a temporary 

identification number can be used for purposes of accessing the 

electronic return preparation program and generating an 

accurate paper return.

Scenario: Taxpayer one, his spouse and his dependents (if 

applicable) are applying for ITINs by completing Forms W-7. 

The volunteer is completing the federal tax return for association 

with the taxpayers Form W-7 application. If the taxpayer is working under an erroneous social security number, that social security 

number should not be used on the return. Create the return by 

following these procedures: In the TIN field, enter the number “99” 

followed by six zeros and a numerical sequence starting with the 

number “1”. 

 For example in the scenario above, 

 The taxpayer’s TIN would be: 990-00-0001

 The spouse’s TIN would be: 990-00-0002

 The dependent’s TIN would be: 990-00-0003,

 And so on ... changing the last digits of the TIN each time a 

new taxpayer, spouse or dependent applying for an ITIN needs 

a return prepared. After 990-00-0009, the volunteer can use 

990-00-0010, 990-00-0011, etc.

Upon completion of the return:

1. Print the return package,

2. Completely cross-out in INK the TIN on each form reflecting 

the temporary number, and

3. Provide the return package to the Taxpayer to mail with Forms 

W-7 to the address shown in Form W-7 instructions.

4. If the taxpayer has a family pack that includes multiple Form 

W-7’s with one return, or multiple returns with one Form W-7, 

these forms should be staggered and stapled together to show 

the entire package as a family pack. This will prevent separation of the forms/returns that could delay the processing time.
1-6 Lesson 1

BASIC

When an individual comes in to a volunteer tax preparation site 

and needs assistance with completion of Form W-7, volunteers 

should refer taxpayers to seek professional assistance, unless a 

volunteer at that site has been specifically trained in completion 

of Form W-7 or an authorized acceptance agent is present to 

provide assistance.

Note: The taxpayer is responsible for mailing their federal tax 

return and/or Form W-7 to the IRS’ Philadelphia Service Center 

ITIN Unit, Bensalem, PA 19020. SPEC employees, partners, and/or 

volunteers may not accept these forms for submission.

NEW PROCEDURES FOR INDIVIDUAL TAXPAYER IDENTIFICATION

NUMBERS (ITINS) EXCEPTION FOR OVERSEAS MILITARY

Background:

All military personnel stationed overseas (not currently assigned 

to a U.S. base or post) may apply for an ITIN for their spouse and/

or dependents(s) without attaching a tax return. The IRS suggests, 

however, that whenever possible they do file the application with 

their return so IRS can process both the application and the 

return together.

Procedure for filing an ITIN application without attaching a tax 

form:

If an ITIN applicant is a spouse or dependent (reason “d” of “e” 

on Form W-7) of a member of the U.S. military stationed oversees, 

they may apply for the ITIN in advance of filing the related tax 

return. The applicant must indicate their relationship by marking 

the appropriate reason for applying, Spouse of (check box “e”) or 

Dependent of (check box “d”) and notate on the adjacent line the 

name of the U.S. person and their SSN. In addition, you must check 

box “h” (Other) and notate on the adjacent line “Overseas Military.” 

(Dependents must be otherwise eligible and appropriate identification documents must be provided.) Once the application is sent, you 

should wait for the ITIN to be issued before filing the tax return.

Frequently Asked ITIN Questions and Answers

What should I do if a customer comes to the site with a 

completed Form W-7 and needs a federal return completed 

to attach to the W-7 for submission to the IRS? 

 If the customer has his/her tax records and meets all other 

volunteer site requirements, such as income, type of return, 

etc., you may complete a federal tax return and any state or 

local return agreed upon for your site. 

 Unless you are an authorized acceptance agent, advise the 

customer to mail the tax return, Form W-7, and applicable 

documentation to:
Lesson 1 1-7

BASIC

 Internal Revenue Service

 Philadelphia Service Center

 ITIN Unit 

 P.O. Box 447

 Bensalem, PA 19020

 DPN280 

 Or take Form W-7 with the federal return and required identity 

documents (refer to instructions for Form W-7) to an authorized acceptance agent or the nearest IRS Taxpayer Assistance 

Center (TAC). The taxpayer can call 1-800-829-1040 to obtain 

the closest TAC in their area. Note: Currently IRS TAC will not 

prepare tax returns requiring an ITIN.

What if a customer comes in and does not have a 

SSN (Social Security Number) or ITIN (Individual 

Tax Identification Number)?

A Taxpayer Identification Number (TIN) is required to file a federal tax return. A TIN may be an SSN, or an ATIN, or an ITIN. If 

the customer is eligible for an SSN, (US citizen or Resident Alien), 

they should apply for the SSN prior to completing their federal 

return; advise the customer to complete Form SS-5, Social Security 

Number Application. Form SS-5 should be submitted to Social 

Security Administration Office. 

If the customer is not eligible for an SSN (not a U.S. Citizen or 

Resident Alien) but has a filing requirement (refer to Publication 

678, Filing Requirement) the customer must complete Form W-7, 

Application for an Individual Tax Identification Number. Unless 

you are specifically trained on how to complete Form W-7, the customer should seek professional assistance. 

 The customer may also choose to apply for an ITIN through an 

authorized Acceptance Agent. Explain to the customer that some 

agents charge a fee for this service. For a list of Acceptance Agents 

in their area the customer can call the IRS at 1-800-829-1040 or go 

to www.irs.gov and search for Acceptance Agent.

What if a customer’s spouse or dependents do not have a 

TIN or wages?

To file a joint return or claim dependents on a federal tax 

return both the spouse and dependents must have a TIN. Refer to 

instructions above for guidance on applying for an SSN, ATIN, or 

ITIN. 

What if the taxpayer comes in with the correct SSN on one 

Form W-2 and an incorrect SSN on a second Form W-2? 

Advise the taxpayer to contact the employer for the incorrect 

Form W-2 and ask for a corrected Form W-2. If he/she receives the 

corrected W-2 before your site closes for the season, he or she may 

come back to the site for free tax preparation.

What if a taxpayer or spouse has an ITIN and SSN?
1-8 Lesson 1

BASIC

Both numbers cannot be valid. If you can determine the 

valid number, you may complete the return. If you cannot determine the valid number the taxpayer should seek professional

assistance.

SUMMING UP THIS SUBJECT

■ All taxpayers and dependents listed on a tax return must have 

an identification number. 

■ An Identification Number can be either an SSN, ATIN, or an 

ITIN. 

■ Use caution when completing the entity section of the tax 

return.
Lesson 1 1-9

BASIC

PERSONAL AND DEPENDENCY EXEMPTIONS

After completing this section, you will be able to: 

■ Define personal exemption.

■ Define dependency exemption.

■ Use the five tests to determine a qualifying dependent. 

There are two kinds of exemptions: personal and dependency. 

While both exemptions are worth the same amount, different 

rules apply to each type. 

Personal exemptions are allowed to the taxpayer and to the 

taxpayer’s spouse. 

Dependency exemptions are allowed to the taxpayer for 

qualifying dependents who meet five specific tests. 

The taxpayer can usually deduct the exemption amount ($3,100 

for 2004) when figuring taxable income.

PERSONAL EXEMPTIONS

The Taxpayer 

The taxpayer can claim a personal exemption for himself or herself unless the taxpayer is eligible to be claimed as a dependent on 

another person’s return. If this is true, the taxpayer cannot claim 

an exemption for himself or herself, even if the other taxpayer does 

not actually claim the dependency exemption. 

The Spouse 

Generally, if the taxpayer’s spouse is claimed as a dependent on 

another person’s return, the taxpayer cannot claim the spouse’s 

exemption on his or her return. (One spouse is never considered the 

dependent of the other.) 

To claim an exemption for a spouse, the taxpayers must be married by December 31, the last day of the year. If the taxpayer files 

a separate return, he or she can claim the exemption for his or her 

spouse only if his or her spouse had no gross income (defined later) 

and was not the dependent of another taxpayer. This is true even if 

the other taxpayer does not actually claim the taxpayer’s spouse’s 

exemption. If a taxpayer is divorced or legally separated at the end 

of the tax year, he or she cannot claim his or her (former) spouse’s 

exemption. 

If the taxpayer’s spouse died during the year and the taxpayer did 

not remarry by December 31, the taxpayer can generally claim the 

personal exemption for the deceased spouse. This exemption can be 

claimed only if the taxpayer was not divorced or legally separated 

from his or her spouse on the date of the death and would have 

been able to claim the exemption under regular circumstances. 

ALERT

Establish if taxpayer 

was considered 

married on 12/31/04.

ALERT

For 2004 the 

exemption amount 

increased to $3,100. 

ALERT

Ask if the taxpayer’s 

spouse died during 

the year.
1-10 Lesson 1

BASIC

Following is a set of interview questions designed to familiarize you 

with probing techniques. In some cases the the question may reference topics that will be discussed in later lessons. Refer to the questions now and again when you get to applicable lessons to help you 

understand any unclear information.

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Personal Exemptions

Probe/Action: Ask the taxpayer:

Step 1: Were you married during any part 

of the tax year? (answer yes if 

state common law rules met) 

If YES, go to Step 2.

If NO, go to Step 7.

Step 2: Were you still married on 

December 31st of the tax year?

If YES, go to Step 5.

If NO, go to Step 3.

Step 3: Did you obtain a fi nal decree of 

divorce or separate maintenance 

by December 31st of the tax 

year?

If YES, you cannot claim a personal 

exemption for your former spouse. Go to 

Step 7.

If NO, go to Step 4.

Step 4: Did your spouse (or you, the 

taxpayer, if this is a fi nal return 

for the deceased) die during the 

tax year?

If YES, go to Step 5.

If NO, go back through Steps 1-3 and 

clarify answers that brought you to 

Step 4. Explain abandonment does not 

change marital status but might affect 

fi ling status. 

Step 5: Are you fi ling a joint tax return? If YES, go to Step 7.

If NO, go to Step 6.

Step 6: Did your spouse have income 

and/or can anyone else claim 

your spouse as a dependent?

If YES, you cannot claim a personal 

exemption for your spouse. Go to 

Step 7 to see about your own personal 

exemption.

If NO, you can claim a personal 

exemption for your spouse.

Step 7: Can anyone meet all fi ve 

dependency tests to claim 

you, and/or your spouse if you 

answered YES to Steps 1 and 2 

above, as a dependent?

If YES, you cannot claim a personal 

exemption for yourself, and/or spouse, 

if someone else can claim you as a 

dependent, even if the other person does 

not claim a dependency exemption for 

you or your spouse.

If NO, you can claim a personal 

exemption.

POTENTIAL

PITFALLS

Your spouse is never 

considered your 

dependent. You may 

be able to take one 

exemption for your 

spouse only because 

you are married.

ALERT

Ask if the taxpayer 

and/or spouse is 

a U.S. citizen or 

resident alien.
Lesson 1 1-11

BASIC

DEPENDENCY EXEMPTIONS

A dependent is a person, other than the taxpayer or spouse, who 

entitles the taxpayer to claim a dependency exemption. A taxpayer 

can claim a dependency exemption only if all five of the following 

dependency tests are met. 

1. Member of Household or Relationship 

2. Citizen or Resident 

3. Joint Return 

4. Gross Income

5. Support 

1. The Member of Household or Relationship Test 

To meet this test, the person must either: 

A. Live with the taxpayer for the entire year as a member of his or 

her household, or 

B. Be related to the taxpayer in one of the ways listed later, under 

Relatives who do not have to live with the taxpayer. 

Note:

A person away on temporary absences is considered to live and be 

a member of the household the entire year. Temporary absences 

include attending school, taking vacations, hospital stays due to 

illness, and military service. In addition, the relationship must not 

violate local law.

Relatives who do not have to live with the taxpayer 

A person related to the taxpayer in any of the following ways does 

not have to live with the taxpayer the entire year as a member of 

his or her household to meet this test. 

■ Child, grandchild, great grandchild, etc. (A legally adopted child 

is considered the taxpayer’s child) 

■ Stepchild 

■ Brother, sister, half brother, half sister, stepbrother, stepsister 

■ Parent, grandparent, or other direct ancestor, but not foster 

parent

■ Stepmother or stepfather 

■ Brother or sister of your father or mother 

■ Son or daughter of your brother or sister 

■ Father-in-law, mother-in-law, son-in-law, daughter-in-law, 

brother-in-law, or sister-in-law 
1-12 Lesson 1

BASIC

If a child was born alive during the year and meets the dependency 

tests, the taxpayer can take the exemption, even if the child lived 

only for a moment. No exemption is allowed for a stillborn child. 

State or local laws determine if a child was born alive or stillborn. 

A legally adopted child is considered to be the taxpayer’s child. If an 

adoption is finalized and the child begins living with the taxpayer on 

or before December 31, the member of the household test is met. 

If a foster child has lived with the taxpayer for the entire year 

(except for temporary absences) and the taxpayer cares for the child 

as his or her own, the child is treated as the taxpayer’s own child. 

A person who died during the year and was a member of the taxpayer’s household until death meets the member of household test. 

A cousin must live with the taxpayer for the entire year (except 

for temporary absences) to meet the member of household test. A 

cousin does not meet the relationship test. 

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Dependency Exemptions, Member of Household or Relationship Test

Probe/Action: Ask the taxpayer:

Step 1: Did the person live with you as 

a member of your household for 

the entire year? 

(Answer yes if your child died in the 

tax year.)

If YES, the Member of Household or 

Relationship Test is met. Proceed to the 

next test - Citizen or Resident Test.

If NO, go to Step 2.

Step 2: Is the person a qualifying 

relative? Child or descendent 

of child, child of your brother 

or sister, stepchild, brother, 

sister, half brother, half sister, 

stepbrother stepsister, parent, 

grandparent, or other direct 

ancestor, stepmother or 

stepfather, brother or sister of 

your father or mother, father-inlaw, mother-in-law, son-in-law, 

daughter-in-law, brother-in-law, 

or sister-in-law

(Answer yes if legal adoption for 

your child was fi nalized on or before 

December 31 or if the adoption is not 

yet fi nal, but the child was placed with 

you for legal adoption by an authorized 

placement agency.)

If YES, the Member of Household or 

Relationship Test is met. Proceed to the 

next test - Citizen or Resident Test.

If NO, STOP. You cannot claim this 

person as a dependent.

2. Citizen or Resident Test 

To meet this test, a person must be for some part of the year:

■ a U.S. citizen or resident, or 

■ a resident of Canada or Mexico. 

Children usually are citizens or residents of the country of their 

parents. A child born in a foreign country can be recognized as a 

U.S. citizen for tax purposes if either parent is a U.S. citizen. 

POTENTIAL

PITFALLS

There are two tests 

within the Member

of Household or 

Relationship test.

Passing this test 

requires meeting 

only one or the other 

of the test criteria.

ALERT

A foster child must 

live with the taxpayer 

the entire year 

to be considered 

for a dependency 

exemption.

ALERT

You cannot claim 

a dependency 

exemption for 

persons who do not 

have a valid taxpayer 

identifi cation number 

(TIN) except for your 

child who was born 

and died in the tax 

year.
Lesson 1 1-13

BASIC

If a taxpayer (who is a U.S. citizen) legally adopts a child who is not 

a U.S. citizen or resident, and the other dependency tests are met, 

the taxpayer can take the exemption if the taxpayer’s home is the 

child’s main home and the child is a member of the household for 

the entire tax year. 

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Dependency Exemptions, Citizen or Resident Test

Probe/Action: Ask the taxpayer:

Step 1: Was the person a US citizen or 

resident, or a resident of Canada 

or Mexico, for any part of the 

year?

If YES, the Citizen or Resident Test is 

met. Proceed to the next test - The Joint 

Return Test. 

If NO, STOP. You cannot claim this 

person as a dependent.

3. Joint Return Test 

To meet this test, generally, the taxpayer’s dependent cannot file a 

joint return. However, the joint return test does not apply if a joint 

return is filed by the dependent and his or her spouse merely as a 

claim for refund and no tax liability would exist for either spouse 

on separate returns. 

INTERVIEW TIPS

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Dependency Exemptions, Joint Return Test

Probe/Action: Ask the taxpayer:

Step 1: Did the person fi le a joint return 

for the year?

If YES, go to Step 2.

If NO, the Joint Return Test does not 

apply. Proceed to the next test 

- The Gross Income Test.

Step 2: Was a joint return fi led by the 

dependent and his/her spouse 

merely as a claim for refund and 

no tax liability would exist for 

either spouse on 

separate returns?

If YES, the Joint Return Test does not 

apply. Proceed to the next test 

- The Gross Income Test. 

If NO, STOP. You cannot claim this 

person as a dependent.

4. The Gross Income Test 

A taxpayer cannot take an exemption for a person whose gross

income equals or exceeds the exemption amount. The exemption

amount for 2004 is $3,100. 

Gross income is all taxable income in the form of money, goods, 

property, and services. It includes all unemployment compensation

and certain scholarships. It does not include welfare benefits or 

nontaxable social security benefits. 

ALERT

The Joint Return 

test is a limitation 

on claiming a 

dependency

exemption. The 

exemption is denied 

even if the other 

dependency tests are 

met for a dependent 

who fi les a joint 

return. However, the 

exemption is allowed 

if the test does not 

apply.
1-14 Lesson 1

BASIC

There are two exceptions to the gross income test. The gross income 

test does not apply if: 

■ the taxpayer’s child is under 19 years of age at the end of the 

year, or 

■ the taxpayer’s child is under 24 years of age at the end of the 

year and is a full-time student 

To be considered a student, the taxpayer’s child must attend school 

full-time for some part of each of five calendar months of the 

year. The five months need not be consecutive in order to qualify. 

School generally does not include night schools, on-the-job training 

courses, or correspondence schools. 

INTERVIEW TIPS

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Dependency Exemptions, The Gross Income Test

Probe/Action: Ask the taxpayer:

Step 1: Did the person have gross 

income of $3,100 or more during 

the year?

If YES, go to Step 2.

If NO, the Gross Income Test does not 

apply. Proceed to the next test - The

Support Test.

Step 2: Was the person your child? If YES, go to Step 3.

If NO, STOP. You cannot claim this 

person as a dependent.

Step 3: Was your child under age 19 at 

the end of the year?

If YES, the Gross Income Test does not 

apply. Proceed to the next test - The

Support Test.

If NO, go to Step 4.

Step 4: Was the child under age 24 at 

the end of the year and a fulltime student for some part of 

each of the fi ve months during 

the year?

If YES, the Gross Income Test does not 

apply. Proceed to the next test - The

Support Test.

If NO, STOP. You cannot claim this 

person as a dependent.

5. The Support Test 

The support test requires that the taxpayer provide more than half 

of a person’s total support for the entire year in order to claim that 

person as a dependent. 

There are two exceptions to the support test: 

■ Multiple support, and 

■ Children of divorced or separated parents 

(Both of these exceptions will be covered later in this section.) 

To determine if the taxpayer provided more than half of the 

dependent’s support, compare the amount that the taxpayer 

contributed to the person’s support with the entire amount of 

ALERT

The Gross Income 

test is a limitation 

on claiming a 

dependency

exemption. The 

exemption is 

denied even if the 

other dependency 

tests are met for 

a dependent that 

had gross income 

of $3,100 or more 

for the tax year. 

However, the 

exemption is allowed 

if the test does not 

apply.
Lesson 1 1-15

BASIC

support the person received from all sources. (Exhibit 1 provides a 

worksheet for figuring whether the taxpayer provided more than 

half of a dependent’s support.) 

State benefit payments like welfare, food stamps, and housing are 

considered support provided by the state, not by the parent, regardless of how the parent actually spends the funds. 

Support provided for the dependent includes support paid from 

these sources: amounts withdrawn from savings; borrowed 

amounts, such as student loans and car loans; and tax-exempt 

income, including social security benefits, life insurance proceeds, 

nontaxable pensions, gifts, and tax-exempt interest. 

Only the amount of a dependent’s own funds that is actually spent 

on support is counted. Scholarships received by fulltime students 

are not included in total support. 

Do not include in support any amounts that are: 

■ paid from a dependent’s own funds for income and social 

security taxes, 

■ paid as life insurance premiums, or 

■ not spent, but saved or invested. 

Total support items include food, clothing, shelter at fair rental 

value, education, medical and dental care, recreation, and transportation. Some support items, like food and rent, benefit more than 

one member of a household. Divide the value of these support items 

among the number of household members that benefit. Capital 

items like furniture, appliances, or autos should be included in support if the items are solely for the dependent’s own use or benefit. 

 Example 1 

Alexis, age 20, lived all year with her parents and younger sister 

in an apartment. Alexis earned $4,000 from her part-time job. She 

saved $1,000 for college and $500 was withheld for income and 

social security taxes. Alexis spent the remaining $2,500 on clothing, 

transportation, and recreation. 

Alexis provided $2,500 of her own support. The college savings 

will not be counted as support until the money is spent. The funds 

used to pay income and social security tax are not considered to 

be support. 

In order for Alexis’ parents to claim her as a dependent, they must 

provide additional support of more than $2,500. Included in support items are one-fourth of the family’s rent, utilities, grocery bills, 

and any additional amounts paid for Alexis’ medical expenses and 

education.
1-16 Lesson 1

BASIC

Exhibit 1 Worksheet for Determining Support

1)

Funds Belonging to the Person You Supported

Total funds belonging to the person you supported, including income received (taxable and

nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at

the beginning of the year

2) Amount used for support $

3) Amount used for other purposes $

4) Amount in savings and other accounts at end of the year $

(The total of lines 2, 3, and 4 should equal line 1) $

5) Lodging (Complete item a or b)

Expenses for Entire Household (where the person you supported lived)

a) Rent paid $

b) If not rented, show fair rental value of home. If the person you supported owned the home, include

this amount in line 19. $

6) Food $

7) Utilities (heat, light, water, etc. not included in line 5a or 5b) $

8) Repairs (not included in line 5a or 5b) $

9) Other. Do not include expenses of maintaining home, such as mortgage interest, real estate taxes, and

insurance.

Total household expenses (Add lines 5 through 9) $

Total number of persons who lived in household

$

10)

11)

Expenses for the Person You Supported

12) Each person’s part of household expenses (line 10 divided by line 11) $

13) Clothing $

14) Education $

15) Medical, dental $

16) Travel, recreation $

Other (specify)

$

17)

18) Total cost of support for the year (Add lines 12 through 17) $

19) Amount the person provided for own support (line 2, plus line 5b if the person you supported owned

the home) $

20) Amount others provided for the person’s support. Include amounts provided by state, local, and other

welfare societies or agencies. Do not include any amounts included on line 1. $

21) Amount you provided for the person’s support (line 18 minus lines 19 and 20) $

22) 50% of line 18 $

Is line 21 more than line 22?

Did You Provide More Than Half?

Yes. You meet the support test for the person. If the other exemption tests are met, you may claim an exemption for the person.

No. You do not meet the support test for the person. You cannot claim an exemption for the person unless you can do so under a

multiple support agreement. See Multiple Support, later.

$
Lesson 1 1-17

BASIC

Multiple Support

Sometimes, no one person provides more than half of an individual’s support, but two or more persons together do. In this situation, 

anyone who separately provides over 10 percent of the person’s 

total support and meets the other tests can claim the exemption 

for the dependent. Nonetheless, only one person can claim the 

exemption. All other persons who provided more than 10 percent 

of the support and who meet the other tests must sign a written 

statement agreeing not to claim the exemption for that year. Form 

2120, Multiple Support Declaration, is used to identify each of 

the others not claiming the exemption. The person who claims the 

exemption attaches Form(s) 2120 to his or her current year’s tax 

return and must keep for his records the signed statement from the 

person agreeing not to claim the exemption. 

Example 2 

Henry E. and Harold S. Loras each provide more than 10 percent 

of the total support of their mother Angela S. Loras, but neither 

provides more than 50 percent. Together, Henry and Harold provide more than 50 percent. They decide that Henry will claim the 

exemption this year. Exhibit 2 shows the completed Form 2120 that 

Henry will attach to his return.

Exhibit 2 Henry’s Form 2120

Form 2120 OMB No. 1545-0071

(Rev. December 2002) Multiple Support Declaration

Attachment

Sequence No. 114 Department of the Treasury

Internal Revenue Service  Attach to Form 1040 or Form 1040A.

Name(s) shown on return Your social security number

During the calendar year , the eligible persons listed below each paid over 10% of the support of:

Name of person supported

I have a signed statement from each eligible person waiving his or her right to claim this person as a dependent for any tax year

that began in the above calendar year.

Eligible person’s name Social security number

Address (number, street, apt. no., city, state, and ZIP code)

Eligible person’s name Social security number

Address (number, street, apt. no., city, state, and ZIP code)

Eligible person’s name Social security number

Address (number, street, apt. no., city, state, and ZIP code)

Eligible person’s name Social security number

Address (number, street, apt. no., city, state, and ZIP code)

Henry E. Loras xxx xx xxxx

Angela S. Loras

Harold S. Loras xxx xx xxxx

123 Marin Street, Your City, State Zip
1-18 Lesson 1

BASIC

Children of Divorced or Separated Parents 

The parent who has custody of the child for the greater part of the 

year (the custodial parent) will generally be considered as having 

provided over half of the child’s support if all of the following 

conditions are met.

■ The child received over half of his or her total support from one 

or both parents. 

■ The parents are divorced, legally separated, separated under a 

written separation agreement, or have lived apart at all times 

during the last six months of the calendar year. 

■ The child was in the custody of one or both parents for more 

than half of the calendar year. 

The custodial parent will not be considered as having provided 

over half of the child’s support if any of the following conditions 

exist. 

■ Over half of the support of the child is considered to have been 

received from a third party, such as a relative or friend, or the 

government (welfare benefits).

■ The custodial parent signed Form 8332, Release of Claim to 

Exemption for Child of Divorced or Separated Parents, or a similar statement, that allows the noncustodial parent to claim the 

exemption (this statement must be attached to the noncustodial 

parent’s return). 

■ A decree or agreement that went into effect after 1984 unconditionally states that the noncustodial parent can claim the child 

as a dependent. 

■ A qualified pre-1985 agreement provides that the noncustodial 

parent shall be entitled to the exemption for the child and the 

noncustodial parent contributed at least $600 toward the child’s 

support during the tax year, unless the pre-1985 agreement is 

modified after 1984 to specify that this provision will not apply. 
Lesson 1 1-19

BASIC

Example 3 

Ellen M. and Richard A. Stonehill are divorced. Under the terms of 

the 1984 divorce, Richard has custody of their two children, Alan R. 

and Mary E. The divorce decree specifies that Ellen can claim the 

dependency exemptions. Ellen provided $1,500 of support for each 

child. Assuming all other tests are met, Ellen can claim both children as dependents. 

If Ellen had provided only $500 of support for each child, she could 

not claim dependency exemptions for the two children. To claim 

the exemptions, she must provide at least $600 of support for each 

child. 

If the divorce occurred after 1984 and Richard and Ellen had 

agreed that Ellen would claim the dependency exemptions for the 

children, Ellen would attach Form 8332 or a similar statement to 

her tax return. Exhibit 3 shows a completed Form 8332 for Ellen.

Exhibit 3 Ellen’s Form 8332
1-20 Lesson 1

BASIC

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Dependency Exemptions, The Support Test

Probe/Action: Ask the taxpayer:

TABLE 1 Test for Support by Taxpayers Not Divorced or Separated

Step 1: Did you provide more than half 

the person’s total support for the 

year?

If YES, the person meets the Support 

Test and qualifi es as a dependent since 

all 5 tests are either met or do not apply.

If NO, go to Step 2.

Step 2: Did another person provide 

more than half the person’s total 

support?

If YES, STOP. You cannot claim this 

person as a dependent.

If NO, go to Step 3.

Step 3: Did 2 or more people together 

provide more than half the 

person’s total support?

If YES, go to Step 4.

If NO, STOP. No one can claim this 

person as a dependent.

Step 4: Did you provide more than 10% 

of the person’s total support for 

the year?

If YES, go to Step 5.

If NO, STOP. You cannot claim this 

person as a dependent.

Step 5: Did the people providing at least 

10% of the person’s total support 

for the year provide you with a 

signed statement agreeing not to 

claim the exemption?

If YES, the person meets the Support 

Test and qualifi es as a dependent since 

all 5 tests are either met or do not apply.

If NO, STOP. You cannot claim this 

person as a dependent.

TABLE 2 Test for Support of Child by Divorced or Separated Taxpayers

Step 6: Were the parents of the child ever 

married?

If YES, go to Step 7.

If NO, use TABLE 1, Test for Support 

by Taxpayers Not Divorced or 

Separated. Go to Step 1.

Step 7: Were the parents divorced or 

legally separated, separated 

under a written agreement, or did 

they live apart the last 6 months 

of the year?

If YES, go to Step 8.

If NO, use TABLE 1, Test for Support 

by Taxpayers Not Divorced or 

Separated. Go to Step 1.

Step 8: Did one or both parents provide 

more than half the child’s total 

support?

If YES, go to Step 9.

If NO, use TABLE 1, Test for Support 

by Taxpayers Not Divorced or 

Separated. Go to Step 1.

Step 9: Did one or both parents have 

custody of the child for more than 

half the calendar year?

If YES, go to Step 10.

If NO, use TABLE 1, Test for Support by 

Taxpayers Not Divorced or Separated. 

Go to Step 1.

Step 10: Did you have custody of the 

child for more than half the 

calendar year?

If YES, go to Step 11.

If NO, go to Step 12.

Step 11: Did you sign a Form 8332 or 

similar statement releasing the 

exemption?

If YES, STOP. You cannot claim this 

person as a dependent.

If NO, the person meets the Support Test 

and qualifi es as a dependent since all 5 

tests are either met or do not apply.

Step 12: Did the custodial parent provide 

you with a signed Form 8332 or 

similar statement releasing the 

exemption?

If YES, the person meets the Support 

Test and qualifi es as a dependent since 

all 5 tests are either met or do not apply.

If NO, STOP. You cannot claim this 

person as a dependent.
Lesson 1 1-21

BASIC

Exhibit 4 Support Test for Children of Divorced or Separated Parents

Are the parents divorced or

legally separated, separated

under a written agreement, or

did they live apart the last 6

months of the year?

Is there a decree or

agreement executed

after 1984 that

unconditionally entitles

the noncustodial parent

to the exemption?

Start Here

No

Yes







Did one or both parents

furnish over half of the child’s

total support?

Is the child in the custody of

one or both parents for more

than half of the year?

Did the custodial parent sign

a Form 8332 or similar

statement releasing the

exemption?







Yes

Yes

Yes





No

No





Did any one person Yes

provide over half of the

child’s total support?

The person who provided over

half of the child’s support meets

the support test.

Is there a decree or

agreement executed

before 1985 (and not

modified after 1984)

that entitles the

noncustodial parent to

the exemption?

Did the noncustodial

parent provide at least

$600 of the child’s

support during the

year?

No







No

No



No

Yes

Yes







No

Yes

See Multiple Support.

The custodial parent meets the

support test.

The noncustodial parent meets

the support test.
1-22 Lesson 1

BASIC

DETERMINING THE NUMBER OF EXEMPTIONS TO CLAIM

When determining the number of exemptions to claim, first look 

at the personal exemptions and then review each of the tests for 

dependency exemptions. There are many factors to consider as well 

as several major exceptions.

REMEMBER: Do not claim an exemption for a person who 

can be claimed on another return.

Exhibit 5 Can You Claim an Exemption for a Dependent?

Was the person either a member of your household for the entire tax

year or related to you? (See Member of Household or Relationship

Test.)

You cannot

claim an

exemption

for this

person.

You can

claim an

exemption

for this

person.

Start Here

No

Yes

No

Yes









 Was the person a U.S. citizen or resident, or a resident of Canada or

Mexico, for any part of the tax year?1

Did the person file a joint return for the year?2

Did you provide more than half the person’s total support for the

year? (If you are a divorced or separated parent of the person, see

Support Test for Child of Divorced or Separated Parents.)

3

Did the person have gross income of $2,900 or more during the tax

year?4

Was the person your child?

Was your child under 19 at the end of the year?

Was your child under 24 at the end of the year and a full-time

student for some part of each of five months during the year? (See

Gross Income Test.)















Yes

Yes

No

Yes

Yes

Yes

No









No

No

No

No





Yes

1

If the person was your legally adopted child and lived in your home as a member of your household for the entire tax year, answer “yes” to this question. 2

If neither the person nor the person’s spouse is required to file a return, but they file a joint return only to claim a refund of tax withheld, answer “no” to this

question.

3

Answer “yes” to this question if you meet the multiple support requirements under Multiple Support Agreement.



4

Gross income for this purpose does not include income received by a permanently disabled individual at a sheltered workshop.

$3,050
Lesson 1 1-23

BASIC

COMPLETING THE EXEMPTION SECTION OF FORMS 1040A AND 1040

Exemptions are claimed on lines 6a through 6d. The taxpayer’s 

personal exemption is claimed on line 6a. The personal exemption 

for the taxpayer’s spouse is claimed on line 6b. The total of lines 6a 

and 6b is entered on the line in the right-hand margin. The dependency exemptions are claimed on line 6c. The columns on line 6c 

are self explanatory. In column 3, enter the specific relationship 

for each dependent: son, daughter, grandson, granddaughter, etc. 

Column 4 is checked if the taxpayer’s dependent is also a qualifying 

child for the child tax credit (see lesson 11). The line 6c exemptions 

are totaled on the three right-hand-margin lines that relate to: 

■ Children who lived with the taxpayer, 

■ Children who did not live with the taxpayer due to divorce or 

 separation, and 

■ Other dependents not entered on the lines above. 

Line 6d shows the total number of exemptions (See Exhibit 6).

Exhibit 6 Form 1040/1040A, page 1 Dra

6/05/2

No. of boxes

checked on

6a and 6b

Yourself. If your parent (or someone else) can claim you as a

dependent on his or her tax return, do not check box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 25)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 26)

If more than six

dependents,

see page 24.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above

Dependents:



(3) Dependent’s

relationship to

(1) First name Last name you

✔

✔

James Nicholson 000 00 3333 son ✔

2

1

3
1-24 Lesson 1

BASIC

 TAXWISE HINTS

If you are claiming Child Tax Credit (CTC), Earned Income Credit, 

and/or Dependent Care (DC), you must enter the date of birth for 

qualifying children and “X” the EIC and/or DC box(es). CTC is automatically calculated for you.

  Summing Up This Section  

There are two types of exemptions: personal and dependency. 

Each exemption reduces taxable income by $3,100 in 2004. 

A personal exemption can be claimed for a taxpayer and spouse 

if neither the taxpayer nor the spouse can be claimed on another 

taxpayer’s return. 

To claim a dependency exemption, the dependent must meet all 

of 5 tests. 

1. The Member of Household or Relationship Test. 

2. The Citizen or Resident Test. 

3. The Joint Return Test. 

4. The Gross Income Test. 

5. The Support Test. 

There are two exceptions to the gross income test. 

 Taxpayers’ children under age 19. 

 Taxpayers’ children under age 24 who are full-time students. 

There are two exceptions to the support test. 

 The multiple-support agreement.

 Children of divorced or separated parents.
Lesson 1 1-25

BASIC

Exercises

1. Janice is 18 years old and a full-time student. She can be 

claimed as a dependent on her parents’ tax return. Janice will 

file Form 1040EZ to report income from her summer job. How 

many personal exemptions can Janice claim on her return? 

2. Tom Brown supports his wife’s uncle, Jim (her mother’s 

brother), who lives in another city. The Browns file a joint 

return. Can the Browns claim Jim as a dependent if all other 

tests are met?

3. Ruth filed a joint return with her husband whom she married 

in November. They claimed two personal exemptions on their 

return. Ruth had no income; her husband had $10,600 income. 

Can Ruth’s father, who supported her and paid for the wedding, 

claim her as a dependent on his return? 

4. Joe is 65 years old and lives with his son and daughter-in-law. 

In 2004, Joe’s taxable pension income was $4,700. Can Joe’s son 

and daughter-in-law claim a dependency exemption for Joe if all 

other tests are met?

5. Randy’s son, Paul, earned $4,300 last year. Paul is 18 years old 

and started college in September 2004. Is the gross income test 

met?

6. Traci’s mother received $3,500 in social security payments and 

$600 in interest. Traci paid $1,500 for her food and $500 for her 

medical bills. Her mother paid $2,400 for lodging, $300 for recreation, $150 for clothes, $100 for transportation, $400 for life 

insurance premiums, and $200 for a television set. 

A. What is the total support for Traci’s mother? 

B. How much did Traci contribute toward her mother’s support?

C. How much did Traci’s mother contribute toward her support?

D. Can Traci claim a dependency exemption for her mother?

7. Mrs. Wiley has three children, Mark, Tim, and Mary. Each child 

contributes toward Mrs. Wiley’s support. Mark provides 45 percent, Tim, 35 percent, and Mary, 10 percent. 

A. Which, if any, of her children can claim a dependency exemption for Mrs. Wiley under a multiple-support agreement? 

B. If Mark is to claim the dependency exemption, who must 

sign a statement waiving his/her right to claim Mrs. Wiley as 

a dependent?

8. Under the terms of Peter’s pre-1985 divorce decree, his former 

wife has custody of their child. The decree states that Peter can 

claim the exemption. He provided $700 toward the child’s support. Can he claim the exemption? 
1-26 Lesson 1

BASIC

GETTING STARTED ANSWERS TO EXERCISES

Exercise 1 

0

Exercise 2 

Yes; Jim is related by blood to Mrs. Brown. 

Exercise 3 

No, the husband has a filing requirement 

Exercise 4 

No; His gross income equals or exceeds the exemption amount of 

$3,150. 

Exercise 5 

Yes; Paul is under the age of 19. 

Exercise 6

A. $5,150 ($1,500 + $500 + $2,400 + $300 + $150 + $100 + $200) 

Note that life insurance premiums are not considered support. 

B. $2,000 ($1,500 + $500) 

C. $3,150 ($2,400 + $300 + $150 + $100 + $200) Note that life 

insurance premiums are not considered support. 

D. No; she did not pass the Gross Income Test. 

Exercise 7 

A. Mark or Tim are eligible to claim the exemption. Both provide 

more than 10 percent of Mrs. Wiley’s support. Mary is not eligible since she does not provide more than 10 percent of the support. 

B. Only Tim must sign. Mary is not eligible to take the exemption. 

Therefore, she does not have to sign a waiver. 

Exercise 8 

Yes; Peter provided at least $600 in support.

Lesson 1
Lesson 1 1-27

BASIC

STUDENT NOTES
1-28 Lesson 1

BASIC

STUDENT NOTES
Notes to

Instructors N-2-1

LESSON OVERVIEW AND OBJECTIVES

In this lesson you will learn how to determine the correct filing status to use when completing a tax return. You will also learn how to 

establish whether there is a filing requirement and which tax form 

to use. You must choose the correct filing status before you can 

determine if there is a filing requirement. The filing status is also 

used to determine whether you are eligible to claim certain deductions and credits.

After completing this lesson you should be able to:

• Apply the requirements for each of the five filing statuses.

• Determine who must file.

• Determine who should file.

• Select the appropriate tax form to use.

See Appendix B for suggested class schedules and approximate 

teaching times.

TRAINING MATERIALS AND ON-SITE REFERENCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publications or forms, you can download the files 

from www.irs.gov.

■ Form 1040A and Form 1040, Filing Status section 

LESSON REVIEW - FILING STATUS

1. Students may wonder when spouses filing separately can 

achieve a lower tax. If one spouse has high medical or miscellaneous expenses or large casualty losses, for example, separate 

returns may result in lower taxes because a lower adjusted 

gross income allows more expenses or losses to be deducted.

2. Students may wonder which absences qualify as “temporary” in 

determining head of household filing status. Remind them that 

temporary absences include those that are for school, vacation, 

illness, business, or military service.

FILING STATUS AND

FILING REQUIREMENTS NOTES TO INSTRUCTORS Lesson 2

ALERT

Publication 4012, 

Volunteer Resource 

Guide has helpful 

charts and interview 

questions to assist 

you in determining 

the correct fi ling 

status.
Notes to N-2-2 Instructors

GUIDED QUESTIONS - FILING STATUS

1. Is married filing jointly the only status available to 

spouses? (No; they can file married filing separately.)

2. Can a married couple file separate returns even if one 

spouse had no income? (Yes)

3. If a married couple files separately, can only one spouse 

itemize deductions? (No; if one itemizes, the other must 

itemize because he or she cannot take the standard deduction.)

4. Must the person who qualifies the taxpayer as head 

of household be claimed as the taxpayer’s dependent?

(Yes, unless the person is the taxpayer’s child—with some 

exceptions.)

 TEACHING TIPS - FILING STATUS

1. Review with students, from the earlier discussion of the head 

of household status, which individuals qualify as a “child.” 

Included are a natural child, a grandchild, a stepchild, and an 

adopted child. Explain that each of these individuals also qualifies as a “child” when determining qualifying widow(er) with 

dependent child filing status.

2. Remind students that this filing status is only available for 2 

years following the year of death of the spouse.

3. The material in this section deals with the surviving spouse’s 

return. However, volunteers should know that a tax return 

must sometimes be filed on behalf of a deceased person. If the 

surviving spouse files a joint return with the deceased spouse 

for the year of death, a separate return is not required for the 

deceased spouse. A tax return must be filed on behalf of any 

other deceased taxpayer whose income exceeded the limits outlined in this Lesson. See Publication 559, Survivors, Executors, 

and Administrators, for more information.

GUIDED QUESTIONS - HEAD OF HOUSEHOLD

1. For a relative to qualify a taxpayer for the head of 

household filing status, how long must the taxpayer’s 

home be the main home of the relative? (More than half the 

year.) 

2. What happens when the name of the qualifying person 

is not entered on a head of household return? (The IRS 

will delay processing the return and correspond with the 

taxpayer because the return cannot be processed without this 

information. See the Tax Tips feature in the student text.) 
Notes to

Instructors N-2-3

GUIDED QUESTIONS - FILING STATUS - WIDOW(ER)

1. What information must you know in order to determine 

if a widow or widower can use the qualifying widow(er) 

with dependent child filing status? (The year the spouse 

died; whether or not the taxpayer was entitled to file a joint 

return for the year that the spouse died; and whether or not the 

taxpayer has furnished over half the cost for the year of keeping 

up the main home of a child, foster child, stepchild, or adopted 

child, who qualified as the taxpayer’s dependent.) 

2. If a taxpayer has not remarried, is there a limit to the 

number of years after the death of a spouse that he or 

she may use the qualifying widow(er) with dependent 

child filing status? (Yes; the taxpayer can only use the 

qualifying widow(er) status for the two years following the year 

of death; if all other qualifications are met.) 

GUIDED QUESTIONS - FILING STATUS

1. Why is it important to select the correct filing status?

(Because the filing status factors in how much tax will be due.) 

2. What two filing statuses generally yield the lowest tax 

due? (Married filing jointly and qualifying widow(er) with 

dependent child.) 

3. Do filing statuses vary depending on the tax form? (No.) 

4. When a taxpayer is eligible for more than one filing 

status, which status do you select? (You recommend the 

taxpayer select the one that yields the lowest tax.)

TEACHING TIPS - RELATED PUBLICATIONS

Remind students that Publication 17, Your Federal Income Tax, 

and Publication 501, Exemptions, Standard Deduction, and Filing 

Information are excellent tools to assist with determining filing 

status.

GUIDED QUESTIONS - WHO MUST FILE

1. What information must a volunteer have in order to 

determine if an individual must file a tax return? (The 

individual’s filing status, age, gross income, and type of income 

are needed. The volunteer must also determine: if some of the 

income is excludable, whether the individual can be claimed as 

a dependent on another tax return, if the individual is blind, 

and whether the individual received advance earned income 

credit payments.)

2. With which group of individuals should volunteers use 

Chart A—For Most People? (Individuals who cannot be 

claimed as a dependent on another taxpayer’s return.)
Notes to N-2-4 Instructors

3. What chart should be used with all individuals, 

regardless of their dependency status? (Chart C—Other 

Situations When You Must File.)

4. Direct students’ attention to Chart A—For Most People,

and ask, “How does the information in the right-hand 

column determine if an individual must file?” (If the 

individual’s gross income is at least the amount listed in the 

right-hand column, the individual must file a return.)

5. What charts and checklists apply specifically to 

individuals who can be claimed as a dependent on 

another taxpayer’s return? (Chart B—For Children and 

Other Dependents, and Dependents Who Must or Should File a 

Return.)

LESSON REVIEW - BLIND DEPENDENTS

1. Students may ask whether a single individual who is blind 

(and can be claimed as a dependent) must also be 65 years or 

older to use the Standard Deduction Chart for People Age 65 or 

Older or Blind in the form instructions. Review Form 1040 (or 

Form 1040A) and its instructions to help students understand 

that if a taxpayer is EITHER blind or 65 or older, the Standard

Deduction Chart for People Age 65 or Older or Blind must 

be used. Review also the Standard Deduction Worksheet for 

Dependents (in the instructions) that is used if the taxpayer is a 

dependent.

2. Point out to students that “blindness” may not be a simple 

determination. Individuals whose sight is not better than 20/

200 in their best eye while wearing contact lenses or glasses, or 

whose field of vision is 20 degrees or less, might be legally blind. 

Remind students that determining if an individual is legally 

blind requires volunteers to use some of their effective interviewing skills.

3. Remind students to appropriately complete the age/blindness 

boxes on the tax return. Stress to students that quality-review 

checks revealed that the failure to complete the age/blindness 

indicator was one of the most frequent errors.

Also stress that if any of these boxes are checked, the Standard

Deduction Chart for People Age 65 or Older or Blind must be used. 

If the taxpayer is also a dependent, use the Standard Deduction 

Worksheet for Dependents. The chart and the worksheet are both in 

the form 1040 instructions.

 TEACHING TIPS - TAX TERMS AND WHO MUST FILE

1. Despite the advice given in the student text, some students will 

insist that it is important for them to know the meanings of all

the unfamiliar tax terms NOW. 
Notes to

Instructors N-2-5

Explain that, just as taxpayers will have to trust the students’ 

expertise when they assist them, you are asking students to 

trust you. Assure them that they can accomplish the objectives 

of this lesson quite successfully without understanding the 

meaning of the vocabulary in question.

2. As you lead students in using the charts to determine whether 

an individual MUST or SHOULD file a return, think of how we 

interchangeably use the words must and should in everyday 

speech. For the purposes of tax assistance situations, it is important that students recognize and respect the different implications of these words for taxpayers. As you conduct in-class 

discussions, listen carefully to make certain that your students 

are using the words in the correct context.

GUIDED QUESTIONS - FILING REQUIREMENTS

1. In what situation should a dependent be required to file 

a tax return, although Chart B may indicate that he or 

she does not have to file? (A married dependent with at least 

$5 of income whose spouse itemizes deductions on a separate 

return; a dependent with at least $400 of net self-employment 

income; and a dependent who is not required to file but had 

income tax withheld.)

2. What is self-employment income? (Earned income from 

farming or a trade, business, or other profession that is not paid 

by an employer.)

3. What chart should you use as a last step in determining 

who must file? (Chart C—Other Situations When You Must 

File.)

4. In what three instances should an individual file a 

return, even if the charts noted in this lesson indicate 

that filing is not necessary? (To claim a refund of withheld 

taxes, to claim the earned income credit, and to claim the 

additional child tax credit.)
Notes to N-2-6 Instructors

STUDENT NOTES
Lesson 2 2-1

BASIC

Filing Status and 

Filing Requirements

INTRODUCTION AND OBJECTIVES

In this lesson you will learn how to determine the correct filing status to use when completing a tax return. 

You will also learn how to establish whether there is 

a filing requirement and which tax form to use. You 

must choose the correct filing status before you can 

determine if there is a filing requirement. The filing 

status is also used to determine whether the taxpayer 

is eligible to claim certain deductions and credits.

After completing this lesson you should be able to: 

■ Apply the requirements for each of the five filing 

statuses. 

■ Determine who must file. 

■ Determine who should file. 

■ Select the appropriate tax form to use.

FILLING STATUS

There are five filing statuses:

1. Single

2. Married filing jointly

3. Married filing separately

4. Head of household, and

5. Qualifying widow(er) with dependent child

In general, the taxpayer’s filing status depends on 

whether they are considered unmarried or married. 

Determining the appropriate filing status is critical to 

accuracy of the taxpayer’s return. 

Lesson 2
2-2 Lesson 2

BASIC

 SINGLE

A taxpayer is considered single if, on the last day of the year, 

either of the following is true. 

■ The taxpayer was never married. 

■ The taxpayer was legally separated, according to state law, 

under a decree of divorce or separate maintenance. 

A taxpayer can also be considered single if the taxpayer was 

widowed before January 1, 2004, and did not remarry in 2004. 

However, the taxpayer may be able to use another filing status 

that will give a lower tax. See Head of Household and Qualifying

Widow(er) with Dependent Child, later.

MARRIED FILING A JOINT RETURN

Taxpayers may use the married filing jointly status if they are 

married. They are considered married if, on the last day of the year, 

one of the following applies: 

■ They are married and live together as husband and wife. 

■ They live together in a common-law marriage recognized in the 

state where they now live or in the state where the common-law 

marriage began. 

■ They are married and live apart but are not legally separated 

under a decree of divorce or separate maintenance. 

■ They are separated under an interlocutory (not final) divorce 

decree. 

■ The taxpayer’s spouse died during the year and the taxpayer 

has not remarried. 

If taxpayers file a joint return, combine the husband’s and wife’s 

tax items (for example, income) on the same return. Both the husband and wife must sign the return and both are responsible for 

any tax owed on that return. Taxpayers can choose the married filing joint status even if only one spouse has income. 

Taxpayers filing a joint return generally have a lower tax than 

their combined tax for any other filing status.

POTENTIAL

PITFALLS

A common-law 

marriage is 

recognized for 

federal tax purposes 

if the marriage is 

recognized by the 

state where the 

taxpayers now live 

or in the state in 

which the commonlaw marriage 

was entered. 

Legal advice 

may be required 

to determine if 

a common-law 

marriage exists.
Lesson 2 2-3

BASIC

MARRIED FILING A SEPARATE RETURN

Taxpayers who are married may choose to file separately. The husband and wife report their own incomes and deductions on separate 

returns. Taxpayers may choose the married filing separately

status even if one spouse had no income. 

If the taxpayers live in a community property state, they must follow state law to determine their separate income. For more information, see Publication 555, Community Property.

If a married couple files separately and one spouse itemizes deductions, the other spouse must also itemize deductions because he 

or she cannot take the standard deduction. See Lesson 5 for more 

information on itemized deductions. 

Taxpayers filing separate returns generally have a higher tax than 

when filing jointly. Occasionally, however, separate returns may 

result in a lower tax. If you think this might be the case, compute 

the tax liability for (a) married filing jointly and (b) married filing 

separately. Choose the filing status that results in the lower tax. 

When a married taxpayer files separately, the taxpayer must show 

his or her spouse’s name and social security number on the return 

in the label section or line 3.

 HEAD OF HOUSEHOLD

In general, the head of household status is for unmarried taxpayers (or those considered unmarried) who pay more than half the 

cost of keeping up a home for a qualified relative during the year. 

Generally, taxpayers who file under the head of household filing 

status have a lower tax than if they file as single. If they qualify, 

taxpayers should use the head of household status instead of the 

single status. 

 Head of Household Qualifications 

1. The taxpayer must be unmarried (single, divorced, or legally 

separated) on the last day of the year 

OR

 The taxpayer must meet the tests for married persons living 

 apart with dependent children (explained later in this lesson) 

AND

2. The taxpayer must have paid more than half the cost of keeping 

up a home that was the main home for more than half the year 

(except for temporary absences) of any of the following: 
2-4 Lesson 2

BASIC

A. The taxpayer’s unmarried child who must have lived with 

the taxpayer but does not have to have been the taxpayer’s 

dependent, 

B. The taxpayer’s foster child who must have lived with the 

taxpayer and must have been the taxpayer’s dependent, the 

entire year, or 

C. Only the relatives listed at the end of this discussion 

that lived with the taxpayer and who were the taxpayer’s 

dependents.

EXCEPTION: The taxpayer may claim head of household filing status if the taxpayer’s parent is claimed as a dependent, 

even if the parent does not live with the taxpayer. However, 

the taxpayer must pay more than half the cost of maintaining the parent’s home for the entire year. 

D. The taxpayer’s married child—who must have lived with the 

taxpayer and who must have been the taxpayer’s dependent 

unless: 

■ The child is not a dependent because the taxpayer signed 

a written declaration allowing the noncustodial parent to 

claim the child as a dependent, or 

■ The child is not a dependent because the noncustodial 

parent provides at least $600 of support for the child and 

claims the child as a dependent under a pre-1985 divorce 

decree or agreement. 

“Child” includes: 

■ Grandchild; stepchild; adopted child 

“Relative” includes: 

■ Parent, grandparent 

■ Brother, sister, stepbrother, stepsister 

■ Half brother, half sister 

■ Stepmother, stepfather 

■ Mother-in-law, father-in-law 

■ Brother-in-law, sister-in-law 

■ Son-in-law, daughter-in-law 

AND (if related by blood) 

■ Uncle, or aunt, nephew, or niece 

“Relative” does not include cousins and more distant relatives.

ALERT

A foster child 

must live with the 

taxpayer for the 

entire year to qualify 

as a dependent.
Lesson 2 2-5

BASIC

Keeping Up the Home 

The taxpayer must pay more than half the cost of keeping up the 

home. The cost of keeping up a home includes: rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, 

domestic help, and food eaten in the home. Welfare payments are 

not considered amounts that the taxpayer furnishes to keep up a 

home. 

The home must have been the main home for more than half the 

year except for temporary absences. Temporary absences include 

those for school, vacation, illness, business, or military service. 

The following chart may help you decide who is eligible to claim 

head of household filing status. 

Exhibit 1

Qualifying Relations for Head of Household

Relationship to 

Taxpayer

Must Live with 

Taxpayer?

Must be 

Taxpayer’s 

Dependent?

1. Unmarried child, 

 grandchild, or step

 child

Yes No

2. Married child, 

 grandchild, or step

 child

Yes Yes*

3. Foster child Yes*** Yes

4. Mother or father No Yes

5. Other relatives Yes** Yes

Exceptions:

* The married child does not have to be the taxpayer’s dependent if a noncustodial parent claims the child as a dependent 

under the rules for children of divorced or separated parents.

** Cousins and more distant relatives do not qualify as “relatives” in determining head of household status.

 NOTE: The taxpayer’s home must be the main home of the 

relative for more than half the year. The relative cannot be a 

person who files a joint return.

***The foster child must live with the taxpayer for the entire 

year.
2-6 Lesson 2

BASIC

Married Persons Living Apart With Dependent Children 

Some married taxpayers who live apart from their spouses may be 

considered unmarried for tax purposes. If so, these taxpayers are 

permitted to file as head of household and receive the benefit of 

lower tax amounts.

A married taxpayer can file as head of household if: 

1. The taxpayer files a separate return, 

2. The taxpayer paid more than half the cost of keeping up his or 

her home for the year, 

3. The taxpayer’s spouse did not live in the home during the last 

six months of the year, 

4. The taxpayer’s home was the main home of the taxpayer’s child, 

stepchild, or adopted child for more than half of the year or of 

the taxpayer’s foster child for the entire year, and

5. The taxpayer claims the child, stepchild, adopted child, or foster

child as a dependent, unless one of the following exceptions for 

divorced or separated parents applies:

■ the taxpayer signed a statement allowing the noncustodial 

parent to claim the child as a dependent, or 

■ the noncustodial parent provided at least $600 for the child’s 

support and can claim the dependent under a pre-1985 

agreement.

Reporting Head of Household Filing Status

Taxpayers must enter the name of the person who qualifies them 

for the head of household status. If the person is a dependent, enter 

the dependent’s name on line 6c of the exemption section of the tax 

return. If the qualifying person is not a dependent, enter the name 

of the nondependent person on line 4 in the filing status section of 

the tax return.

Example 4 

Darlisa is divorced and provided over half the cost of keeping up 

a home. Her five-year-old daughter, Pam, lived with her for seven 

months last year. Darlisa does not claim Pam as a dependent; her 

ex-husband does.

Darlisa may use head of household status. Darlisa must write 

Pam’s name in the space on Form 1040 or 1040A, on line 4.

Samantha’s Form 1040A, page 1

Draft a

5/2002

Filing

status

Check only

one box.

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child

(year spouse died  ). (See page 24.)

Married filing separately. Enter spouse’s SSN above and

full name here. 

Head of household (with qualifying person). (See page 23.)

If the qualifying person is a child but not your dependent,

enter this child’s name here. 

4

5

Pam

x

Exhibit 2

X
Lesson 2 2-7

BASIC

 QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD

A widow or widower, with one or more dependent children, may be 

able to use the qualifying widow(er) with dependent child filing 

status. This filing status yields the lowest tax rate (the same tax for 

married filing jointly). 

If the taxpayer’s spouse died during 2002 or 2003 and the taxpayer 

did not remarry before the end of 2004, the taxpayer may be able to 

file as a qualifying widow(er) with dependent child. To qualify, the 

taxpayer must: 

■ Have been entitled to file a joint return for the year the spouse 

died (it does not matter whether or not a joint return was 

actually filed), 

AND

■ Have a child, foster child, adopted child, or stepchild who 

qualifies as the taxpayer’s dependent for the year, 

AND

■ Have furnished over half the cost of keeping up a home that was 

the main home of the child for the entire year.

An “ adopted child” includes a child placed with the taxpayer by an 

authorized placement agency for legal adoption.

Social Security survivor benefits received on behalf of the child are 

considered to be amounts furnished by the child, not by the parent.

In the year a taxpayer’s spouse dies, if the taxpayer does not 

remarry, he or she can use the married filing jointly filing status or 

married filing separately filing status and can claim an exemption 

for the deceased spouse. For two years after the year of death, the 

taxpayer may file as a qualifying widow(er) with dependent child, 

but may not claim an exemption for the deceased spouse. After the 

second year following the year of death, the taxpayer can no longer 

use the qualifying widow(er) filing status. The taxpayer may use 

either the head of household or single filing status depending on 

his or her situation then. 

The following chart may help you decide which filing status to 

use for a taxpayer with a qualifying dependent if the spouse is 

deceased and the taxpayer has not remarried.
2-8 Lesson 2

BASIC

Exhibit 3

Filing Status After Death of Spouse

Tax Year Filing Status

Exemption for

Deceased

Spouse?

1. Year of Death Married (joint)

 OR

Yes

Married (separate) Yes

2. First Year

after death 

Qualifying widow(er)* No

3. Second year

after death

Qualifying widow(er)* No

4. After the second

 year after death

Head of household**

 OR

No

Single No

 * With a qualifying dependent.

 ** With a qualifying relative.

You may find the flowchart shown in Exhibit 4 helpful in determining the correct filing status. It has some of the same questions as 

shown in the Interview Tips on the following page. 
Lesson 2 2-9

BASIC

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Filing Status

Probe/Action: Ask the taxpayer: 

Step 1: Were you considered married as 

a legal union between a man and 

a woman as husband and wife 

on December 31st of the tax year 

(answer yes if state common law 

rules met)?

If YES, go to Step 2.

If NO, go to Step 5.

Step 2: Do you and your spouse wish to fi le 

a joint return?

If YES, STOP. Your fi ling status is 

Married Filing Jointly.

If NO, go to Step 3.

Step 3: Did you have a child living in your 

home during the tax year?

If YES, go to Step 4.

If NO, STOP. Your fi ling status is 

Married Filing Separately.

Step 4: Can you be considered unmarried?

■ You fi le a separate return

■ Paid more than half the cost of keeping 

up a main home

■ Your spouse did not live in your home 

during the last 6 months (including 

temporary absences) of the tax year

■ Your home was the main home of your 

child, stepchild, or adopted child for more 

than half the year or was the main home 

of your foster child for the entire year

■ You must be able to claim an exemption 

for the child (Exception – non-custodial 

parent correctly claims exemption)

If YES, STOP. Your fi ling status is 

Head of Household.

If NO, STOP. Your fi ling status is 

Married Filing Separately.

Step 5: Did your spouse die in 2002 or 

2003?

If YES, go to Step 6.

If NO, go to Step 7.

Step 6: Can you be considered a qualifying 

widow(er) with a dependent child?

■ You were entitled to fi le a joint return with 

your spouse for the year your spouse 

died

■ You did not remarry before the end of 

this tax year

■ You have a dependent child you can 

claim as an exemption

■ You paid more than half the cost of 

keeping up a main home for you and that 

child for the entire year

If YES, STOP. Your fi ling status 

is Qualifying Widow(er) with 

Dependent Child.

If NO, go to Step 7.

Step 7: Do you have a qualifying person for 

Head of Household Filing status? 

■ You paid more than half the cost of 

keeping up a main home

■ A qualifying person* lived with you 

more than half the year (Exception for 

dependent parent, foster child, and 

kidnapped child)

If YES, STOP. Your fi ling status is 

Head of Household.

If NO, STOP. Your fi ling status is 

Single.

*See Exhibit 4, footnote 2, for a list of qualifying persons.
2-10 Lesson 2

BASIC

Determination of Filing Status

Did you pay more than 

half of household costs

and maintain a home

for more than 6 months

for:

Unmarried child

Married child

Other relative2

Foster child3

Parent

Grandchild?

Single

Were you married on the 

last day of the year?

Did you and your spouse

live apart during the last 6

months of the year?

Did you pay more than half of

household costs for a dependent 

child who lived with you for more 

than 6 months?

YES

YES YES

NO

NO

NO

NO

Head of Household

Married Filing

Jointly or Married 

Filing Separately1

1 Qualifying Widow(er) - If you paid over half of the household costs for a dependent child, you can use this filing status for 2 years after the year of death of spouse. 2 Parent, grandparent, brother, sister, stepbrother, stepsister, half brother, half sister, stepmother, stepfather, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-inlaw, daughter-in-law AND (if related by blood) uncle or aunt, nephew or niece.

3 The foster child must live with the taxpayer for the entire year and the taxpayer cares for the child as his or her own. 

YES

Exhibit 4

A qualifying person must be on this list.
Lesson 2 2-11

BASIC

 TAXWISE HINTS

When using TaxWise to prepare a tax return, you will need to have 

the Social Security Number of anyone who qualifies the taxpayer 

for Head of Household filing status and is not the taxpayer’s dependent.

For Qualifying Widow(er) filing status, you must enter the year of 

death of the deceased spouse.

For Married Filing Separate status, you will need the spouse’s full 

name and Social Security number.

  Summing Up This Section  

When completing their tax returns, taxpayers can use one of five 

filing statuses:

Tax Status

(from lowest tax to highest tax)

1. Married filing jointly*

2. Qualifying widow(er) with dependent child*

3. Head of household

4. Single

5. Married filing separately 

* Numbers 1 and 2 yield the same (lowest) tax.

Filing status is indicated on lines 1 through 5 of Forms 1040A 

and 1040. Selecting the correct filing status is one of the most 

important aspects of completing a tax return because the filing 

status factors in how much tax will be due. Remember that filing status requirements do not change, regardless of the tax form 

used. If a taxpayer is qualified to use more than one filing status, 

choose the one that will result in the lowest tax.
2-12 Lesson 2

BASIC

Exercises

1. Carol and Roger were married in 2003. They are not divorced, 

but lived apart all of 2004. They are not legally separated under 

a decree of divorce or separate maintenance. They have no children. Can they use the married filing jointly status? 

2. Martin does not know which filing status to use. You ask if he is 

married. He answers that he got divorced in December but supported his wife all year and has not remarried. Can Martin and 

his ex-wife file a joint return?

3. Ginger is single and paid more than half the cost of keeping 

up her home. Her grandmother lived with her all year. Ginger 

claims her grandmother as a dependent. What is Ginger’s filing 

status?

4. Bill is single and lives alone. He paid over half the cost of maintaining a home for his father for the entire year. He claims his 

father as a dependent. What is Bill’s filing status? 

5. Franklin is single and lives alone. He paid over half the cost of 

maintaining a separate home for his father. He does not claim 

his father as a dependent. What is Franklin’s filing status?

6. Mrs. Calvin tells you that she is divorced and that her 21-yearold unmarried son lived with her all year. She paid for their 

rent and food and provided over half of her son’s total support. 

She cannot claim her son as a dependent because he earned 

$4,000 and is not a student. Her son used his earnings to pay 

for his car, clothing, and entertainment. Can Mrs. Calvin file as 

head of household?

7. Kathy lived with her unemployed roommate, Sandra, for the 

entire year. Kathy had to pay more than half of the cost of keeping up their apartment. Can Kathy file as head of household?
Lesson 2 2-13

BASIC

8. Jack has lived apart from his wife for several years. Their children live with his wife but Jack pays over half the children’s 

support. What filing status can Jack use? 

9. Lily left her husband in August 2004. She took her children 

with her. She supported the children during all of 2004 and will 

claim them as dependents. Lily will not file a joint return with 

her husband. Which filing status should Lily use in 2004? 

10. Rose and her husband separated in October 2004, but were still 

married on December 31, 2004. What filing status can she use?

11. Dick’s wife died in 2002. Dick has not remarried. Dick provides 

all of the support for his two dependent children. What will be 

Dick’s filing status for 2005? 
2-14 Lesson 2

BASIC

FILING STATUS ANSWERS TO EXERCISES

Exercise 1 

Yes 

Exercise 2

No

Exercise 3 

Head of household 

Exercise 4 

Head of household 

Exercise 5

Single

Exercise 6

Yes 

Exercise 7

No; Sandra is not a qualifying person. 

Exercise 8

Married filing jointly or married filing separately. 

Exercise 9

Married filing separately; she lived with her husband during part 

of the last six months of 2004. 

Exercise 10 

Either married filing jointly or married filing separately. 

Exercise 11 

Head of household; he could claim qualifying widower for 2003 and 

2004 only.
Lesson 2 2-15

BASIC

WHO MUST FILE—WHO SHOULD FILE

WHO MUST FILE

To decide who must file a tax return, you will need to know the 

individual’s: 

■ filing status, 

■ age, 

■ gross income, 

and if: 

■ special taxes might be owed on different types of income, 

■ some of the income is excludable or exempt, 

■ the individual can be claimed as a dependent on another’s tax 

return, 

■ the individual is blind, or 

■ the individual received advance earned income credit payments. 

You may not be familiar with some of the terms used on the list. 

These terms will be explained in later lessons. For now, concentrate 

on learning how to use the charts and checklists. 

How to Use the Charts and Flowcharts 

You will use a set of charts to determine who must file. An individual who cannot be claimed as a dependent on another tax-payer’s 

return will use Chart A—For Most People. Based on the individual’s 

circumstances, a person who can be claimed as a dependent on 

another taxpayer’s return will use one of the other charts. Chart

C—Other Situations When You Must File should be reviewed for 

every individual.
2-16 Lesson 2

BASIC

Exhibit 5

Chart A—For Most People

If your fi ling status 

is...

AND at the end of 2004 

you were*

THEN fi le a 

return if your gross

income** was at 

least...

Single Under 65

65 or older

 $ 7,950

 9,150

Married fi ling 

jointly***

under 65 (both spouses)

65 or older (one spouse)

65 or older (both spouses)

 $15,900

 16,850

 17,800

Married fi ling 

separately

Any age $ 3,100***

Head of household 

(see page 19)

Under age 65

65 or older

 $10,250

 11,450

Qualifying Widow(er) 

with dependent child 

(see page 19)

Under 65

65 or older

 $12,800

 13,750

* If you turned age 65 on January 1, 2005, you are considered 

to be age 65 at the end of 2004

** Gross Income means all income you received in the form 

of money, goods, property, and services that are not exempt 

from tax including any income from sources outside the 

United States (even if you may exclude part or all of it). Do 

not include social security benefits unless you are married 

filing a separate return and you lived with your spouse at 

any time in 2004.

*** If you did not live with your spouse at the end of 2004 (or 

on the date your spouse died) and your gross income was at 

least $3,100, you must file a return regardless of your age.

POTENTIAL

PITFALLS

If a checklist or 

chart indicates that 

a person must fi le 

a return, he or she 

should do so even if 

no tax is owed. If a 

minor child must fi le 

a return but cannot 

do so, the child’s 

parent or guardian 

must complete and 

sign a return for the 

child.
Lesson 2 2-17

BASIC

Exhibit 6

Chart B—For Children and Other Dependents (See the instructions for line 6c on page 18 to find

out if someone can claim you as a dependent.)

If your parent (or someone else) can claim you as a dependent, use this chart to see if you must file a return.

In this chart, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. Earned income includes

wages, tips, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income.

If your gross income was $3,100 or more, you usually cannot be claimed as a dependent unless you were under age 19 at the

CAUTION end of 2004 or a student and under age 24 at the end of 2004. For details, see Pub. 501. !

Single dependents. Were you either age 65 or older or blind?

No. You must file a return if any of the following apply.

• Your unearned income was over $800.

• Your earned income was over $4,850.

• Your gross income was more than the larger of—

• $800 or

• Your earned income (up to $4,600) plus $250.

Yes. You must file a return if any of the following apply.

• Your unearned income was over $2,000 ($3,200 if 65 or older and blind).

• Your earned income was over $6,050 ($7,250 if 65 or older and blind).

• Your gross income was more than—

The larger of: Plus This amount:

• $800 or $1,200 ($2,400 if 65 or

• Your earned income (up to $4,600) plus $250 } older and blind)

Married dependents. Were you either age 65 or older or blind?

No. You must file a return if any of the following apply.

• Your unearned income was over $800.

• Your earned income was over $4,850.

• Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

• Your gross income was more than the larger of—

• $800 or

• Your earned income (up to $4,600) plus $250.

Yes. You must file a return if any of the following apply.

• Your unearned income was over $1,750 ($2,700 if 65 or older and blind).

• Your earned income was over $5,800 ($6,750 if 65 or older and blind).

• Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

• Your gross income was more than—

The larger of: Plus This amount:

• $800 or $950 ($1,900 if 65 or

• Your earned income (up to $4,600) plus $250 } older and blind)
2-18 Lesson 2

BASIC

DEPENDENTS WHO MUST OR SHOULD FILE A RETURN—CHECKLIST

The dependents listed in the following checklist must or should file 

a return.

Exhibit 7

Checklist—Children and Other Dependents

■ A married dependent with at least $5 of income whose spouse 

itemizes deductions on a separate return on Form 1040 must 

file a return.

■ A dependent with at least $400 of net self-employment income 

must file a return. Self-employment income is earned 

income from a trade, business, farming or profession that is 

not paid by an employer. For example, seamstresses and lawncare workers who work for themselves (and not for someone 

else) are considered self-employed.

■ A dependent who is not required to file but had income tax 

withheld should file a return to get a refund.

■ A dependent who has to pay a tax, such as the alternative 

minimum tax, must file a return.

OTHER SITUATIONS

Remember to review the Chart C—Other Situations When You 

Must File chart after you use the other charts.
Lesson 2 2-19

BASIC

Exhibit 8

Chart C — Other Situations When You Must File

You must file a return if any of the four conditions below apply for 2004.

1. You owe any special taxes, such as:

 • Social security and Medicare tax on tips you did not report to your employer,

 • Uncollected social security and Medicare or RRTA tax on tips you reported to 

 your employer or on group-term life insurance,

 • Alternative minimum tax,

 • Recapture taxes (see the instructions for lines 43 and 62 that begin on pages 

 33 and 40), or

 • Tax on a qualified plan, including an individual retirement arrangement 

 (IRA), or other tax-favored account. But if you are filing a return only because 

 you owe this tax, you can file Form 5329 by itself.

2. You received any advance earned income credit (EIC) payments from your 

 employer. These payments are shown in box 9 of your Form W-2.

3. You had net earnings from self-employment of at least $400.

4. You had wages of $108.28 or more from a church or qualified church-controlled 

 organization that is exempt from employer social security and Medicare taxes.

WHO SHOULD FILE A RETURN?

The charts, noted previously in this lesson, may indicate that an 

individual does not have to file a tax return. However, in three 

instances, individuals should file a return:

■ to claim a refund of withheld taxes,

■ to claim a earned income credit, and

■ to claim the additional child tax credit.

HELPING THOSE WHO DON’T NEED TO FILE

The Reduce Unnecessary Filing Program (RUF) is intended to help 

certain individuals determine their need to file a federal income 

tax return. Use Form 9452, Filing Assistance Program Worksheet,

to help potential unnecessary filers determine whether or not they 

need to file.

Thank you for helping to save time and effort for your VITA and 

TCE clients and for helping to reduce the cost to all taxpayers of 

processing unnecessary returns by helping your clients with Form 

9452 and related materials, as needed.

 TAXWISE HINT

After completing the tax return refer back to the Main Information 

screen and select the appropriate tax form.
2-20 Lesson 2

BASIC

  SUMMING UP THIS SECTION  

Use the charts provided in this section to determine who must

and who should file a tax return.

Exercises

12. Emily is married and has one dependent child. She has not 

lived with her husband since May and is head of household. 

She is under 65 and not blind. Her gross income from wages is 

$15,000. Is she required to file a tax return? 

13. Larry and Zelda are married but will not file a joint return. 

Both are under 65 and not blind. Larry’s gross income from 

wages is $30,150. Zelda’s gross income is $3,500.

A. Is Larry required to file? 

B. Is Zelda required to file? 
Lesson 2 2-21

BASIC

WHO MUST FILE

WHO SHOULD FILE ANSWERS TO EXERCISES

Exercise 12

Yes

Exercise 13

A. Yes

B. Yes
2-22 Lesson 2

BASIC

WHICH FORM TO USE?

 FORM 1040EZ 

Form 1040EZ is for single and joint filers with no dependents. The 

form instructions booklet has a worksheet for taxpayers who can be 

claimed as dependents.

 FORM 1040A 

Form 1040A is a two-page form. Page 1 of the form shows the filing status, exemptions, income, and adjusted gross income. Page 2 

of the form shows the standard deduction, exemption amount, taxable income, tax, credits, payments, amount owed or refund, and 

signature. Form 1040A may have four schedules. Use Schedule 1

to report interest and/or dividend income that is more than $1,500. 

Use Schedule 2 to report child and dependent care expenses and 

to figure the credit. Claim the credit for the elderly or the disabled 

on Schedule 3. This credit is explained in Lesson 6. If the taxpayer 

can take the earned income credit and has a qualifying child, use 

Schedule EIC to give information about that child. Schedule EIC 

is discussed and illustrated in Lesson 10.

 FORM 1040 

Form 1040 is a two-page form. Page 1 of the form shows the 

filing status, exemptions, income, and adjusted gross income. Page 

2 shows the standard deduction or itemized deductions, the exemption amount, taxable income, tax, credits, other taxes, payments, 

and the amount owed or refund due.
Lesson 2 2-23

BASIC

IRS E-FILE

IRS e-file offers quick and easy options to traditional paper returns. 

These options include filing electronically through an authorized 

tax practitioner, over the telephone, and by personal computer. For 

those expecting a refund, these options all offer Direct Deposit to a 

bank account. For those with a balance due, paying is made easier 

with the option of payment by credit card or a direct debit to their 

bank account. 

Why e-file? Because IRS e-file makes filing faster and more 

accurate and gets the taxpayer their refund in half the usual 

time....even faster with Direct Deposit! 

As a volunteer, you should become familiar with these options as 

there will be occasions when you are called upon to answer questions from taxpayers regarding one or more of them. You may even 

have the opportunity to volunteer at a VITA or TCE site that has 

been set up to offer electronic tax filing. If so, you will receive additional specialized training on using return preparation software 

and on other procedures unique to this type of site. 

TeleFile 

Eligible 1040EZ filers, single or married filing jointly, who receive 

a TeleFile tax booklet and have the same address as the previous 

year, can file their federal income taxes by using a touch tone telephone and dialing a toll-free telephone number found in the tax 

booklet. (Note: Taxpayers in Georgia, Indiana, Kentucky, Maryland, 

Oklahoma, Oregon, or West Virginia have the option to TeleFile 

both their federal and state tax returns in the same toll-free telephone call.) 

Here’s how it works: the taxpayer completes the TeleFile Tax 

Record found in the booklet before making the call. The call, which 

prompts the taxpayer through recorded instructions, takes less 

than ten minutes. The TeleFile system calculates the tax and 

refund (or balance due) and then files the tax return. If the taxpayer requests Direct Deposit, a refund can be issued in as little 

as 10 days. TeleFile is completely paperless; no forms are 

mailed to IRS, not even W-2s! The taxpayer “signs” the return 

with a special Customer Service Number (CSN) provided in the 

booklet. 

TeleFile is available 24 hours a day, seven days a week, through 

August 15. It is also available to users of TDD/TTY equipment. 

Credit card and direct debit payment options are available for balance due returns. 

Because TeleFile is so easy to use, and because it is completely 

paperless, its use should be encouraged at every VITA and TCE site 

that encounters an eligible taxpayer with a TeleFile tax booklet. 

Even if there is no touch tone telephone available at the site, you 

should do everything possible to convince the taxpayer to file from 

home, or wherever a touch tone phone is available.
2-24 Lesson 2

BASIC

STUDENT NOTES
Notes to

Instructors N-3-1

LESSON OVERVIEW AND OBJECTIVES

This lesson gives students practice in using the forms needed to 

complete the income section of the taxpayer’s Form 1040EZ, 1040A, 

or 1040, as appropriate. Students will practice using Forms W-2, 

1099-INT, and 1099-DIV, Schedules B and C-EZ, and others. 

Approximately 1 1/2 to 3 hours should be devoted to covering 

the objectives of this lesson. See the Suggested Class Schedule 

(Appendix B) for additional information.

After completing this lesson each student should be able to: 

■ Determine what is taxable and nontaxable income.

■ Determine where to report income on Forms 1040, 1040A, and 

1040EZ.

■ Identify who can file Schedule C-EZ.

■ Identify who must file Schedule SE.

TRAINING MATERIALS AND ON-SITE REFERENCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publications or forms, you can download the files 

from www.irs.gov.

■ Form W-2, Wage and Tax Statement

■ Form 1099-INT, Interest Income

■ Form 1099-DIV, Dividends and Distributions

■ Form 1099-G, Certain Government Payments

■ Form 1040 EZ and Instructions

■ Form 1040A and Instructions

■ Schedule 1 (Form 1040A)

■ Form 1040 and Instructions

■ Schedule B (Form 1040)

■ Schedule C-EZ (Form 1040)

■ Schedule SE (Form 1040)

■ Form 4137, Social Security and Medicare Tax on Unreported Tip 

Income

■ Form 4852, Substitute for Form W-2 or Form 1099R

■ Publication 4012, Volunteer Reference Guide is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. Direct the student to the tab 

INCOME NOTES TO INSTRUCTORS Lesson 3
Notes to N-3-2 Instructors

“Income Section” for this lesson and make sure the student is 

aware of the content of the tab and how it should be used when 

assisting taxpayers.

TEACHING TIPS — TAXABLE AND NONTAXABLE INCOME

If students have difficulty answering the Guided Questions, direct 

their attention to the lists of taxable and nontaxable income. Point 

out that the exceptions to taxable interest income are listed under 

nontaxable income. Review with students questions in Exercise 1. 

Ask students to use the chart to explain why each form of income 

named was either included or excluded when computing the total 

taxable income for each taxpayer.

TEACHING TIPS – EARNED INCOME

1. Make students aware that if the taxpayer paid cash wages of 

$1,400 or more for the year to an employee working in his or her 

home, the taxpayer must pay the taxes on the employee’s wages 

with Form 1040. Taxpayers in this situation should be advised 

to seek paid professional tax assistance and refer to Publication 

926, Household Employer’s Tax Guide. This topic is beyond the 

scope of the VITA/TCE Program.

2. If the taxpayer was a household employee who did not receive 

a Form W-2 because he or she was paid less than $1,400, the 

income must still be included on line 1 (Form 1040EZ), or line 7 

(Form 1040A or 1040).

3. In past years, some household employees have reported their 

wages on Form 4137, Social Security and Medicare Tax on 

Unreported Tip Income, when a Form W-2 was not given to them 

by their employer. Instructors should reinforce that wages of 

household employees should not be reported on Form 4137. 

4. If, after requesting a Form W-2 from the employer, the household employee does not receive a Form W-2, then he or she 

should file a Form 4852, Substitute for Form W-2, Wage and 

Tax Statement or Form 1099-R, Distributions from Pensions, 

Annuities, Retirement or Profit-Sharing Plans, IRA’s, Insurance 

Contracts, Etc. Form 4852 is used only to meet the filing deadline. Instructors may want to review the Form 4852 with the 

students, using an overhead projector. Many students may not 

know of the use and availability of this form.

TEACHING TIPS — TAX-EXEMPT INTEREST

1. Remind students that, while tax-exempt interest is not included 

as part of taxable income, it still must be shown on Form 1040 

or 1040A or 1040EZ.

2. Students should refer to a paid professional tax preparer any 

taxpayer who has OID income under either of these two situations: (1) the taxpayer bought the obligation after its original 
Notes to

Instructors N-3-3

issue or (2) the taxpayer did not hold the obligation all year. 

IRS Publication 550, Investment Income and Expenses, and 

Publication 1212, List of Original Issue Discount Instruments,

provide useful information about OID income in these situations. 

3. Direct students’ attention to box 4 on Form 1099-INT. Ask students to name the section (Payments) and the line (63) of Form 

1040 on which federal income tax withheld should be reported.

4. Ask students to give examples of tax-exempt interest that 

can be shown on line 8b of Forms 1040 or 1040A. Check their 

answers against the list of nontaxable income.

TEACHING TIPS — STATE AND LOCAL TAX REFUNDS

1. Caution students not to assume that because there is an entry 

in box 2 of a taxpayer’s Form 1099-G, they must automatically 

make an entry on line 10 of Form 1040.

2. Remind students that if a taxpayer did not itemize deductions 

on his or her 2003 return and received a refund of 2003 state 

or local tax, the taxpayer does not have to include the refund in 

taxable income in 2004.

TEACHING TIPS — INCOME FROM BUSINESS (OPTIONAL TOPIC)

1. It is important to stress that taxpayers must keep records of all 

expenses claimed even though they do not have to be individually listed on Schedule C-EZ.

2. Taxpayers cannot take depreciation and standard mileage at 

the same time for business use of a car. If they decide to take 

depreciation instead of standard mileage, the volunteer should 

refer this taxpayer to a paid professional tax preparer.

GUIDED QUESTIONS

 1. Differentiate between taxable and nontaxable income.

(Taxable income is any income that is subject to tax. It 

must be reported on a tax return, unless the individual is not 

required to file a return. Nontaxable income is income that 

is exempt from tax. If a return must be filed, some types of 

nontaxable income will be shown on the return but will not be 

subject to tax.)

2. Although interest is generally considered taxable 

income, identify some types of interest that are not 

taxable. 

(Interest from state and local bonds and qualified Series 

EE and/or I savings bonds used to pay for higher education 

expenses.)
Notes to N-3-4 Instructors

3. Under what circumstances must a taxpayer complete 

Schedule B of Form 1040?

(If taxable interest or dividend income is over $1500, if the 

taxpayer claims an exclusion of interest from Series EE or I 

U.S. savings bonds issued after 1989, or if another situation 

listed in the Schedule B instructions applies.)

4. When are long-term obligations considered to be issued 

at a discount?

(When they pay no interest before maturity.) 

5. Define Original Issue Discount.

(Original Issue Discount is the difference between the principal 

amount [redemption price at maturity] of a long-term debt 

instrument, such as a bond or note, and its issue price.) 

6. How does a taxpayer report taxable interest income 

from long-term obligations that pay no interest until 

maturity?

(Taxpayers report as interest income the portion of the Original 

Issue Discount each year until the obligation matures.) 

7. Compare the two forms (sent to the taxpayer and the 

IRS) that report interest income.

(Form 1099-INT, Interest Income, reports interest income of 

$10 or more; Form 1099-OID, Original Issue Discount, reports 

the amount of Original Issue Discount income that a taxpayer 

should report as interest income for the year.)

8. What corporate distributions do VITA and TCE cover?

(Ordinary and qualified dividends and capital gain 

distributions.) 

9. Which type of dividends can be reported on Form 

1040A?

(Ordinary and qualified dividends.) 

10. On what form is dividend income reported to the 

taxpayer and to the IRS?

(Form 1099-DIV.) 

11. Where on Form 1040 or Form 1040A are ordinary 

dividends reported?

(If the amount in box 1 of Form 1099-DIV totals $1500 or less, 

the total is entered on line 9a. If the amount totals more than 

$1500, each amount is listed on Schedule B, Form 1040 or 

Schedule 1, Form 1040A, Part II.

12. Where on Form 1040 or Form 1040A are capital gain 

distributions reported?

(Taxpayers who have capital gain distributions can file a Form 

1040 or 1040A. Capital gain distributions are reported on line 

13a of Form 1040 or line 10a of Form 1040A, if the taxpayer 

has only capital gain distributions as evidenced by an entry 
Notes to

Instructors N-3-5

in box 2a of the 1099-DIV. If the taxpayer has gains from the 

sale of assets or entries in boxes 2b, 2c, 2d, 3 or 6 through 9 the 

capital gain distribution is reported on line 13a of Schedule D.)

13. Which taxpayers meet the qualifications to use Schedule 

C-EZ?

(Refer to bulleted list under Who Can Use Schedule C-EZ.)

14. Where can the taxpayer find the Principal Business 

Code?

(In the instructions for Schedule C.)

15. On which line of Form 1040EZ, Form 1040A, or Form 

1040 is unemployment compensation reported?

(Unemployment compensation paid from the Federal 

Unemployment Trust Fund is reported on line 3 of Form 

1040EZ, line 13 of Form 1040A, or line 19 of Form 1040. 

Supplemental benefits provided from an employer’s fund to 

which the employee did not contribute are reported on line 1 of 

Form 1040EZ or on line 7 of Form 1040A or 1040.)

16. What form is sent to recipients of unemployment 

compensation?

(Form 1099-G) 

LESSON REVIEW — EARNED INCOME

1. Students may wonder what procedure to follow when a Form 

W-2C is received after the return is filed. Explain that the 

taxpayer must file an amended return (Form 1040X) and attach 

Form W-2C to it. Timing is important in filing an amended 

return, so the taxpayer should contact the IRS with any 

questions.

LESSON REVIEW — TIP INCOME

Since tips may be paid in the form of jewelry, tickets, or meals, students may ask how such tips can be reported as taxable income. 

Explain that the taxpayer should report the fair market value of 

the property received as a tip.

LESSON REVIEW — TAXABLE INTEREST INCOME

Series I Bonds are inflation-indexed bonds designed to protect the 

purchasing power of the investment by providing a rate of return 

over and above the rate of inflation.
Notes to N-3-6 Instructors

LESSON REVIEW — INCOME FROM BUSINESS

1. Remind students that Schedule C-EZ can only be used by a taxpayer who operates one business as a self-employed individual.

2. Individuals who have more than one business must file separate 

Schedule Cs but combine the income on one Schedule SE. 

These individuals should be referred to a paid professional tax 

preparer.

3. Remind students that one-half of the self-employment tax may 

be claimed as an adjustment to income on line 30 of Form 1040.
Lesson 3 3-1

BASIC

 INCOME Lesson 3

INTRODUCTION AND OBJECTIVES

In this lesson you will learn to distinguish between 

taxable and nontaxable income. You will also learn 

where to report the different types of income. In 

addition, you will learn to make income entries on 

Forms 1040EZ, 1040A, and 1040.

This lesson will help you achieve the following 

objectives.

■ Determine what is taxable and nontaxable income.

■ Determine where to report income on Forms 1040, 

1040A, and 1040EZ.

■ Identify who can file Schedule C-EZ.

■ Identify who must file Schedule SE.

TAXABLE AND NONTAXABLE INCOME

Taxable income is any income that is subject to 

tax. It must be reported on a tax return, unless the 

amount is so small that the individual is not required 

to file a return.

The following types of income are taxable:

■ Wages, salaries, bonuses, and commissions

■ Certain fringe benefits

■ Tips and other compensation for personal services

■ Interest*

■ Dividends

■ Refunds of state and local taxes**

■ Alimony received or separate maintenance 

payments received

■ Business income

■ Hobby income (a hobby loss is not deductible)

■ Capital gains

■ Gain from the sale of property

■ Pensions and annuities (part may be nontaxable)

■ IRA distributions (part or all may be nontaxable)

■ Rents received

■ Royalties
3-2 Lesson 3

BASIC

■ Estate or trust income

■ Supplemental unemployment benefits 

■ Unemployment compensation

■ Railroad retirement benefits (part may be taxable)

■ Social security benefits (part may be taxable)

■ Jury duty pay

■ Executors’ fees

■ Gambling winnings (including lotteries, contests, raffles, etc.)

■ Nonqualifying scholarships and fellowships

■ Payments for punitive damages and compensatory damages not 

attributable to physical injuries or sickness

■ Certain long-term care benefits. If the taxpayer received copy B 

of Form 1099-LTC, refer him or her to a paid professional preparer because some of the benefits may be taxable.

*Some interest is not taxable (for example, interest on certain state 

and local bonds and on qualified Series EE and Series I savings 

bonds used to pay for higher education expenses).

**Refunds of state and local taxes are taxable only if the taxpayer 

itemized deductions in the year the taxes were paid and the individual’s tax liability was REDUCED because of the deduction. 

Nontaxable income is income that is exempt from tax. If a return 

must be filed, some types of nontaxable income will be shown on 

the return but will not be added into the amount of income subject 

to tax.

The following types of income are nontaxable:

■ Child support

■ Federal income tax refunds

■ Certain dividends on life insurance

■ Gifts, bequests, and inheritances (may be subject to other taxes)

■ Insurance and certain other payments for physical injury and 

sickness

■ Interest on certain Series EE and Series I savings bonds 

redeemed to pay for qualified higher education expenses

■ Interest on certain state and local obligations (municipal bonds)

■ Most life insurance proceeds paid upon death (and certain 

accelerated death benefits or payments received under a life 

insurance contract on the life of a terminally or chronically ill 

individual before the individual’s death)

■ Public assistance payments (certain TANF payments)

■ Certain railroad retirement benefits (part may be exempt)

■ Social security benefits (part may be exempt)
Lesson 3 3-3

BASIC

■ Veterans’ disability benefits

■ Workers’ compensation

■ Qualified scholarships and fellowships

■ Certain dependent care services provided by employer

■ Interest on insurance dividends left with the VA

■ Certain employer-provided educational benefits (up to $5,250)

■ Employer-provided assistance for qualifying adoption expenses. 

(Refer taxpayers with adoption expenses to a paid professional 

tax preparer and to Publication 968, Tax Benefits for Adoption)

■ Restitution payments and excludable interest received by 

Holocaust victims, their heirs, or their estates, for persecutions 

are not taxable.

■ Certain long-term care benefits. If the taxpayer received copy C 

of Form 1099-LTC, he or she is not the policyholder. The form is 

for information only and should be disregarded because none of 

the benefits are taxable to him or her. If the taxpayer received 

copy B of Form 1099-LTC, refer him or her to a paid professional 

preparer because some of the benefits may be taxable.

Example 1

Robert received the following income: wages, interest, child support, 

alimony, inheritance, workers’ compensation, and lottery 

winnings.

The wages, interest, alimony, and lottery winnings are taxable

income and will appear on Robert’s tax return.

Child support, inheritance, and workers’ compensation are 

nontaxable income and will not appear on Robert’s tax return.
3-4 Lesson 3

BASIC

Exercise 1

Indicate whether the income listed is taxable or nontaxable.

Type of Income Nontaxable Taxable

1. Wages

2. Dividends from stock

3. Veterans’ disability

benefits

4. Child Support

5. Credit union 

dividends

6. Cash bonuses

7. Inheritances

8. Tips

9. Worker’s 

compensation

10. Veteran’s life insurance 

dividends

WHERE TO REPORT INCOME

Taxpayers can report only wages, salaries, tips, unemployment

compensation, qualified state tuition program payments, Alaska 

Permanent Fund dividends, taxable scholarship and fellowship 

grants, and interest income of $1,500 or less on Form 1040EZ.

In addition to the types of income that can be reported on Form 

1040EZ, ordinary and qualified dividends, capital gains distribution, interest income greater than $1,500, IRA distributions, 

pension and annuity income, and taxable social security and equivalent railroad retirement benefits can be reported on Form 1040A.

These and all other types of income can be reported on Form 1040.

EARNED INCOME

Wages and Salaries

The total of wages, salaries, tips, and taxable scholarships and fellowships are reported on Form 1040EZ, line 1, Form 1040A or Form 

1040, line 7.

Wages, salaries, and tips are primary examples of earned income 

received for services performed. Wages and salaries are compensation received. Tips are money and goods received as a gratuity by 

food servers, maids, porters, etc.
Lesson 3 3-5

BASIC

Form W-2. Form W-2, Wages and Tax Statement, shown in Exhibit 

1, reports the employee’s earned income for the year. Employers 

should issue Form W-2 to every employee and a copy to the Social 

Security Administration. Box 1, Wages, tips, and other compensation, shows the amount of payments received in cash, goods and 

services, bonuses, supplemental unemployment benefits, awards, 

and taxable employee benefits. This amount should be included on 

the return.

An individual taxpayer or a couple filing jointly might have one or 

more Forms W-2 from various employers. When the taxpayer and/or 

spouse receive Forms W-2 from their employers, add the amounts 

from Box 1 of each Form W-2 and report the total amount on the 

return.

Generally, if a household employee earned less than $1,400 a 

year while working in the employer’s home, the employer is not 

required to provide the taxpayer with a Form W-2 but, the income 

must be included on line 7 ( Form 1040A or 1040) or line 1 ( Form 

1040EZ). However, a Form W-2 is required if the employer withheld 

federal income taxes.

If a taxpayer does not get a Form W-2, or if the one he or she gets is 

not correct, the taxpayer will have to contact his or her employer as 

soon as possible. Only an employer can issue a Form W-2 or a Form 

W-2c.

In the event that the employer prepared an incorrect W-2, a Form 

W2c, Corrected Wage and Tax Statement, should be issued. Use the 

Form W-2c amounts on the return. Be sure to attach the Form W-2c 

to the taxpayer’s return.

All wage, salary, and tip income must be reported on the 

return, even if the employee did not receive a Form W-2.

If the taxpayer does not receive a Form W-2 by January 31, he or 

she should first contact the employer and find out if or when the 

Form W-2 was mailed. If after allowing a reasonable amount of 

time for the employer to issue or reissue the Form W-2, the Form 

W-2 still has not been received, he or she should contact the IRS for 

assistance at 1-800-829-1040, but not before February 15.

If after requesting a Form W-2 from the employer the taxpayer does 

not receive it by the due date of the return, he or she should file a 

Form 4852, Substitute for Form W-2, Wage and Tax Statement or 

Form 1099-R, Distributions from Pensions, Annuities, Retirement or 

Profit-Sharing Plans, IRA’s, Insurance Contracts, Etc.

The taxpayer should keep a copy of Form 4852 for his or her 

records and file a copy with the Social Security Administration to 

ensure proper social security credit.

POTENTIAL

PITFALLS

Volunteers should be 

alert to the following 

possible indications 

of fraudulent activity:

■ Forms W-2 

that are typed, 

handwritten or 

have noticeable 

corrections

■ Form W-2 from a 

fi rm in the area 

that is different 

from other Forms 

W-2 issued by the 

same fi rm

■ Suspicious person 

accompanying

the taxpayer and 

observed on other 

occasions

■ Multiple refunds 

directed to the 

same address or 

P.O. Box

■ Employment 

or earnings, 

that are a basis 

for refundable 

credits, that 

are not well 

documented

■ Similar returns 

(e.g. same amount 

of refund, or 

same number of 

dependents, or 

same number of 

Forms W-2)
3-6 Lesson 3

BASIC

Form 1099-MISC. Taxpayers with earnings reported on Form 

1099-MISC, Miscellaneous Income, shown in Exhibit 2, may be 

considered self-employed. These amounts are reported on Schedule 

C-EZ or Schedule C. Net losses and profits are reported on line 12 

of Form 1040. Self-employment income is discussed later in this 

lesson.

Some employers misclassify workers as independent contractors 

and report their earnings on Form 1099-MISC. Taxpayers who 

believe they have been misclassified should contact the IRS.

Exhibit 1

For Privacy Act and Paperwork Reduction

Act Notice, see back of Copy D.

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy A For Social Security Administration –– Send this

entire page with Form W-3 to the Social Security

Administration; photocopies are not acceptable.

Department of the TreasuryóInternal Revenue Service

Do Not Cut, Fold, or Staple Forms on This Page –– Do Not Cut, Fold, or Staple Forms on This Page

Form

Dependent care benefits

See instructions for box 12

Cat. No. 10134D

a

b

c

d

e

f

Void

W-2 Wage and Tax

Statement 2

22222

0 40

OMB No. 1545-0008

For Official Use Only

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e
Lesson 3 3-7

BASIC

Exhibit 2

Nonemployee compensation

VOID CORRECTED

PAYER’S name, street address, city, state, ZIP code, and telephone no. 1 Rents OMB No. 1545-0115

$

2 Royalties

$

3 Other income Federal income tax withheld

RECIPIENT’S identification

number

PAYER’S Federal identification

number

5 Fishing boat proceeds 6 Medical and health care payments

$ $

RECIPIENT’S name Substitute payments in lieu of

dividends or interest

7 8

$ $

Street address (including apt. no.) 9 10 Crop insurance proceeds

City, state, and ZIP code

Gross proceeds paid to

an attorney

Excess golden parachute 14

payments

Account number (optional) 13

$

16 State tax withheld 17 State/Payer’s state no.

$

18 State income

$

$

$ $

4

$ $

Payer made direct sales of

$5,000 or more of consumer

products to a buyer

(recipient) for resale

Form 1099-MISC

Miscellaneous

Income

15

$

9595

2nd TIN not.

Form 1099-MISC Cat. No. 14425J Department of the Treasury - Internal Revenue Service

Copy A

File with Form 1096.

For Privacy Act

and Paperwork

Reduction Act

Notice, see the

2004 General

Instructions for

Forms 1099,

1098, 5498,

and W-2G.

For

Internal Revenue

Service Center

11 12

2004

Do Not Cut, Fold, or Staple Forms on This Page –– Do Not Cut, Fold, or Staple Forms on This Page

Tip Income

All tip income is taxable. Individuals who receive $20 or more per 

month in tips while working one job must report their tip income 

to their employer. Tips that are reported to employers are included 

with wages on Form W-2, box 1. If the taxpayer received tip income 

of $20 or more in a month and did not report all of those tips to the 

employer, he or she must report the social security and Medicare 

taxes on the unreported tips as additional tax on Form 1040. Form 

4137, Social Security and Medicare Tax on Unreported Tip Income,

should be used to compute and report the additional tax.

Individuals who receive less than $20 per month in tips while 

working one job do not have to report their tip income to their 

employer. Additionally, noncash tips (for example, tickets or passes) 

do not have to be reported to the employer. Tips of less than $20 

per month or noncash tips are not subject to social security and 

Medicare taxes. However, this tip income is subject to federal 

income taxes and must be reported on line 7 of Form 1040 or Form 

1040A, or line 1 of Form 1040EZ.

POTENTIAL

PITFALLS

If the taxpayer 

fails to report tip 

income as required 

to the employer, the 

taxpayer may be 

subject to a penalty 

equal to 50% of the 

social security and 

Medicare taxes 

owed on unreported 

tips.
3-8 Lesson 3

BASIC

Allocated tips are tips an employer assigns to an employee. They 

are in addition to the tips the employee reported to the employer. 

The taxpayer may have allocated tips if he or she worked in a restaurant, cocktail lounge, or similar business that must allocate tips 

to employees.

Allocated tips are shown separately in box 8 of Form W-2. They 

are not included in the amount in box 1. The taxpayer must report 

allocated tips on his or her tax return unless either of the following 

exceptions applies.

1) The taxpayer kept a daily tip record, or other evidence that is 

as credible and as reliable as a daily tip record, as required. 

(See Pub. 531, Reporting Tip Income).

2) The taxpayer’s tip record is incomplete, but it shows that his 

or her actual tips were more than the tips reported to his or 

her employer plus the allocated tips.

If either exception applies, report actual tips on the return. Do not 

report the allocated tips.

If the taxpayer is required to report allocated tips on the return, 

the amount on Form W-2, box 8, should be added to the amount in 

box 1. The total is reported on line 7 of Form 1040. Allocated tips 

cannot be reported on Form 1040EZ or 1040A, and are subject to 

social security and Medicare taxes. Form 4137 should be used to 

compute and report the additional tax.

The taxpayer should keep a copy for his or her records and file a 

copy with the local Social Security Administration to ensure proper 

social security credit.

Example 2

Fred works as a repairman during the week and as a barber on 

alternate Saturdays. His tips are less than $20 in any month and 

he does not report them to his employer. The amounts from box 1 

on his Forms W-2 show income of $23,500 (repairman) and $1,950 

(barber). His unreported tip income was $200. 

Fred will report $25,650 on Form 1040A, line 7. This is the total 

of his Forms W-2, box 1 income and his unreported tip income 

($23,500 plus $1,950 plus $200).

If Fred reported his tip income to his employer, the tips would be 

included in box 1 of the Form W-2. The amount in box 1 of that 

Form W-2 would be $2,150 ($1,950 plus $200). Fred would still 

enter $25,650 on line 7 ($23,500 plus $2,150).

Scholarships and Fellowships

Some scholarships and fellowships may be partially taxable. If the 

taxpayer received a Form W-2 for the scholarship or fellowship, add 

the amount in box 1 to any other box 1 amounts. Enter the total on 

line 1, Form 1040EZ, or line 7, Form 1040A or 1040.

POTENTIAL

PITFALLS

The following 

individuals cannot 

fi le Form 1040EZ or 

1040A; they must fi le 

Form 1040: 

(1) Individuals who 

received $20 or more 

in tips in any month 

while working for 

one employer and 

who did not report 

the full amount to 

the employer. (These 

tips are subject 

to social security 

and Medicare tax.) 

(2) Taxpayers whose 

Form W-2 has an 

amount entered in 

box 8, Allocated

tips, that they must 

report as income. For 

more information, 

see Publication 531, 

Reporting Tip Income.
Lesson 3 3-9

BASIC

Even if the taxpayer did not receive a Form W-2 for the scholarship or fellowship, the taxable portion of the scholarship or fellowship must be reported. Add the taxable portion to other Form W-2, 

box 1 amounts and unreported tip income. Enter the total on line 

7 ( Form 1040 or 1040A) or line 1 ( Form 1040EZ). Write “SCH” and 

the amount not reported on Form W-2 in the space to the left of line 

7 or line 1, whichever applies. 

Exercise 2

A. Mike worked two jobs. He was a quality inspector during the

week and a bartender on the weekends. He reported all of 

his tip income ($3,000) to his employer. His Forms W-2, box 

1, showed income of $21,000 (quality inspector) and $8,250 

(bartender). What amount will Mike report on his Form 1040A, 

line 7? 

B. John works as a food server in an expensive restaurant. He 

tells you that he did not report his tip income of $18,100 to his 

employer. Can John file Form 1040A? 

C. Randy had several employers during the tax year. On February 

3, 2005, he comes into the VITA site to have his return 

prepared. He tells you that he has not received the Form W-2 

for XYZ Inc. What should you tell Randy? 

 INTEREST INCOME

Money earns interest when it:

■ is deposited in accounts in banks, savings and loans, credit 

unions,

■ is used to buy certificates of deposit or bonds, or

■ is lent to another person or business.

Interest income is considered unearned income. Money, not a person, is working to earn the income.

TAXABLE INTEREST INCOME

Savings Accounts

Interest is reported in the year that it is credited to the taxpayer’s 

account and is available for withdrawal by the taxpayer. The taxpayer should report all interest received during the year, even if the 

interest is not entered in the taxpayer’s passbook.

POTENTIAL

PITFALLS

Some savings 

and loans, credit 

unions, cooperative 

banks, and mutual 

savings banks call 

their distributions 

“dividends.” These 

“dividends” are 

really interest 

and are reported 

as interest. True 

dividends are 

different and will be 

discussed later in 

this lesson.
3-10 Lesson 3

BASIC

U.S. Savings Bonds

Interest on U.S. savings bonds is earned in one of two ways. 

■ Some bonds are issued at a “discount” and the interest earned 

equals the increase in the bond’s value over a period of time.

■ Some bonds pay interest at stated intervals of time.

Series EE and Series I Bonds. Series EE bonds are the most 

common type. They are issued at a discount; this means that the 

purchase price is less than the face value (the amount shown on 

the bond). The interest is the difference between the purchase price 

and the amount received when the bonds are redeemed (cashed in).

Series I bonds were first offered in 1998. They are issued at face 

value with a maturity period of 30 years. Interest on these bonds is 

paid when the bond is redeemed.

Taxpayers can choose one of two ways to report interest income 

from these bonds.

■ Report the increase in value when the bond is cashed in or 

when the bond matures, whichever is earlier.

■ Report the increase in the bond’s value each year.

Generally, taxpayers must use the same method for all Series EE 

and Series I bonds they own.

If a U.S. savings bond is issued in the names of co-owners, such as 

the taxpayer and child, or the taxpayer and spouse, interest on the 

bond is generally taxable to the co-owner who purchased the bond. 

To determine who is responsible for paying the tax on a bond see 

the table below.

Exhibit 3

Who Pays Tax on U.S. Savings Bond Interest

IF... THEN tax on the bond

interest must be paid by...

You use your funds to buy a 

bond in your name and the 

name of another person as 

co-owners.

You.

You buy a bond in the name of 

another person, who is the sole 

owner of the bond.

The person for whom you 

bought the bond.

You and another person buy a 

bond as co-owners, each contributing part of the purchase 

price.

Both you and the other coowner, in proportion to the 

amount each paid for the bond.

You and your spouse, who live 

in a community property state, 

buy a bond that is community 

property.

You and your spouse. If you fi le 

separate returns, both you and 

your spouse generally pay tax 

on one-half.
Lesson 3 3-11

BASIC

Example 3

Barbara owns a $500 U.S. Series EE savings bond. She paid $250 

for the bond. When the bond matures, Barbara will receive $500. At 

the end of the first year, the bond was worth $265.

Barbara can report interest income in one of two ways.

■ She can report $250 of interest income when the bond matures. 

This is the difference between the $500 value at maturity and 

the $250 she paid for the bond. Barbara would report interest

income only once, at maturity.

■ She can report $15 of interest income at the end of the first 

year. This is the increase in value at the end of the year ($265 

minus $250). Barbara would report interest income each year 

until maturity.

Excludable Interest on U.S. Savings Bonds. Taxpayers may be 

able to exclude from income all or part of the interest received from 

certain qualified U.S. savings bonds. The taxpayer must have paid 

for qualified higher education expenses the same year the bonds 

are cashed. The bonds must be either Series EE bonds issued after 

1989 or Series I bonds in the taxpayer’s name or, if married, the 

taxpayer’s name or spouse’s name. The individual in whose name 

the bonds were issued must be 24 years of age or older before the 

bonds were issued. The taxpayer cannot file married filing separately.

Qualified higher education expenses include tuition and fees paid 

to an eligible educational institution for the bond owner, the bond 

owner’s spouse, or the bond owner’s dependent for whom the bond 

owner claims an exemption. An eligible educational institution is 

any college, university, vocational school, or other postsecondary 

educational institution eligible to participate in a student aid program administered by the Department of Education.

Qualified expenses include any contribution to a qualified state 

tuition program or to a Coverdell ESA. (For more information, see 

Publication 970, Tax Benefits for Higher Education).

Use Form 8815, Exclusion of Interest From Series EE and I U.S. 

Savings Bonds Issued After 1989 (For Filers with Qualified Higher 

Education Expenses), to report the exclusion of interest income. The 

excludable amount is transferred from Form 8815 to Part I, line 3 

of Schedule 1 ( Form 1040A) or to Schedule B ( Form 1040).

Series HH Bonds. The interest on these bonds is paid twice a 

year. Report the interest on these bonds in the year in which it is 

received.

Other U.S. Obligations. Interest on other U.S. obligations, such 

as U.S. Treasury notes and bonds, is fully taxable when received.
3-12 Lesson 3

BASIC

Savings Certificates, Money Market Certificates, and Other Deferred 

Interest Accounts

Interest that is paid at fixed intervals of one year or less is included 

in taxable income when it is received or when the taxpayer could 

receive it (that is, when it is credited to the account, even if it is 

not withdrawn) without paying a substantial penalty. If an account 

matures in one year or less and provides a single interest payment at maturity, include the interest in taxable income when the 

account matures and the interest is received.

Example 4

Duane has a six-month certificate of deposit (CD) that matures in 

January 2005. He will receive $75 in interest income.

Duane will report the interest income on the certificate of deposit 

on his 2005 tax return. It matures in one year or less with a single 

interest payment at maturity.

Certificates of Deposit with Maturities of Over One Year

If interest on a CD is deferred for more than one year, the taxpayer 

must include a part of the interest in income each year. The taxpayer should receive Form 1099-INT stating the amount to report.

Example 5

Deborah has a two-year CD that pays interest every three months. 

She bought the CD on March 1, 2004. It matures on February 29, 

2006.

For 2004, Deborah reports the interest income earned from March 

through December. For 2005, she will report 12 months of interest. 

For 2006, she will report two months of interest.

Original Issue Discount. Long-term obligations that pay no 

interest before maturity are considered to be issued at a discount. 

Original Issue Discount (OID) is the amount by which the 

principal amount (redemption price at maturity) of a long-term 

debt instrument, such as a bond or note, exceeds its issue price. 

Taxpayers generally report a portion of the OID each year until the 

obligation matures.

Example 6

Roger purchased a $1,000 U.S. Treasury Zero Coupon Bond for 

$350. When the bond matures, Roger will receive $1,000. He will 

receive no interest income until the bond matures many years later.

The difference between the redemption amount ($1,000) and the 

issue price ($350) is the OID ($650). Each year until maturity, 

Roger must recognize part of the OID as taxable interest income.
Lesson 3 3-13

BASIC

Interest on Insurance Proceeds

Life insurance proceeds include interest. Taxpayers can receive 

life insurance policy benefits paid upon the death of the insured 

either in a lump sum or in installments. Generally, if the payments 

are received in installments, the portion that is interest must be 

included in the taxpayer’s income. However, if the insured individual died before October 23, 1986, and was the taxpayer’s spouse, 

the first $1,000 of interest income received each year is not taxed if 

the payments are received in installments. This exclusion does not 

apply if proceeds are left on deposit with the insurance company 

and only interest is paid.

Life insurance dividends generally are not taxable. These dividends

may be used to reduce life insurance premiums due, purchase additional paid-up insurance, or earn interest. In general, the interest 

earned on life insurance dividends is taxable when it is credited to 

the taxpayer’s account.

Interest on insurance dividends that have been left on deposit with 

the Department of Veterans Affairs (VA) is not taxable. Do not 

include this interest in taxable income. 

COVERDELL ESA

Contributions to a Coverdell ESA are not deductible. Amounts in 

the ESA grow (tax deferred) until they are distributed. Generally, 

if the beneficiary has qualified education expenses that are greater 

than the distribution during the year, then no tax is due.

If the taxpayer received Form 1099-Q, showing a distribution 

from a Coverdell ESA, ask the taxpayer if the funds were used for 

qualified education expenses. Coverdell ESA qualified education 

expenses include elementary, secondary, and postsecondary (higher) 

education expenses. 

If the entire amount of the distribution was spent on qualified 

elementary and secondary expenses, the distribution is tax-free. 

Tax-free distributions are not reported. If the taxpayer paid for 

qualified higher (postsecondary) education expenses, the taxpayer 

may be eligible for the Hope Credit or Lifetime Learning Credit, 

which may be more beneficial.

Refer the taxpayer/beneficiary to a paid professional tax preparer 

and/or Publication 970, Tax Benefits for Higher Education, if: 

■ The funds were not used for qualified education expenses.

■ The distribution is more than the amount spent for qualified 

expenses.
3-14 Lesson 3

BASIC

■ Part or all of the distribution is taxable and earnings must be 

computed.

■ The taxpayer/beneficiary received other education benefits such 

as a distribution from a Qualified Tuition Program, employer 

provided educational assistance, or a scholarship, or used U.S. 

Savings Bonds to pay for qualified education expenses.

■ If any amount needs to be reported, report it on Form 1040, 

line 21. Additional tax may be due. Use Part II of Form 5329, 

Additional Taxes on Qualified Plans (including IRAs) and Other 

Tax Favored Accounts, to figure any additional tax.

TAX-EXEMPT INTEREST

Certain types of interest are exempt from federal income tax. 

Bonds issued by the following entities generally pay tax-exempt

interest:

■ State and political subdivisions (county or city),

■ District of Columbia, and

■ U.S. possessions and political subdivisions.

Examples of tax-exempt bonds are those issued by:

■ Port authorities

■ Toll-road commissions

■ Utility service authorities

■ Community redevelopment agencies

■ Qualified volunteer fire departments

■ Amounts indicated on broker statements as tax-exempt interest 

or dividends

Although tax-exempt interest is not taxable, the taxpayer must 

report all tax-exempt interest on Form 1040, 1040A or 1040EZ.

Form 1099-INT

Interest income is reported to the taxpayer on Form 1099-INT, 

Interest Income, shown in Exhibit 4. A copy of Form 1099-INT is 

also sent to the IRS.

Box 1 shows taxable interest income from various institutions.

Some taxpayers withdraw funds from a time deposit before the 

maturity date of the account and, therefore, incur an interest penalty. The early withdrawal penalty is reported on Form 1099-INT 

in box 2. Report the total interest earned, shown in box 1 of Form 

1099-INT, on line 8a of Form 1040. Do not subtract the penalty 

from the total interest. The early withdrawal penalty is an adjustment to income and is entered on line 33 of Form 1040.
Lesson 3 3-15

BASIC

Box 3 shows U.S. savings bond and Treasury obligations interest. 

Be sure to ask the taxpayer about this interest income. The amount 

shown on Form 1099-INT may be too high if the taxpayer was not 

the original owner of the bond or if the taxpayer has reported the 

interest income each year as it was earned.

Some Forms 1099-INT will have entries in box 4 indicating that 

federal income tax has been withheld from the interest paid. Be 

sure to include the amount shown in box 4 with other tax withheld 

on Form 1040EZ, line 7, Form 1040A, line 39, or Form 1040, line 63.

Exhibit 4 Form 1099-INT

Form 1099-OID

Form 1099-OID, Original Issue Discount, reports the amount of 

Original Issue Discount income that a taxpayer should report as 

income for the year. A copy of Form 1099-OID is also sent to the 

IRS.

Box 1 shows the amount of interest (OID) for the year if the taxpayer bought the obligation at its original issue and held the issue 

all year.

Box 2 shows regular interest paid on the obligation other than the 

OID income.

9292 VOID CORRECTED

PAYER’S name, street address, city, state, ZIP code, and telephone no. Payer’s RTN (optional) OMB No. 1545-0112

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional) 2nd TIN not.

$

Form 1099-INT Cat. No. 14410K Department of the Treasury - Internal Revenue Service

Form 1099-INT

5 Investment expenses

$

Copy A

For

Internal Revenue

Service Center

File with Form 1096.

For Privacy Act

and Paperwork

Reduction Act

Notice, see the

2004 General

Instructions for

Forms 1099, 1098,

5498, and W-2G.

2004

Do Not Cut, Fold, or Staple Forms on This Page –– Do Not Cut, Fold, or Staple Forms on This Page
3-16 Lesson 3

BASIC

Reporting Interest Income

If the taxpayer is a 1040EZ filer, taxable interest income is 

reported on line 2. 1040EZ filers should report tax-exempt interest 

by writing “TEI” and the amount of tax-exempt interest on line 2 

as shown in the example below. Do not include tax-exempt interest in the Dollars/Cents portion of line 2. If the taxpayer’s interest

income is more than $1500, he or she cannot file a Form 1040EZ.

Example 7

Jennifer received taxable interest income of $65 and tax-exempt

interest income of $23. She would report her interest income on 

Form 1040EZ as shown in the exhibit below. 

Dra

Taxable interest. If the total is over $400, you cannot use Form 1040EZ. ft

Total wages, salaries, and tips. This should be shown in box 1 of your W-2

form(s). Attach your W-2 form(s).

1

1

Attach

Form(s) W-2

here.

Enclose, but

do not attach,

any payment.

2 2

Add lines 1, 2, and 3. This is your adjusted gross income.

5 Can your parents (or someone else) claim you on their return? Note. You

must check Yes. No.

Income



4 4

Unemployment compensation, qualified state tuition program earnings, and

Alaska Permanent Fund dividends (see page 14).

3

3

Enter amount from

kh b k

If single, enter 7,450.00.

If i d 13 400 00

TEI=$23.00 6 5 0 0

Exhibit 5 Jennifer’s 1040EZ

Taxpayers who file Forms 1040A or 1040, report taxable interest

income on line 8a and tax-exempt interest on line 8b. 

If the taxpayer files Forms 1040A or 1040 and:

■ Has interest income of more than $1500,

■ Wants to claim an exclusion for savings bond interest in the 

same year that he or she paid for qualified higher education 

expenses, or

■ Receives a Form 1099-INT for tax-exempt interest,

Schedule 1, Part I (1040A) or Schedule B, Part I (1040) must be 

completed, before making an entry on line 8a or 8b.

If the tax-exempt interest is shown on a Form 1099-INT, and a 

Schedule 1 or B must be filed, the taxpayer must include taxexempt interest on Schedule 1 or B. It should be reported on line 1 

but it should not be included in the total on line 2. Instead, under 

the last entry on line 1, a subtotal of all interest listed should be 

made. Below the subtotal, the taxpayer should write “Tax-exempt 

interest” and show the amount. Subtract it from the subtotal and 

the result should be entered on line 2.

On Schedule 1 or Schedule B, Part I, list the interest payers’ names 

and the various amounts received for each form, even if there are 

two or more forms from the same source.
Lesson 3 3-17

BASIC

Exercise 3

A. Randy and Ann have three Forms 1099-INT: Epping National 

Bank, $62; Epping Credit Union, $178; and Brenton Savings 

and Loan, $760.

1. How much interest income will be reported on Schedule 1 

(Form 1040A)? 

2. How much interest income will be reported on Form 1040A, 

line 8a?

B. Catherine received $398 interest income this year. She files 

Form 1040EZ. How much interest income is reported on her 

return, and where is it reported? 

C. Emily and Andrew file a joint return on Form 1040. They have 

the following interest income: City Savings and Loan (joint), 

$320; Third National Bank (Andrew), $100; U.S. Series HH 

Savings Bonds (joint), $45; and Welder’s Credit Union (Emily), 

$30. 

How much interest is reported on their Form 1040, and where 

is it reported? 

DIVIDEND INCOME AND OTHER CORPORATE DISTRIBUTIONS

Dividends are payments made by corporations to shareholders. 

Dividends can also be paid through partnerships, estates, or trusts.

There are several types of corporate distributions, including ordinary and qualified dividends, capital gain distributions, nontaxable 

distributions, stock dividends, and others. Ordinary dividends are 

paid out of the earnings and profits of a corporation and are ordinary income to you. Qualified dividends are the ordinary dividends 

received in tax years beginning after 2002 that are subject to the 

same 5% or 15% maximum tax rate that applies to net capital gain. 

Most dividends are paid in cash. Some dividends, however, are paid 

in property, services, or additional shares of stock. Only ordinary

and qualified dividends can be reported on Form 1040A. Any 

other dividends or distributions received are reported on Form 

1040. Taxpayers with dividend income may not use Form 1040EZ. 

Other types of dividends and distributions include the following:

■ Dividend reinvestment — Through dividend reinvestment,

instead of receiving cash (a dividend check), some stockholders ask the corporation to use their dividends to purchase more 

shares of the corporation’s stock. The shareholders “reinvest” 

their dividends. The dividend is taxable at the time it would be 

paid if it were in cash.

■ Capital gain distributions — Mutual funds (regulated investment companies) and real estate investment trusts (REITs) 

pass capital gains to their investors in the form of capital gain 
3-18 Lesson 3

BASIC

distributions. Capital gain distributions are treated as longterm capital gains, regardless of how long the taxpayer holds 

the shares. See Lesson 12, Sale of Stock, for more information 

on capital gains.

■ Return of capital — A return of capital represents a return of 

part of the taxpayer’s investment in the stock of the company. A 

return of capital reduces the basis of the stock and is not taxed 

until the taxpayer’s basis in the stock is fully recovered. Any 

return of capital in excess of basis is treated as a capital gain 

and is reported on Schedule D, Capital Gains and Losses.

■ Stock dividends — Stock dividends increase the taxpayer’s 

number of shares in the company. Generally, stock dividends are 

not taxable.

Other types of nontaxable dividends are:

■ Exempt-interest dividends paid by mutual funds (This interest 

is listed on Form 1040, line 8b.)

■ Dividends on insurance policies, as long as they do not exceed 

the total of all net premiums paid by the taxpayer

■ Dividends on veterans’ insurance

■ Certain patronage dividends

Reporting Dividends and Capital Gain Distributions

The payer reports dividends and certain other distributions on 

Form 1099-DIV, Dividends and Distributions.

Ordinary dividends are reported in box 1a of Form 1099-DIV. 

Add the amounts in box 1a from all the Forms 1099-DIV the taxpayer received. If the total is:

■ $1500 or less, enter the total on line 9a of Form 1040A or 1040.

■ over $1500, complete Schedule 1 ( Form 1040A), Part II, or 

Schedule B ( Form 1040), Part II. Transfer the result to line 9a of 

Form 1040A or 1040.

On Schedule 1 or Schedule B enter the payer’s name and the 

amount received for each Form 1099-DIV even if the same corporation used separate forms to report more than one distribution. 

If the taxpayer has a substitute Form 1099-DIV from a brokerage 

firm, it may show a total for dividends received. Enter the brokerage firm as the payer of the dividends and enter the total dividend 

amount. Do not list the dividends individually.

Some taxpayers receive dividend income from shares that the 

husband and wife own jointly. If they file a joint return, enter the 

total dividend in the appropriate place on the return. If they file 

separate tax returns, divide the dividend by two. Report half on the 

husband’s return and half on the wife’s return.
Lesson 3 3-19

BASIC

Qualified dividends. Report qualified dividends (box 1b of Form 

1099 DIV) on line 9b of Form 1040 or Form 1040A. Do not include 

any of the following on line 9b.

■ Qualified dividends received as a nominee.

■ Dividends on stock for which the holding period was not met.

■ Dividends on any share of stock to the extent that there is an 

obligation to make related payments for positions in substantially similar or related property.

■ Payments in lieu of dividends, but only if it is known or reason 

to have known that the payments are not qualified dividends.

See chapter 1 of Publication 550 for further details.

If qualified dividends are reported, tax must be figured by 

completing either Schedule D (Form 1040) or the Qualified 

Dividends and Capital Gain Tax Worksheet in the Form 1040 or 

1040 A instructions. 

If no capital gain or loss are reported, including capital gain distributions from 1099-DIV, Schedule D (Form 1040) is not required; 

therefore, the Qualified Dividends and Capital Gain Tax Worksheet 

is used to figure the lower tax on qualified dividends. To see a copy 

of the Qualified Dividends and Capital Gain Tax Worksheet, refer 

to Lesson 12, Exhibit 9. 

Capital gain distributions occur when a mutual fund (regulated 

investment company) sells assets for more than their cost, and the 

realized capital gain is distributed to the fund’s shareholders. This 

should not be confused with a capital gain that occurs when the 

owner of a mutual fund or a capital asset sells shares in the fund 

or the asset for more than the cost and realizes a capital gain. For 

more information on capital gains and losses, see Lesson 12, 

Sale of Stock.

Payers report capital gain distributions in box 2a of Form 1099-DIV, 

see Exhibit 6. Taxpayers can report capital gain distributions directly 

on Form 1040A or Form 1040 if:

■ The only amounts the taxpayer has to report on Schedule D are 

capital gain distributions (box 2a),

■ The taxpayer does not have any qualified 5-year gain (box 2c) 

unrecaptured section 1250 gain (box 2d), or section 1202 gain 

(box 2e), and

■ If the taxpayer files Form 4952, Investment Interest Expense 

Deduction, the amount on line 4e of Form 4952 is not more 

than zero.
3-20 Lesson 3

BASIC

Exhibit 6 Form 1099-Div

Unrecap. Sec. 1250 gain

VOID CORRECTED

PAYER’S name, street address, city, state, ZIP code, and telephone no. 1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name Sect 2c ion 1202 gain 2d Collectibles (28%) gain

$

3

Street address (including apt. no.) 5 Investment expenses

City, state, and ZIP code

Noncash liquidation

distributions

Cash liquidation 9

distributions

Account number (optional) 8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

Dividends and

Distributions

$

9191

2nd TIN not.

Form 1099-DIV Cat. No. 14415N Department of the Treasury - Internal Revenue Service

Copy A

File with Form 1096.

For Privacy Act

and Paperwork

Reduction Act

Notice, see the

2004 General

Instructions for

Forms 1099,

1098, 5498,

and W-2G.

For

Internal Revenue

Service Center

6 Foreign tax paid 7 Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

$

2004

Do Not Cut, Fold, or Staple Forms on This Page –– Do Not Cut, Fold, or Staple Forms on This Page

If the taxpayer does not meet the requirements to report the 

capital gain distribution directly on Form 1040A or Form 1040, a 

Schedule D, Capital Gains and Losses must be filed. If a Schedule 

D is not required, the capital gain distributions can be reported 

directly on line 13 of Form 1040, or line 10 of Form 1040A. Capital 

gain distributions are not reported on Form 1040EZ.

If capital gain distributions are reported directly on Form 1040 or 

Form 1040A:

■ Check the box next to line 13, Form 1040 and 

■ Use the Qualified Dividend and Capital Gain Tax Worksheet 

from either the Form 1040A or 1040 instruction booklet to 

compute tax.

The volunteer should be careful not to ignore other boxes on the 

Form 1099-DIV.

■ Box 2c, Qualified 5-year gain. If the taxpayer has an entry in 

box 2c, see Lesson 12 for the proper treatment of the gain.

■ Box 4, Federal income tax withheld. Be sure to include this 

amount on line 39 of Form 1040A or line 63 of Form 1040.
Lesson 3 3-21

BASIC

■ Box 5, Investment expenses. If the taxpayer files Form 1040 and 

itemizes deductions on Schedule A, report the amount from 

box 5 as a miscellaneous itemized deduction subject to the 2%-

of-adjusted-gross-income limit. (See Itemized Deductions in 

Lesson 4.)

■ Box 6, Foreign tax paid. If the taxpayer has an entry in box 6, 

see Lesson 6 for the proper treatment of the tax. The taxpayer 

may be able to claim the Foreign Tax Credit.

A capital gain distribution is reported on a Schedule D when the 

taxpayer has more than capital gain distributions to report, for 

example when boxes 2b, 2c, 3, 8, or 9 have entries, or when the taxpayer has sold a capital asset. Capital gain distributions are always 

treated as long-term capital gains, regardless of how long the taxpayer holds the shares, and are reported on line 13, column (f) of 

the Schedule D. 

STATE AND LOCAL TAX REFUNDS

Taxpayers who receive a refund of state or local taxes may receive 

a Form 1099-G, Certain Government Payments, see Exhibit 7. If 

the taxpayer claimed the standard deduction on the 2003 return 

and received a refund of 2003 state or local tax, the taxpayer does 

not have to include the refund in taxable income for tax year 2004. 

However, if the taxpayer itemized deductions and received a state 

or local tax refund, the taxpayer may have to include part or all 

of the refund in taxable income in 2004. Use the State and Local 

Income Tax Refund Worksheet—Line 10 in the Form 1040 instruction booklet to determine what part, if any, of the refund is taxable. 

Enter the taxable portion of state and local refunds on Form 1040, 

line 10.

Exhibit 7 Form 1099-G

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0120 1 Unemployment compensation

Certain

Government

Payments

$

State or local income tax

refunds, credits, or offsets

2

$

PAYER’S Federal identification number RECIPIENT’S identification number 3 Box 2 amount is for tax year 4 Federal income tax withheld

$

RECIPIENT’S name 6 Taxable grants

$

Street address (including apt. no.) 7 Agriculture payments

$

City, state, and ZIP code

Account number (optional)

Form 1099-G Department of the Treasury - Internal Revenue Service

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

For Recipient

Form 1099-G

5

8 Box 2 is trade or

business income 

2004

Georgia Department of Revenue

76 Butler Street

New York, NY 10001

XX-XXXXXXX XXX-XX-XXXX

Clark Fisk

87 Bluefield Ave.

Raleigh, NC 27611

4,000.00

400.00

POTENTIAL

PITFALLS

If the state or 

local income tax 

refund refl ects any 

deductions, credits, 

or payments for 

years other than 

2003, refer the 

taxpayer to a paid 

professional tax 

preparer.
3-22 Lesson 3

BASIC

 ALIMONY RECEIVED

Alimony or separate maintenance payments made under a court 

decree are taxable income to the person receiving them. They are 

reported on Form 1040, line 11. The person making the payments 

deducts them on Form 1040, line 34a, as an adjustment to gross

income.

Child support payments are not alimony. The person making the 

payments cannot deduct them. The person receiving child support 

payments does not have to include them in income.

 INCOME FROM BUSINESS (OPTIONAL TOPIC)

Business income or loss is reported first on Schedule C ( Form 

1040), Profit or Loss From Business, or Schedule C-EZ, Net Profit 

From Business, and then transferred to Form 1040, line 12. 

Taxpayers who must file a Schedule C should see a paid professional tax preparer.

VITA and TCE volunteers who have received training on this topic, 

at the discretion of the site coordinator, may assist self-employed

individuals who qualify to use Schedule C-EZ, shown in Exhibit 8.

Who Can Use Schedule C-EZ

A taxpayer can use Schedule C-EZ only if he or she:

■ Had business expenses of $5,000 or less,

■ Uses the cash method of accounting,

■ Did not have an inventory at any time during the year,

■ Did not have a net loss from his or her business,

■ Had only one business as a sole proprietor,

■ Had no employees during the year,

■ Is not required to file Form 4562, Depreciation and 

Amortization, for this business (See the instructions for 

Schedule C, line 13, to find out if the taxpayer must file.),

■ Does not deduct expenses for business use of his or her home, 

and

■ Does not have prior year unallowed passive activity losses from 

this business.

Completing Schedule C-EZ

Schedule C-EZ has three parts:

Part I: General Information

Part II: Figure Your Net Profit

Part III: Information on Your Vehicle

POTENTIAL

PITFALLS

Many taxpayers 

erroneously report 

amounts from 

Form 1099-MISC, 

Miscellaneous

Income, with wages 

or other income. 

This income should 

instead be reported 

on Schdule C or C-EZ 

and on Schedule SE, 

Self-Employment

Tax. If the income is 

reported incorrectly, 

IRS may later issue 

a notice of proposed 

tax increase for the 

self-employment

income and tax.

ALERT

The amount of 

allowable business 

expenses on Form 

1040, Schedule 

C-EZ, Net Profi t 

From Business was 

increased from 

$2,500 or less to 

$5,000 or less.
Lesson 3 3-23

BASIC

Part I: General Information

Part I is used to determine whether or not the taxpayer is eligible 

to use this form instead of Schedule C for reporting self-employment income. If all the criteria are met, the taxpayer then completes Part I.

Line B, Principal Business Code, is determined by looking at the 

code list in the Instructions for Schedule C, Profit or Loss From 

Business.

Line D, Employer ID Number, is a number that the Internal 

Revenue Service supplies to businesses and other professional 

activities. If the taxpayer does not have one, the space should be 

left blank. The taxpayer cannot use the taxpayer’s social security 

number.

Part II: Figure Your Net Profit

Gross receipts are all receipts from a trade or business including 

income reported on a Form 1099-MISC, Miscellaneous Income. All 

items of taxable income actually or constructively received during 

the year are included. Gross receipts are entered on line 1.

Total expenses include the total amount of all deductible business expenses actually paid during the year. Examples of these 

expenses include advertising, car and truck expenses, commissions, 

insurance, interest, legal and professional services and fees, office 

expense, rent or lease expense, repairs and maintenance, supplies, taxes, travel, 50% of business meals and entertainment, and 

utilities (including telephone). Total expenses of $5,000 or less are 

entered on line 2.

If the taxpayer uses his or her car or truck for business purposes, 

he or she can deduct expenses related to using the car or truck. 

To determine the amount of car and truck expenses that can be 

deducted, the taxpayer must use either the:

• Standard Mileage Rate, or

• Actual Car Expenses.

Standard Mileage Rate. If the taxpayer can and does choose to 

use the standard mileage rate, business miles are multiplied by the 

applicable mileage rate and added to the deductible parking and 

tolls. Car expenses using the standard mileage rate are computed 

as follows:

Business miles incurred during the year × 37.5¢ per mile

+ Parking and tolls incurred while on business

ALERT

The 2004 rate for 

business use of your 

vehicle is 37.5 cents 

a mile.
3-24 Lesson 3

BASIC

Actual Car Expenses. If the taxpayer chooses to use the actual 

car expenses, only the business portion of the expenses is deductible. Deductible expenses under the actual method are computed as 

follows:

1. Compute the percentage of business use:

Business miles

Total miles = % of business use

2. Determine the deductible expenses:

 (% of business use × total actual expenses)

+ Parking and tolls incurred while on business

NOTE: If taxpayers depreciate their car or truck, or their total 

expenses are more than $5,000, they cannot use Schedule C-EZ and 

should be referred to a paid professional tax preparer.

Subtract line 2 from line 1 and enter the net amount on line 3 to 

determine the net profit or loss.

If line 3 shows a profit, transfer this amount to Form 1040, line 12, 

and to Schedule SE, line 2 (except statutory employees). Attach 

Schedule C-EZ to Form 1040 in the correct sequence.

If line 3 is zero, show zero amount on Form 1040, line 12.

If line 3 shows a loss, the taxpayer cannot use Schedule C-EZ and 

should be referred to a paid professional tax preparer. 

Part III: Information on Your Vehicle

Part III should be completed if the taxpayer is claiming car and 

truck expenses in Part II.
Lesson 3 3-25

BASIC

Exhibit 8 Form 1040 Schedule C-EZ

Draft as of

09/09/2004

SCHEDULE C-EZ OMB No. 1545-0074

(Form 1040)

Net Profit From Business

(Sole Proprietorship)

 Partnerships, joint ventures, etc., must file Form 1065 or 1065-B. Department of the Treasury

Internal Revenue Service

Attachment

 Attach to Form 1040 or 1041.  See instructions on back. Sequence No. 09A

Business name. If no separate business name, leave blank. D Employer ID number (EIN), if any

Business address (including suite or room no.). Address not required if same as on Form 1040, page 1.

C

E

Gross receipts. Caution. If this income was reported to you on Form W-2 and the “Statutory

employee” box on that form was checked, see Statutory Employees in the instructions for

Schedule C, line 1, on page C-3 and check here  1

2 Total expenses (see instructions). If more than $5,000, you must use Schedule C 2

3

3 Net profit. Subtract line 2 from line 1. If less than zero, you must use Schedule C. Enter on

Form 1040, line 12, and also on Schedule SE, line 2. (Statutory employees do not report this

amount on Schedule SE, line 2. Estates and trusts, enter on Form 1041, line 3.)

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 14374D Schedule C-EZ (Form 1040) 2004

City, town or post office, state, and ZIP code

You May Use

Schedule C-EZ

Instead of

Schedule C

Only If You:

And You:

● Use the cash method of accounting.

● Had only one business as a sole

proprietor.

● Had business expenses of $5,000 or

less. ● Are not required to file Form 4562,

Depreciation and Amortization, for

this business. See the instructions

for Schedule C, line 13, on page

C-4 to find out if you must file.

● Do not deduct expenses for

business use of your home.

● Do not have prior year unallowed

passive activity losses from this

business.

 

Name of proprietor Social security number (SSN)

General Information

A Principal business or profession, including product or service B Enter code from pages C-7, 8, & 9



Figure Your Net Profit

Part I

Part II

● Did not have a net loss from your

business.

● Had no employees during the year.

1

● Did not have an inventory at any

time during the year.

6 Do you (or your spouse) have another vehicle available for personal use? Yes No

8a Do you have evidence to support your deduction? Yes No

If “Yes,” is the evidence written? Yes No

7 Was your vehicle available for personal use during off-duty hours? Yes No

5 Of the total number of miles you drove your vehicle during 2004, enter the number of miles you used your vehicle for:

Business b Commuting c Other

4

Part III Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 2.

a

b

When did you place your vehicle in service for business purposes? (month, day, year)  . / /

2004

Coe Curry XXX XX XXXX

Hair salon 8121 12

Curry Hair Salon

2525 Clemson Lane

Columbia, SC 29201

25,000

1,400

23,600

01 01 2004

10,000 15,000

✘

✘

✘

✘
3-26 Lesson 3

BASIC

Self-Employment Tax

Self-employment tax is a social security tax for persons who work 

for themselves. It is similar to the social security tax and Medicare 

tax withheld from employees’ wages.

Special exemptions from self-employment tax may apply to members of the clergy, members of certain religious sects, and certain 

nonclergy church employees.

The tax is computed on Schedule SE and transferred to the Form 

1040 to be added to other taxes owed. The Schedule SE is attached 

to the Form 1040.

Who Must File Schedule SE

A taxpayer must file Schedule SE if he or she has:

■ Net earnings from self-employment of $400 or more, other than 

church employee income (line 4 of Short Schedule SE),

OR

■ Church employee income of $108.28 or more (line 5a of Long 

Schedule SE).

Exception: If the only self-employment income was from earnings 

as a minister, member of a religious order, or Christian Science 

practitioner AND the taxpayer has filed Form 4361, Application 

for Exemption From Self-Employment Tax for Use by Ministers, 

Members of Religious Orders and Christian Science Practitioners, 

and has received IRS approval not to be taxed on these earnings, he 

or she does not have to file Schedule SE. Instead, write “Exempt—

Form 4361” on Form 1040, line 57.

Most taxpayers will need to complete only Section A of Schedule 

SE, also known as the Short Schedule SE. Follow the chart on the 

form to determine whether the taxpayer qualifies to file the short 

form. Anyone who does not qualify and who must file the long form 

should be referred to a paid professional tax preparer.

If the taxpayer qualifies for the short form, enter the net profit 

from Schedule C-EZ, line 3, on lines 2 and 3 of the Schedule SE.

Follow the instructions on the form to determine net earnings from 

self-employment on line 4 and the self-employment tax on line 5.

Enter the amount from line 5 on Form 1040, line 57.

Deduction of Self-Employment Tax

Self-employed people may claim an adjustment to income of onehalf of the social security and Medicare taxes they pay.

Enter the amount from Schedule SE, line 6, on Form 1040, line 30 

as an adjustment to income.
Lesson 3 3-27

BASIC

Exhibit 9 Form 1040 Schedule SE

Proof as of

June 18, 2004

(subject to change)

SCHEDULE SE OMB No. 1545-0074

(Form 1040) Self-Employment Tax

Department of the Treasury

Internal Revenue Service

Attachment

 Attach to Form 1040.  See Instructions for Schedule SE (Form 1040). Sequence No. 17

Name of person with self-employment income (as shown on Form 1040) Social security number of person

with self-employment income 

Who Must File Schedule SE

You must file Schedule SE if:

● You had net earnings from self-employment from other than church employee income (line 4 of Short Schedule SE or line 4c of

Long Schedule SE) of $400 or more or

Exception. If your only self-employment income was from earnings as a minister, member of a religious order, or Christian Science

practitioner and you filed Form 4361 and received IRS approval not to be taxed on those earnings, do not file Schedule SE. Instead,

write “Exempt–Form 4361” on Form 1040, line 57.

Section A—Short Schedule SE. Caution. Read above to see if you can use Short Schedule SE.

Net farm profit or (loss) from Schedule F, line 36, and farm partnerships, Schedule K-1 (Form

1065), box 14, code A

1

1

Net profit or (loss) from Schedule C, line 31; Schedule C-EZ, line 3; Schedule K-1 (Form 1065),

box 14, code A (other than farming); and Schedule K-1 (Form 1065-B), box 9. Ministers and

members of religious orders, see page SE-1 for amounts to report on this line. See page SE-2

for other income to report

2

2

3 Combine lines 1 and 2 3

Net earnings from self-employment. Multiply line 3 by 92.35% (.9235). If less than $400,

do not file this schedule; you do not owe self-employment tax 

4

4

5 Self-employment tax. If the amount on line 4 is: 

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule SE (Form 1040) 2004

● You had church employee income of $108.28 or more. Income from services you performed as a minister or a member of a

religious order is not church employee income (see page SE-1).

Cat. No. 11358Z

Deduction for one-half of self-employment tax. Multiply line 5 by

50% (.5). Enter the result here and on Form 1040, line 30

● $87,900 or less, multiply line 4 by 15.3% (.153). Enter the result here and on 

Form 1040, line 57.

● More than $87,900, multiply line 4 by 2.9% (.029). Then, add $10,899.60 to the

result. Enter the total here and on Form 1040, line 57.

May I Use Short Schedule SE or Must I Use Long Schedule SE?

Did You Receive Wages or Tips in 2004?

Was the total of your wages and tips subject to social security

or railroad retirement tax plus your net earnings from

self-employment more than $87,900?

Did you receive tips subject to social security or Medicare tax

that you did not report to your employer?

Are you using one of the optional methods to figure your net

earnings (see page SE-3)?

Are you a minister, member of a religious order, or Christian

Science practitioner who received IRS approval not to be taxed

on earnings from these sources, but you owe self-employment

tax on other earnings?

Did you receive church employee income reported on Form

W-2 of $108.28 or more?

You May Use Short Schedule SE Below You Must Use Long Schedule SE on page 2





Yes



No Yes







No

No

No

No

Yes



Yes



Yes



Yes



 







No

Note. Even if you had a loss or a small amount of income from self-employment, it may be to your benefit to file Schedule SE and

use either “optional method” in Part II of Long Schedule SE (see page SE-3).

6

5

6



(99)

2004

Coe Curry XXX XX XXXX

23,600

23,600

21,795

3,335

1,668
3-28 Lesson 3

BASIC

 CAPITAL GAINS AND LOSSES

Both the sale of stock and the sale of a home are reported on Form 

1040, line 13. The amount entered on Form 1040, line 13, is transferred from Schedule D ( Form 1040), Capital Gains and Losses. See 

Lessons 12 and 13 for more information about these types of sales.

SALE OF BUSINESS PROPERTY

The sale or involuntary conversion of business property is reported 

on Form 1040, line 14. If taxpayers are reporting the sale of business property, they should be referred to a paid professional tax 

preparer.

PENSION AND ANNUITY INCOME

Generally, payers of pension and annuity income send Form 1099-R 

to the recipients. The total pension or annuity income is reported 

on Form 1040A, line 12a, or Form 1040, line 16a; the taxable portion is reported on line 12b (1040A) or 16b (1040). If all of the pension or annuity is taxable, make an entry on line 12b or 16b only.

For more information on pension and annuity income, see Lesson 

14, Pensions.

RENTS, ROYALTIES, PARTNERSHIPS, ESTATES, AND TRUSTS

Income from rental property, royalties, partnerships, estates, and/or 

trusts is reported on Form 1040, line 17. Refer any taxpayer who 

receives income from these sources to a paid professional tax preparer.

FARM INCOME

Farm income is reported on Form 1040, line 18. Advise taxpayers 

with farm income to see a paid professional tax preparer.

 UNEMPLOYMENT COMPENSATION

Unemployment compensation includes benefits to unemployed 

individuals that a state or the District of Columbia paid from the 

Federal Unemployment Trust Fund. It is reported to the recipient 

on Form 1099-G, Certain Government Payments. All unemployment compensation is taxable. Transfer the amount in (See Exhibit 

7) box 1 of Form 1099-G to line 3 of Form 1040EZ, line 13 of Form 

1040A, or line 19 of Form 1040.

Supplemental benefits provided from an employer’s fund to which 

the employee did not contribute are sometimes thought of as unemployment benefits also. They are reported to the employee on Form 

W-2. Include them on line 7 of Form 1040A or 1040, or on line 1 of 

Form 1040EZ.

POTENTIAL

PITFALLS

Form 1099-R reports 

pension income, not 

earned income. Form 

1099-R amounts are 

not included on line 

7 of Form 1040. They 

are reported on Form 

1040A, lines 12a and 

12b or Form 1040, 

lines 16a and 16b. 

You will learn how 

to report pensions in 

Lesson 14, Pensions.
Lesson 3 3-29

BASIC

 TAXWISE HINTS

■ When entering income for the taxpayer you have the following 

three choices:

 Go to Line 7 and click F9 (Link),

 Click the right mouse and select “Link” or

 Click on add form and select “W-2”.

■ All the information entered into TaxWise should be exactly 

what is on the W-2.

Note: TaxWise automatically rounds numbers.

■ When an entry is made for Alimony paid, TaxWise requires the 

Social Security Number of the spouse receiving the alimony.

■ Form 4852, Substitute for Form W-2, Wage and Tax Statement 

or Form 1099-R, Distributions from Pensions, Annuities, 

Retirement or Profit-Sharing Plans, IRA’s, Insurance Contracts, 

etc. is available and can be completed in TaxWise.
3-30 Lesson 3

BASIC

  SUMMING UP THIS LESSON  

Form 1040EZ can be used to report only income from wages, salaries, tips, qualified tuition program earnings, Alaska Permanent 

Fund dividends, taxable scholarships and fellowship grants, 

interest of $1500 or less, and unemployment compensation.

You can report several types of income on Form 1040A:

 Wages, salaries, tips, scholarships and fellowship grants, 

 qualified tuition program payments, and Alaska Permanent 

 Fund dividends

 Interest income 

 Dividend income

 Capital gain distributions

 Unemployment compensation

Use Form 1040A, Schedule 1, or Form 1040, Schedule B, to 

report: 

 Interest and/or dividend income over $1500 and

 Interest from Series I and/or Series EE savings bonds, issued 

 after 1989, that is excluded from taxable income.

Report any early withdrawal penalties on Form 1040, line 33, as 

an adjustment to income. Do not subtract penalties from interest

income.

Report capital gain distributions directly on Form 1040, line 13a 

or Form 1040A, line 10, if the taxpayer is not required to file 

Schedule D.

State and local tax refunds are included in taxable income if:

 the taxpayer itemized deductions AND

 received a tax benefit by including the state and local tax in 

 itemized deductions.

Alimony and separate maintenance payments are taxable

income to the person receiving these payments. The person 

paying these payments can subtract them as an adjustment to 

income.
Lesson 3 3-31

BASIC

  SUMMING UP THIS LESSON  

(continued)

Business income or loss is generally beyond the scope of VITA or 

TCE. However, in some cases, trained volunteers may help selfemployed taxpayers who qualify to use Schedule C-EZ.

Taxpayers with net self-employment income of $400 or more 

must complete Schedule SE to compute self-employment tax.

Some nontaxable income is reported but is not included in taxable income:

 Tax-exempt interest 

 Nontaxable portion of IRA distributions, including rollovers

Other income, such as prizes, awards, lottery winnings, and 

jury duty pay, is reported on line 21 of Form 1040, including the 

amount and description.

Volunteers should refer taxpayers with any of the following 

items to paid professional tax preparers: 

 Sales of business property

 Income from rental property, royalties, partnerships, estates, 

 or trusts

 Farm income
3-32 Lesson 3

BASIC

Exercise 1

1. Taxable

2. Taxable

3. Nontaxable

4. Nontaxable

5. Taxable

6. Taxable

7. Nontaxable

8. Taxable

9. Nontaxable

10. Nontaxable

Exercise 2

(A) Mike will report $29,250 on line 7. The tip income is included 

in the $8,250.

(B) No; John must file Form 1040 to pay social security and 

Medicare tax on his tip income.

(C) Randy should be advised to contact the employer and request 

that a Form W-2 be issued or reissued. If after waiting a reasonable amount of time, it still has not been received, Randy 

should contact the IRS (but not before February 15th).

Exercise 3

(A) 1. None

 2. $1,000

(B) $398 is reported on line 2 of Form 1040EZ.

(C) $495 is reported on line 8a of Form 1040.

Lesson 3 INCOME ANSWERS TO EXERCISES
Notes to

Instructors N-4-1

LESSON OVERVIEW

This lesson will explain the six adjustments to income covered 

in the VITA/TCE program. These adjustments are traditional 

IRA deductions; student loan interest deduction; tuition and fees 

deduction; penalty on early withdrawal of savings; alimony paid; 

and jury duty.

The remaining adjustments — moving expenses; self-employment 

health insurance deduction; and self-employed SEP, SIMPLE, and 

qualified plans — are beyond the scope of the VITA/TCE training. 

It is important to reiterate to the volunteers to refer taxpayers with 

these issues to a paid professional tax preparer. 

See Appendix B for suggested class schedules and approximate 

teaching times.

MATERIALS

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publications or forms, you can download the files 

from www.irs.gov.

■ Form 8606, Nondeductible IRAs

■ Publication 590, Individual Retirement Arrangements (IRAs)

■ Traditional IRA Deduction Worksheet ( Form 1040 Instructions)

■ Tuition and Fees Deduction Worksheet ( Form 1040 Instructions)

■ Student Loan Interest Deduction Worksheet ( Form 1040 

Instructions)

TEACHING TIP

IRA Contributions

A taxpayer who was 70 1⁄2 years of age or older at the end of 2004 

might ask volunteers to deduct those traditional IRA contributions 

that they made in 2004 prior to turning 70 1⁄2. Volunteers should be 

prepared to explain that when a taxpayer is 70 1⁄2 years old or older 

by the end of the tax year, NO traditional IRA contributions should 

have been made or can be deducted for the year. 

ADJUSTMENTS NOTES TO INSTRUCTORS Lesson 4
Notes to N-4-2 Instructors

Student Loan Interest Deduction

Remind students that a taxpayer cannot deduct as interest on a 

student loan any amount he or she can deduct under any other 

provision of the tax law.

1. Defi ne interest as it pertains to the student loan interest 

deduction. (Interest, loan origination fees, capitalized interest, 

interest on revolving lines of credit, interest on refi nanced 

student loans)

2. Can a taxpayer fi ling married fi ling separately take this 

deduction? (No)

3. Are there income limitations to this deduction? (Yes; 

$65,000 for single, head of household and qualifying widow; 

$130,000 for married fi ling jointly)

Alimony Paid

Emphasize to students the importance of entering on Form1040, 

line 32b, the social security number of the person to whom the 

taxpayer paid alimony or separate maintenance payments. 

Volunteers should explain to taxpayers who wish to omit the 

recipient’s social security number that the penalties for doing so 

include a disallowance of the deduction and a penalty.

Jury Duty Pay Given to Employer

Students may question the fairness of requiring a taxpayer to 

report as income the total amount of jury duty pay he or she has 

received when that pay has been turned over to the employer. 

Remind sudents that the taxpayer will report the total amount of 

jury pay as an adjustment to income. Since adjustments to income 

are subtracted from income to yield adjusted gross income, the jury 

pay will not be included in the taxpayer’s adjusted gross income (or 

taxable income).

GUIDED QUESTIONS

 1. Explain the relationship between adjustments and 

adjusted gross income. (Total income minus adjustments 

results in adjusted gross income.) 
Notes to

Instructors N-4-3

IRA Contributions

 2. What is a traditional IRA? (A traditional IRA is any IRA 

that is not a Roth IRA, a SIMPLE IRA, or an Education IRA. 

An IRA is an individual retirement arrangement, a taxsheltered savings plan set up by the taxpayer.)

 3. When are earnings on traditional IRA contributions 

taxed? (When they are withdrawn from the traditional IRA.)

 4. Who is eligible to contribute to a traditional IRA?

(Anyone who is under 70 1/2 years of age by the end of the 

year and who has taxable compensation can contribute to a 

traditional IRA.)

 5. For traditional IRA purposes, what constitutes taxable 

compensation? (Compensation consists of wages, salaries, 

commissions, tips, bonuses, professional fees, earnings from 

self-employment, and alimony or separate maintenance 

payments that are included in total income.)

 6. In any one year, what is the maximum contribution 

a taxpayer can make to all his or her individual 

traditional IRAs? (Usually, the taxpayer’s traditional IRA 

contribution cannot exceed the lesser of either the taxpayer’s 

total taxable compensation or $3,000 ($3,500 if the taxpayer is 

age 50 or older).) 

 7. Identify at least two factors that determine whether or 

not traditional IRA contributions can be deducted from 

taxable income. (The taxpayer’s modified AGI, filing status, 

and whether the taxpayer is covered by a retirement plan at 

work for any part of the year.)

 8. When would a taxpayer complete Form 8606? (Each year 

that non-deductible contributions are made.)

 9. When are earnings and gains taxed on non-deductible 

contributions? (Earnings and gains are not taxed until 

distributed.)

10. How is an employee’s traditional IRA deduction 

affected if the employee is not covered by a retirement 

plan at work? (The taxpayer’s deduction is not limited by his 

or her modified AGI.)

11. How is an employee’s traditional IRA deduction 

affected if the employee is covered by a retirement 

plan provided by the employer? (The deduction may be 

reduced or eliminated depending on the modified adjusted

gross income and the filing status.)
Notes to N-4-4 Instructors

Tuition and Fees Deduction

12. What is included in qualified fees? (Course related books, 

supplies, and equipment and student activity fees when 

required as a condition of enrollment or attendance.

Penalty on Early Withdrawal of Savings

13. Under what circumstances do depositors suffer 

penalties for withdrawing funds from a savings 

account? (When funds are withdrawn from time deposit 

before the maturity date.)

14. Can the early withdrawal penalty be reported as an 

adjustment to income on Form 1040EZ or 1040A? (No; 

the early withdrawal penalty can only be reported as an 

adjustment to income on Form 1040.)

15. Is the amount of early withdrawal penalty that can be 

reported on Form 1040 as an adjustment to income limited by either: (1) the amount of interest earned from a 

time deposit, or (2) a taxpayer’s adjusted gross income?

(No; the full amount of early withdrawal penalty can be 

reported — even if the penalty to more than the interest 

is earned.)

LESSON REVIEW

To review students’ understanding of adjustments and adjusted

gross income as they pertain to taxpayers filing Form 1040 or 

Form 1040A, ask students if each of the adjustments listed below 

is within the scope of VITA/TCE Program. If it is within the scope, 

ask where on Form 1040 or Form 1040A the adjustment 

is reported.

 1. One-half self-employment tax (Within the scope of the 

VITA/TCE Program; report on Form 1040, line 32.)

 2. Jury duty pay given to an employer (Within the scope 

of the VITA/TCE Program; report on Form 1040, line 35, 

and write “jury pay” dotted on line.)

 3. Contributions to a traditional IRA (Within the scope of the 

VITA/TCE Program; report on Form 1040, line 25, or on Form 

1040A, line 17.)

 4. Self-employed SEP, SIMPLE, and qualified plans

(Outside the scope of the VITA/TCE Program.)

 5. Self-employed health insurance (Outside the scope of the 

VITA/TCE Program.)

 6. Alimony paid (Within the scope of the VITA/TCE Program; 

report on Form 1040, line 34a, along with recipient’s social 

security number.)
Notes to

Instructors N-4-5

 7. Penalty on early withdrawal of savings (Within the scope 

of the VITA/TCE Program; report on Form 1040, line, 33.)

 8. Moving expenses (outside the scope of the VITA/TCE 

Program.)

 9. Student loan interest deduction (Generally within the 

scope of the VITA/TCE Program; report on Form 1040, line 26, 

or on Form 1040A, line 18.)

10. Tuition and fees deduction (Within the scope of the 

VITA/TCE Program; report on Form 1040, line 27 or on Form 

1040A, line 19.
Notes to N-4-6 Instructors

STUDENT NOTES
Lesson 4 4-1

BASIC

 ADJUSTMENTS Lesson 4

INTRODUCTION AND OBJECTIVES

In this lesson you will learn about adjustments to 

income. There are six adjustments covered in this 

lesson. They are traditional IRA deductions, student

loan interest deduction, tuition and fees deduction, 

penalty on early withdrawal of savings, alimony 

payments, and jury duty. Lesson 3 discusses an 

additional adjustment to income covered in the 

VITA/TCE training — one-half of self employment 

tax.

The remaining adjustments — moving expenses; 

self-employed health insurance deduction; and 

self-employed SEP, SIMPLE, and qualified plans 

— are not covered in traditional VITA/TCE 

training. Taxpayers who need assistance with 

these adjustments should be referred to a paid 

professional tax preparer.

After completing this lesson you should be able to:

■ Calculate and accurately report adjustments to 

income.

■ Identify which IRA contributions are within the 

scope of the VITA/TCE program.

■ Identify contribution limits for IRAs.

 ADJUSTMENTS TO INCOME

Adjustments are subtractions from total income. 

Total income minus adjustments results in 

adjusted gross income (AGI), an important 

number for tax purposes. Adjusted gross income is 

used to figure some limitations. In addition, it is 

used to figure income tax in some states.

Taxpayers cannot take any adjustments to income 

on Form 1040EZ. On Form 1040EZ total income and 

adjusted gross income are the same. Form 1040A 

filers can take adjustments for contributions to a 

traditional IRA, the student loan interest deduction, 

and tuition and fees payments. Form 1040 filers 

can take any of the adjustments for which they are 

eligible.
4-2 Lesson 4

BASIC

 INDIVIDUAL RETIREMENT ARRANGEMENTS

An Individual Retirement Arrangement (IRA) is a taxsheltered savings plan set up by the taxpayer, generally for 

retirement income. This lesson discusses only traditional

IRAs (IRAs other than Roth IRAs, SIMPLE IRAs, or Coverdell 

education savings accounts (ESAs). Contributions to the 

nontraditional IRAs are not deductible as adjustments to income.

Information on nontraditional IRAs can be found in Publication 

590, Individual Retirement Arrangements (IRAs).

Contributions to a traditional IRA can be either deductible or 

nondeductible. Earnings and gains on the contributions are not 

taxed until withdrawn from the traditional IRA account.

Example 2

Anna contributed a total of $2,500 over the last two years to her 

traditional IRA account. During 2004 she earned $140 of interest 

on her traditional IRA. All of the interest was added to her 

traditional IRA savings account.

Anna will not have to pay tax on the interest until she withdraws 

it from her traditional IRA account.

Contributions

Anyone under 70 1/2 years of age (at the end of the tax year) who 

has taxable compensation can contribute to a traditional IRA. 

If both the taxpayer and spouse have compensation and both 

are under age 70 1/2, each can set up an IRA. However, they 

cannot participate in the same IRA — they must have separate 

accounts.

Compensation includes wages, salaries, commissions, tips, 

bonuses, professional fees, and earnings from self-employment. 

Alimony or separate maintenance payments that are included in 

total income are also compensation for traditional IRA purposes. 

Compensation does not include interest, rents, dividends, 

pension and annuity income, deferred compensation received, or 

income you can exclude.

General Contribution Limits

The most that can be contributed for any year to a traditional IRA 

is the lesser of:

■ $3,000 ($3,500 if age 50 or older), or

■ Compensation that is includible in gross income for the year.

If a taxpayer has more than one traditional IRA, the taxpayer 

must combine all of the traditional IRAs and treat them as one 

when figuring the amount that can be contributed for the year.
Lesson 4 4-3

BASIC

Example 3

Dan, a college student, working part time earned $1,500 in 2004. 

His IRA contributions for 2004 are limited to $1,500 (the lesser of 

$3,000 or compensation includible in income for the year).

Example 4

George has three traditional IRA accounts. During 2004 he 

contributed $1,000 to each. His total IRA contributions for 2004 

will be $3,000.

Deemed IRAs

Employers who provide qualified employer retirement plans can 

maintain a separate account or annuity under the plan to receive 

voluntary employee contributions. This separate account is 

referred to as a deemed IRA. A deemed IRA can be a traditional

IRA or a Roth IRA, and the same limits apply whether they are 

deemed or not. If a taxpayer has both a regular IRA and a deemed 

IRA, the taxpayer can divide contributions between them in any 

manner, but total contributions to both cannot exceed the $3,000/

$3,500 limit.

Spousal IRA limit

If taxpayers file a joint return and one spouse’s compensation is 

less than that of the other spouse’s compensation, the most that 

can be contributed for that spouse is the lesser of:

1) $3,000 ($3,500 if age 50 or older), or

2) The total compensation includible in the gross income of both 

spouses for the year, reduced by:

a) IRA contributions for the spouse with the greater 

compensation,

b) Any contribution for the year to a Roth IRA for the spouse 

with the greater compensation.

The total combined contributions to both traditional IRAs cannot 

exceed the lesser of:

■ $6,000 ($7,000 if both individuals are age 50 or older), or

■ The total taxable compensation of both spouses.
4-4 Lesson 4

BASIC

Example 5

Kristen, a full time student with no taxable compensation, marries 

Jeremy during the year. Neither will be 50 by the end of the year. 

For the year, Jeremy has taxable compensation of $30,000. He 

will contribute $3,000 to a traditional IRA. If he and Kristen file a 

joint return, each can contribute $3,000. This is because Kristen, 

who has no compensation, can add Jeremy’s compensation, reduced 

by his IRA contribution ($30,000 - $3,000 = $27,000) to her own 

compensation (0) to figure her maximum contribution. In her case, 

$3,000 is her contribution limit, because $3,000 is less than $27,000 

(her compensation for purposes of the figuring the spousal IRA).

Example 6

Tom and Darcy are married and both are 53. They both work and 

each has a traditional IRA. Tom earned $1,800 and Darcy earned 

$48,000 in 2004. Because of the spousal IRA limit rule, even 

though Tom earned less than $3,500, they can contribute up to 

$3,500 in each of their IRAs if they file a joint return. If they file 

separate returns, the amount that can be contributed to Tom’s IRA 

is limited to $1,800 (his taxable compensation).

 Excess Contributions

Generally, an excess contribution is the amount contributed to a 

traditional IRA that is more than the lesser of the:

1) Taxable compensation for the year, or

2) $3,000 ($3,500 if age 50 or older).

This limit applies whether the contributions are deductible or 

nondeductible. Contributions made in the year the taxpayer 

reaches age 70 1/2 and any later year are also excess contributions.

In general, if the excess contribution for a year and any earnings 

on it are not withdrawn by the due date of the tax return (including 

extensions), the taxpayer is subject to an additional 6% tax. The 

additional 6% tax must be paid each year on the excess amounts 

that remain in the traditional IRA at the end of the tax year. The 

tax cannot be more than 6% of the value of the IRA as of the end 

of the tax year. The excise tax is figured on Form 5329, Additional

Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored 

Accounts.

A taxpayer who has taxable compensation, but can no longer 

contribute to a traditional IRA because of age (70 1/2 years or 

older) may continue to contribute to a spouse’s traditional IRA 

until the year in which the spouse reaches 70 1/2.
Lesson 4 4-5

BASIC

Example 7

Eldridge is a 73-year-old attorney. He earned $12,000 during the 

year.

Eldridge had compensation for traditional IRA purposes but he 

cannot make an IRA contribution because he is 70 1/2 or older. If 

Eldridge files a joint return with his spouse who is 68 years old, he 

can still contribute up to $3,500 to his spouse’s IRA.

Exercise 1

A. Liz receives alimony which is included in her total income. All 

of her other income is from interest and dividends. Can Liz 

make a traditional IRA contribution? Explain. 

B. David is 73 and works part time in a hardware store. David’s 

wife, Mary, does not work outside of the home. Mary is 68. Can 

David make a traditional IRA contribution for Mary? Explain

C. Carla receives all her income from a rental property, interest

income, and dividends. Can Carla make a traditional IRA contribution? Explain. 

D. Joy is 62 years old. Most of her income comes from a pension. 

However, Joy did earn $1,250 doing consumer testing. How 

much can Joy contribute to a traditional IRA? Explain. 

Deductible IRA Contributions

Generally, you can deduct the lesser of the contributions to your 

traditional IRA for the year or the general limit (or the spousal IRA 

limit, if it applies).

The actual deductible amount for a traditional IRA depends on the 

following:

■ Whether or not the taxpayer or taxpayer’s spouse is covered by 

a retirement plan set up by an employer for any part of the year,

■ The taxpayer’s modified adjusted gross income, and

■ The taxpayer’s filing status.
4-6 Lesson 4

BASIC

 Modified Adjusted Gross Income

Generally, modified adjusted gross income is the adjusted gross

income without consideration of certain deductions. The modified 

adjusted gross income (MAGI) can be figured as follows:

AGI ( Form 1040 Line 36) plus 

■ IRA deduction

■ Student loan interest deduction

■ Tuition and fees deduction

■ Foreign earned income exclusion

■ Foreign housing exclusion or deduction

■ Exclusion of qualified savings bond interest shown on 

Form 8815

■ Exclusion of employer-paid adoption expenses shown on 

Form 8839. 

Not covered by an employer retirement plan.

A taxpayer whose filing status is single, head of household, or 

qualifying widow(er), and who is not covered by an employer 

retirement plan, can take a full traditional IRA deduction of either 

his or her taxable compensation or $3,000 (whichever amount is 

smaller). The $3,000 amount is increased to $3,500 if the taxpayer 

is age 50 or older.

Example 8

Cyril is single and 40 years of age. His modified adjusted gross

income is $50,000. He is not covered by a retirement plan at work. 

Cyril’s traditional IRA contribution of $3,000 is deductible.

Married taxpayers who file separate returns for a taxable year 

and who live apart at all times during the taxable year are treated 

as single and can take a full IRA deduction, if not covered by an 

employer plan. This is true even if the other spouse is covered by 

an employer retirement plan.

Married taxpayers who file jointly or separately may each be 

able to take the full IRA deduction of $3,000 ($3,500 if age 50 or 

older) or taxable compensation (whichever amount is smaller), if 

they had taxable compensation and both were not covered by an 

employer retirement plan. The total deduction for a joint return 

cannot exceed $6,000 ($7,000 if both individuals are age 50 or 

older). When determining the allowable deduction each 

spouse figures the deduction separately.

Covered by an employer retirement plan.

If the taxpayer is covered by a retirement plan at work, the 

traditional IRA deduction will be reduced or eliminated, as shown 

in Table 1, depending on filing status and modified AGI.
Lesson 4 4-7

BASIC

NOTE: If Box 13, Retirement Plan, on Form W-2 is checked, the 

taxpayer is covered by an employer retirement plan. If taxpayers 

do not agree with the Form W-2 they must contact their employer. 

Volunteers cannot make a determination on whether or not 

a taxpayer is covered by an employer retirement plan. Refer 

taxpayers with questions on their employer retirement plans 

to their employer or Publication 590, Individual Retirement 

Arrangements (IRAs).

Table 1.

Traditional IRA Deduction Phaseout Chart

(If taxpayer is covered by an employer retirement plan)

Allowable traditional 

IRA deduction is...

reduced if 

modifi ed AGI is:

zero when 

modifi ed 

AGI is:

Filing Status

at least but less 

than

Single or 

Head of household

Married fi ling jointly 

or Qualifying 

widow(er)

Married fi ling 

separately1

$45,000

$65,000

$0.01

$55,000

$75,000

$10,000

$55,000 or 

more

$75,000 or 

more

$10,000 or 

more

1

If the taxpayer did not live with his or her spouse at any time 

during the year, his or her filing status is considered Single for 

this purpose.

Example 9

Emily, 36 years old, is single. Her modified AGI was $54,900. She 

is covered by a retirement plan at work. Emily’s $3,000 traditional

IRA contribution will be reduced or modified on her tax return 

because her modified AGI is between $45,000 and $55,000.

If either the taxpayer or the taxpayer’s spouse is covered by 

an employer retirement plan, he or she may be entitled to only a 

partial deduction or no deduction at all, depending on filing status 

and modified adjusted gross income, as shown in Table 2.
4-8 Lesson 4

BASIC

Table 2.

Traditional IRA Deduction Phaseout Chart

(If taxpayer is not covered, but the spouse is)

Allowable traditional 

IRA deduction is...

reduced if modifi ed 

AGI is:

zero when 

modifi ed 

AGI is:

Filing Status

more

than

but less 

than

Married fi ling jointly 

or Qualifying 

widow(er)

Married fi ling 

separately1

$150,000

$0.01

$160,000

$10,000

$160,000 or 

more

$10,000 or 

more

1

The taxpayer is entitled to the full deduction if he or she did not 

live with their spouse at any time during the year.

Example 10

David and Ruth are filing a joint return. David earned $78,000 

and is covered by his employer’s retirement plan. Ruth, age 32, is a 

homemaker, and has no compensation. David, age 36, contributed 

$2,800 to his traditional IRA and $3,000 to a traditional IRA for 

Ruth.

Because David is covered by his employer’s retirement plan, the 

modified AGI limits apply (Table 1). Based on Table 1, David is not 

allowed a deduction for his traditional IRA contributions. Because 

David made traditional IRA contributions for Ruth, they can take a 

deduction on the tax return for her IRA contributions. Ruth is not 

covered by an employer’s retirement plan. Their compensation for 

IRA purposes is $78,000 and their modified AGI is not more than 

$150,000 (see Table 2). 

POTENTIAL

PITFALLS

When determining 

the allowable 

deduction, each 

spouse fi gures 

the deduction 

separately.
Lesson 4 4-9

BASIC

Example 11

Assume still that David earned $78,000 and is covered by his 

employer’s retirement plan. Assume too that Ruth is employed; she 

earned $66,000 and she is not covered by her employer’s retirement 

plan. David cannot deduct his traditional IRA contribution, but 

Ruth can deduct hers. The modified AGI limits that apply to David 

are shown in Table 1. Table 2 modified AGI limits apply to Ruth’s 

deduction. Her deduction would not be reduced unless the couple’s 

modified AGI was more than $150,000. It would not be eliminated 

unless their modified AGI was $160,000 or more.

Exercise 2

A. Angela and Joe are married and fi le a joint return. Joe, age 23, 

is covered by a retirement plan at work, but Angela, age 25, 

is not. Joe earned $25,000 and Angela earned $20,000; their 

modifi ed AGI is $45,000. Is any portion of Angela’s traditional

IRA contribution deductible, and why? 

B. Annette, age 26, is single. She earned $23,000, and her modified AGI is $24,500. She made a $500 contribution to a traditional IRA. Annette is covered by a retirement plan at work. Is 

any portion of her contribution deductible, and why? 

C. Richard and Lynn are married and lived together during the 

year. They fi le separate returns. Richard is covered by a retirement plan at work. Lynn is not covered by a retirement plan at 

work. Richard, age 40, earned $17,000 and contributed $1,400 

to a traditional IRA. Lynn, age 33, worked part-time and 

earned $4,500. She contributed $1,000 to a traditional IRA. 

Can Richard or Lynn deduct any of the IRA contributions, and 

why?

When to Deduct Traditional IRS Contributions

Individuals may deduct traditional IRA contributions on their 

2004 tax return if the contributions are made in 2004 or by April 

15, 2005. Taxpayers may not deduct on their 2004 tax return 

contributions made in 2004 which were deducted on the 2003 

tax return. The contributions do not have to be made before 

the return is filed. However, if the taxpayer deducts traditional

IRA contributions on the 2004 tax return but does not make the 

traditional IRA contributions by April 15, 2005, for the exact 

amount deducted, the taxpayer must file an amended tax return.
4-10 Lesson 4

BASIC

Using the Worksheet and Reporting the Deduction

Use the IRA Deduction Worksheet in the Form 1040A or Form 1040 

instructions booklet to figure the traditional IRA deduction.

The traditional IRA deduction is reported on Form 1040A, line 17 

or Form 1040, Line 25. On joint returns when both spouses are 

making deductible traditional IRA contributions, enter the total 

contribution.

Example 12

Nick and Susan file a joint return. Both work, and Nick, age 27, 

was covered by a retirement plan, but Susan, age 25, was not. Nick 

earned $12,300 and Susan earned $10,990. Their total income 

(Form 1040, line 22) is $23,400. Nick and Susan each contributed 

$500 to a traditional IRA.

The completed worksheet is shown in Exhibit 1. The information 

for Nick is shown in the column for Your IRA. The information for 

Susan is shown in the column for Spouse’s IRA.
Lesson 4 4-11

BASIC

Proof as of

June 18, 2004

(subject to change)

IRA Deduction Worksheet—Line 17 Keep for Your Records

Before you begin:  Be sure you have read the list on page 26.

Your IRA Spouse’s IRA

1a. Were you covered by a retirement plan (see page 29)?.......................... 1a. Yes No

b. If married filing jointly, was your spouse covered by a retirement plan?............................... 1b. Yes No

Next. If you checked “No” on line 1a (and “No” on line 1b if married filing jointly), skip

lines 2 through 6, enter $3,000 ($3,500 if age 50 or older at the end of 2004) on line 7a

(and 7b if applicable), and go to line 8. Otherwise, go to line 2.

2. Enter the amount shown below that applies to you.

• Single, head of household, or married filing separately and you lived

apart from your spouse for all of 2004, enter $55,000

• Qualifying widow(er), enter $75,000 } 2a. 2b.

• Married filing jointly, enter $75,000 in both columns. But if you

checked “No” on either line 1a or 1b, enter $160,000 for the person

who was not covered by a plan

• Married filing separately and you lived with your spouse at any time

in 2004, enter $10,000

3. Enter the amount from Form 1040A, line 15 .............. 3.

4. Enter the amount, if any, from Form 1040A,

line 16 ........................................ 4.

5. Subtract line 4 from line 3. Enter the result in both columns ...................... 5a. 5b.

6. Is the amount on line 5 less than the amount on line 2?

 No. STOP None of your IRA contributions are deductible. For details on

nondeductible IRA contributions, see Form 8606.

Yes. Subtract line 5 from line 2 in each column. If the result is $10,000 or more,

enter $3,000 ($3,500 if age 50 or older at the end of 2004) on line 7 for that

column and go to line 8. Otherwise, go to line 7 .................... 6a. 6b.

7. Multiply lines 6a and 6b by 30% (.30) (or by 35% (.35) in the column for the IRA of a

person who is age 50 or older at the end of 2004). If the result is not a multiple of $10,

increase it to the next multiple of $10 (for example, increase $490.30 to $500). If the result

is $200 or more, enter the result. But if it is less than $200, enter $200 .............. 7a. 7b.

8. Enter the amount from Form 1040A, line 7 ............... 8.

If married filing jointly and line 8 is less than $6,000 ($6,500 if one spouse is

age 50 or older at the end of 2004; $7,000 if both spouses are age 50 or older

at the end of 2004), stop here and see Pub. 590 to figure your IRA deduction. CAUTION

!

9. Enter traditional IRA contributions made, or that will be made by April 15, 2005, for 2004

to your IRA on line 9a and to your spouse’s IRA on line 9b ...................... 9a. 9b.

10. On line 10a, enter the smallest of line 7a, 8, or 9a. On line 10b, enter the smallest of line

7b, 8, or 9b. This is the most you can deduct. Add the amounts on lines 10a and 10b and

enter the total on Form 1040A, line 17. Or, if you want, you may deduct a smaller amount

and treat the rest as a nondeductible contribution (see Form 8606) .................. 10a. 10b.

You may also be able to take the retirement savings contributions credit. See

the instructions for line 33 on page 37. TIP

Need more information or forms? See page 7. - 28 -

✘

✘

75,000.00 160,000.00

23,400.00

23,400.00 23,400.00

✘

51,600.00 136,600.00

3,000.00 3,000.00

23,400.00

500.00 500.00

500.00 500.00

Exhibit 1 IRA Deductions Worksheet
4-12 Lesson 4

BASIC

Nondeductible IRA Contributions

Although the deductible amount of traditional IRA contributions 

can be reduced or eliminated because of the modified adjusted

gross income limitation, a taxpayer can make nondeductible 

contributions to new or existing traditional IRAs. Earnings 

and gains on these contributions are not taxed until they are 

distributed to the taxpayer.

The total traditional IRA contribution, whether deductible or 

nondeductible, cannot be more than the taxpayer’s taxable 

compensation or $3,000 ($3,500 if age 50 or older), whichever 

amount is smaller.

Taxpayers must complete Form 8606, Nondeductible IRAs, for each 

year that nondeductible contributions are made. 

If taxpayers do not report nondeductible contributions, all of the 

contributions to a traditional IRA will be treated as deductible. 

This means all distributions will be taxed unless the taxpayer can 

show, with satisfactory evidence, that nondeductible contributions 

were made.

Example 13

Rachel, age 35, is single and wants to contribute the maximum 

amount possible to her traditional IRA. She is covered by her 

employer’s retirement plan and her total income, Form 1040, Line 

22, is $47,000. Her total basis in traditional IRAs from line 14 of 

her 2003 Form 8606 is $10,000. The completed IRA Deduction 

Worksheet and Form 8606 are shown in Exhibits 2 and 3.
Lesson 4 4-13

BASIC

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 25

IRA Deduction Worksheet—Line 25 Keep for Your Records

Before you begin:  Complete Form 1040, lines 28 through 34a, if they apply to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35 (see page

33).

 Be sure you have read the list that begins on page 29.

Your IRA Spouse’s IRA

1a. Were you covered by a retirement plan (see above)? ..................... 1a. Yes No

b. If married filing jointly, was your spouse covered by a retirement plan? ......................... 1b. Yes No

Next. If you checked “No” on line 1a (and “No” on line 1b if married filing

jointly), skip lines 2 through 6, enter $3,000 ($3,500 if age 50 or older at the end

of 2004) on line 7a (and 7b if applicable), and go to line 8. Otherwise, go to line

2.

2. Enter the amount shown below that applies to you.

• Single, head of household, or married filing separately and you lived apart

from your spouse for all of 2004, enter $55,000

• Qualifying widow(er), enter $75,000 } 2a. 2b.

• Married filing jointly, enter $75,000 in both columns. But if you checked

“No” on either line 1a or 1b, enter $160,000 for the person who was not covered

by a plan

• Married filing separately and you lived with your spouse at any time in 2004,

enter $10,000

3. Enter the amount from Form 1040, line 22 .......... 3.

4. Enter the total of the amounts from Form 1040, lines 23,

24, 28 through 34a, plus any write-in adjustments you

entered on the dotted line next to line 35 ........... 4.

5. Subtract line 4 from line 3. Enter the result in both columns ................ 5a. 5b.

6. Is the amount on line 5 less than the amount on line 2?

 No. None of your IRA contributions are deductible. For details on

nondeductible IRA contributions, see Form 8606.

STOP

Yes. Subtract line 5 from line 2 in each column. If the result is $10,000 or

more, enter $3,000 ($3,500 if age 50 or older at the end of 2004) on

line 7 for that column and go to line 8. Otherwise, go to line 7 .... 6a. 6b.

7. Multiply lines 6a and 6b by 30% (.30) (or by 35% (.35) in the column for the IRA

of a person who is age 50 or older at the end of 2004). If the result is not a

multiple of $10, increase it to the next multiple of $10 (for example, increase

$490.30 to $500). If the result is $200 or more, enter the result. But if it is less

than $200, enter $200 ........................................... 7a. 7b.

8. Enter your wages, and your spouses if filing jointly, and

other earned income from Form 1040, minus any

deductions on Form 1040, lines 30 and 32. Do not reduce

wages by any loss from self-employment ........... 8.

If married filing jointly and line 8 is less than $6,000 ($6,500 if one

spouse is age 50 or older at the end of 2004; $7,000 if both spouses are

age 50 or older at the end of 2004), stop here and see Pub. 590 to CAUTION

!

figure your IRA deduction.

9. Enter traditional IRA contributions made, or that will be made by April 15, 2005,

for 2004 to your IRA on line 9a and to your spouse’s IRA on line 9b ......... 9a. 9b.

10. On line 10a, enter the smallest of line 7a, 8, or 9a. On line 10b, enter the smallest

of line 7b, 8, or 9b. This is the most you can deduct. Add the amounts on lines

10a and 10b and enter the total on Form 1040, line 25. Or, if you want, you may

deduct a smaller amount and treat the rest as a nondeductible contribution (see

Form 8606) .................................................. 10a. 10b.

TIP You may be able to take the retirement savings contributions credit. See the instructions for line 52 on page 39.

- 27 - Need more information or forms? See page 7.

✘

55,000.00

47,000.00

47,000.00

✘

8,000.00

2,400.00

47,000.00

3,000.00

2,400.00

Exhibit 2 Rachel’s IRA Deductions Worksheet
4-14 Lesson 4

BASIC

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1007

Form 8606 Nondeductible IRAs

 See separate instructions. Department of the Treasury

Internal Revenue Service

Attachment

 Attach to Form 1040, Form 1040A, or Form 1040NR. Sequence No. 48

Name. If married, file a separate form for each spouse required to file Form 8606. See page 5 of the instructions. Your social security number

Home address (number and street, or P.O. box if mail is not delivered to your home) Apt. no. Fill in Your Address Only

if You Are Filing This

Form by Itself and Not

With Your Tax Return

City, town or post office, state, and ZIP code

1

1 Enter your nondeductible contributions to traditional IRAs for 2004, including those made for

2004 from January 1, 2005, through April 15, 2005 (see page 5 of the instructions)

2 Enter your total basis in traditional IRAs (see page 6 of the instructions) 2

3 Add lines 1 and 2

4

3

Enter those contributions included on line 1 that were made from January 1, 2005, through April

15, 2005

5

4

Subtract line 4 from line 3 5

6 Enter the value of all your traditional, SEP, and SIMPLE IRAs as of

December 31, 2004, plus any outstanding rollovers (see page 6 of

the instructions)

8

7

Enter the net amount you converted from traditional, SEP, and SIMPLE

IRAs to Roth IRAs in 2004. Do not include amounts converted that

you later recharacterized (see page 6 of the instructions). Also enter

this amount on line 16

9 9

10

Add lines 6, 7, and 8

10

 .

11

Divide line 5 by line 9. Enter the result as a decimal rounded to at

least 3 places. If the result is 1.000 or more, enter “1.000”

11 Multiply line 8 by line 10. This is the nontaxable portion of the amount

you converted to Roth IRAs. Also enter this amount on line 17

12

12

13

Multiply line 7 by line 10. This is the nontaxable portion of your

distributions that you did not convert to a Roth IRA

13

14

15

Subtract line 13 from line 3. This is your total basis in traditional IRAs for 2004 and earlier

years

Cat. No. 63966F Form 8606 (2004)



In 2004, did you take a

distribution from traditional,

SEP, or SIMPLE IRAs or

make a Roth IRA conversion?

No

Yes

Enter the amount from line 3 on

line 14. Do not complete the rest

of Part I.

Go to line 4.

Taxable amount. Subtract line 12 from line 7. Also include this amount on Form 1040, line 15b;

Form 1040A, line 11b; or Form 1040NR, line 16b





6

For Paperwork Reduction Act Notice, see page 8 of the instructions.

Part I Nondeductible Contributions to Traditional IRAs and Distributions From Traditional, SEP, and SIMPLE IRAs

Complete this part only if:

● You made nondeductible contributions to a traditional IRA for 2004,

● You took distributions from a traditional, SEP, or SIMPLE IRA in 2004 (other than a rollover, conversion,

recharacterization, or return of certain contributions) and you made nondeductible contributions to a traditional IRA

in 2004 or an earlier year, or

● You converted part, but not all, of your traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2004 (excluding any portion

you recharacterized) and you made nondeductible contributions to a traditional IRA in 2004 or an earlier year.

Enter your distributions from traditional, SEP, and SIMPLE IRAs in

2004. Do not include rollovers, conversions to a Roth IRA, certain

returned contributions, or recharacterizations of traditional IRA

contributions (see page 6 of the instructions)

7

Add lines 11 and 12. This is the nontaxable portion of all your distributions

14

8

15

Note: You may be subject to an additional 10% tax on the amount on line 15 if you were under

age 591⁄2 at the time of the distribution (see page 7 of the instructions).

2004

RACHEL GREEN 000 00 6220

600

10,000

10,600

10,600

Exhibit 3 Rachel’s Form 8606
Lesson 4 4-15

BASIC

Exercise 3

Bill and Kathy are both employed and each earned $15,000 in 

2004. Both Bill and Kathy are age 32. Bill was covered by an 

employer retirement plan but Kathy was not. In July 2004, Bill 

contributed $1,200 to his 2004 traditional IRA. In February 

2005, he contributed $800 to his 2004 traditional IRA. Kathy 

contributed $400 to her 2004 traditional IRA. They file a joint 

return. Their total income on line 22 is $30,000. They have no 

other adjustments to income.

Complete their IRA deduction worksheet (Exhibit 4).

Additional Taxes and Penalties

Taxpayers are generally subject to additional taxes and penalties 

for:

■ Contributing more to a traditional IRA than is allowed,

■ Making traditional IRA withdrawals before age 59 1/2, and

■ Not withdrawing enough traditional IRA funds after age 70 1/2.

■ Investing in collectibles

■ Prohibited transactions, such as borrowing money from one’s 

own IRA or selling property to it.

There are penalties for overstating the amount of nondeductible 

contributions and for failure to file Form 8606, if required.

Credit for Qualified Retirement Savings Contribution

Refer to Lesson 6 to determine if a taxpayer is also eligible to 

receive the credit for qualified retirement savings contributions 

based on their contributions to an IRA.
4-16 Lesson 4

BASIC

Proof as of

June 18, 2004

(subject to change)

IRA Deduction Worksheet—Line 25 Keep for Your Records

Before you beg  Complete Form 1040, lines 28 through 34a, if they apply to you. in:

 Figure any write-in adjustments to be entered on the dotted line next to line 35 (see page

33).

 Be sure you have read the list that begins on page 29.

Your IRA Spouse’s IRA

1a. Were you covered by a retirement plan (see above)? ..................... 1a. Yes No

b. If married filing jointly, was your spouse covered by a retirement plan?......................... 1b. Yes No

Next. If you checked “No” on line 1a (and “No” on line 1b if married filing

jointly), skip lines 2 through 6, enter $3,000 ($3,500 if age 50 or older at the end

of 2004) on line 7a (and 7b if applicable), and go to line 8. Otherwise, go to line

2.

2. Enter the amount shown below that applies to you.

• Single, head of household, or married filing separately and you lived apart

from your spouse for all of 2004, enter $55,000

• Qualifying widow(er), enter $75,000 } 2a. 2b.

• Married filing jointly, enter $75,000 in both columns. But if you checked

“No” on either line 1a or 1b, enter $160,000 for the person who was not covered

by a plan

• Married filing separately and you lived with your spouse at any time in 2004,

enter $10,000

3. Enter the amount from Form 1040, line 22 .......... 3.

4. Enter the total of the amounts from Form 1040, lines 23,

24, 28 through 34a, plus any write-in adjustments you

entered on the dotted line next to line 35 ........... 4.

5. Subtract line 4 from line 3. Enter the result in both columns ................ 5a. 5b.

6. Is the amount on line 5 less than the amount on line 2?

 No. None of your IRA contributions are deductible. For details on

nondeductible IRA contributions, see Form 8606. STOP

Yes. Subtract line 5 from line 2 in each column. If the result is $10,000 or

more, enter $3,000 ($3,500 if age 50 or older at the end of 2004) on

line 7 for that column and go to line 8. Otherwise, go to line 7 .... 6a. 6b.

7. Multiply lines 6a and 6b by 30% (.30) (or by 35% (.35) in the column for the IRA

of a person who is age 50 or older at the end of 2004). If the result is not a

multiple of $10, increase it to the next multiple of $10 (for example, increase

$490.30 to $500). If the result is $200 or more, enter the result. But if it is less

than $200, enter $200 ........................................... 7a. 7b.

8. Enter your wages, and your spouses if filing jointly, and

other earned income from Form 1040, minus any

deductions on Form 1040, lines 30 and 32. Do not reduce

wages by any loss from self-employment ........... 8.

If married filing jointly and line 8 is less than $6,000 ($6,500 if one

spouse is age 50 or older at the end of 2004; $7,000 if both spouses are

age 50 or older at the end of 2004), stop here and see Pub. 590 to CAUTION

!

figure your IRA deduction.

9. Enter traditional IRA contributions made, or that will be made by April 15, 2005,

for 2004 to your IRA on line 9a and to your spouse’s IRA on line 9b ......... 9a. 9b.

10. On line 10a, enter the smallest of line 7a, 8, or 9a. On line 10b, enter the smallest

of line 7b, 8, or 9b. This is the most you can deduct. Add the amounts on lines

10a and 10b and enter the total on Form 1040, line 25. Or, if you want, you may

deduct a smaller amount and treat the rest as a nondeductible contribution (see

Form 8606) .................................................. 10a. 10b.

TIP You may be able to take the retirement savings contributions credit. See the instructions for line 52 on page 39.

- 27 - Need more information or forms? See page 7.

Exhibit 4 Bill and Kathy’s IRA Deductions Worksheet
Lesson 4 4-17

BASIC

STUDENT LOAN INTEREST DEDUCTION

If a taxpayer paid interest on a student loan in 2004, he or she may 

be able to deduct up to $2,500 of the interest paid.

If the taxpayer paid $600 or more in interest to a single lender, 

the taxpayer should receive a statement from the lender showing 

the amount of interest paid. This information will assist you in 

completing the student loan interest deduction. 

 Qualified Student Loan Interest

Generally, student loan interest is the interest paid during the year 

on a loan for qualified higher education expenses that were:

1. For the taxpayer, the taxpayer’s spouse, or a person who was the 

taxpayer’s dependent when the loan was obtained.

2. Paid within a reasonable period of time before or after obtaining 

the loan, and

3. For an eligible student.

Interest can be the interest paid during the life of the loan 

(voluntary and required interest payments), loan origination 

fees, capitalized interest, interest on revolving lines of credit, and 

interest on refinanced student loans.

Interest does not include interest on any of the following:

1. A loan from a related person.

2. A loan from a qualified employer plan.

3. A loan for which the taxpayer is not legally liable. 

Who Can Claim the Deduction

Generally, a taxpayer can claim the deduction if all the following 

requirements are met:

1. Taxpayer cannot use married filing separately filing status.

2. Taxpayer cannot be claimed as a dependent on someone else’s 

return.

3. The interest is on a loan to pay tuition and other qualified 

higher education expenses for the taxpayer, the taxpayer’s 

spouse, or someone whom the taxpayer can claim as a 

dependent, when the loan was taken out.

4. The education expenses were paid or incurred within a 

reasonable period of time before or after the loan was taken out.

5. The person for whom the expenses were paid or incurred was an 

eligible student.
4-18 Lesson 4

BASIC

Qualified Higher Education Expenses

Generally, qualified higher education expenses include tuition and 

fees; room and board; books, supplies and equipment; and other 

necessary expenses.

These costs must be reduced by the following:

1. Employer provided educational assistance benefits.

2. Tax-free withdrawals from a Coverdell ESA.

3. Tax-free withdrawals from a qualified tuition program.

4. U.S. savings bond interest excluded from income because it is 

used to pay qualified higher education expenses.

5. Certain scholarships.

6. Veteran’s educational assistance benefits.

7. Any other nontaxable payments (other than gifts, bequests, or 

inheritances) received for educational expenses.

Eligible educational institution

An eligible educational institution is any college, university, 

vocational school or other postsecondary educational institution 

eligible to participate in a student aid program administered by 

the Department of Education. It includes virtually all accredited 

public, nonprofit, and privately owned profit-making postsecondary 

institutions.

For the student loan interest deduction only, an eligible educational 

institution also includes an institution conducting an internship 

or residency program leading to a degree or certificate from an 

institution of higher education, hospital, or health care facility that 

offers postgraduate training.

If a taxpayer does not know if the educational institution is an 

eligible institution, the taxpayer should contact the school.

Eligible student

An eligible student is a student who is enrolled at least half-time 

in a program leading to a degree, certificate, or other recognized 

educational credential.

The standard for what is half the normal full-time work load is 

determined by each eligible educational institution.

Deduction Limits

The student loan interest deduction is generally the smaller of 

$2,500 or the interest payments paid in 2004.

This amount may be gradually reduced (phased out) or eliminated 

based on the taxpayer’s filing status and modified adjusted gross

income (MAGI). Table 3 depicts when the limits apply.
Lesson 4 4-19

BASIC

Table 3

Limit on Student Loan Interest Deduction

If your filing status is AND your modified AGI is THEN...

Singe, head of household, or qualifying 

widow(er)

$50,000 or less You can deduct all your 

interest, up to $2,500

More than $50,000, but 

less than $65,000

Your deduction is limited

$65,000 or more You cannot claim this 

deduction.

Married filing jointly $100,000 or less You can deduct all your 

interest up to $2,500

More than $100,000, but 

less than $130,000

Your deduction is limited

$130,000 or more You cannot claim this 

deduction.

Figuring the Deduction

Use the Student Loan Interest Deduction worksheet found in the 

Form 1040 or Form 1040A instructions to figure the deduction.

Claiming the Deduction

The student loan interest deduction is entered on Form 1040, 

Line 26, or Form 1040A, Line 18.

Example 14

During 2004, Rick paid $2,650 in qualified interest on his student 

loan. His total income, Form 1040, line 22, is $35,000. He has 

no other adjustments to his income. His completed student loan 

interest deduction worksheet, Exhibit 5, shows Rick is entitled to 

$2,500. Although his MAGI falls within the income limits, he is 

only entitled to a maximum $2,500 deduction.
4-20 Lesson 4

BASIC

Proof as of

June 18, 2004

(subject to change)

S 6 p

Before you begin:  Complete Form 1040, lines 28 through 34a, if they apply to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35

(see page 33).

 See the instructions for line 26 that begin on this page.

 Be sure you have read the Exception above to see if you can use this worksheet

instead of Pub. 970 to figure your deduction.

1. Enter the total interest you paid in 2004 on qualified student loans (defined above). Do not enter

more than $2,500 .............................................................. 1.

2. Enter the amount from Form 1040, line 22 ............................... 2.

3. Enter the total of the amounts from Form 1040, lines 23 through 25, 28 through

34a, plus any write-in adjustments you entered on the dotted line next to line 35 ... 3.

4. Subtract line 3 from line 2 ........................................... 4.

5. Enter the amount shown below for your filing status.

• Single, head of household, or qualifying widow(er)—$50,000 } ........... 5. • Married filing jointly—$100,000

6. Is the amount on line 4 more than the amount on line 5?

No. Skip lines 6 and 7, enter -0- on line 8, and go to line 9.

Yes. Subtract line 5 from line 4 ................................... 6.

7. Divide line 6 by $15,000 ($30,000 if married filing jointly). Enter the result as a decimal (rounded to

at least three places). If the result is 1.000 or more, enter 1.000 ............................ 7. .

8. Multiply line 1 by line 7 ......................................................... 8.

9. Student loan interest deduction. Subtract line 8 from line 1. Enter the result here and on Form

1040, line 26. Do not include this amount in figuring any other deduction on your return (such as on

Schedule A, C, E, etc.) .......................................................... 9.

2,500.00

35,000.00

35,000.00

50,000.00

✘

2,500.00

Exhibit 5 Rick’s 2004 Student Loan Interest Deduction Worksheet
Lesson 4 4-21

BASIC

TUITION AND FEES DEDUCTION

Taxpayers can deduct an amount equal to the qualified tuition 

and related expenses paid during the tax year as an adjustment to 

income. The adjustment is reported on Form 1040, Line 27, or Form 

1040A, Line 19.

To claim the deduction the taxpayer must have incurred 

qualified expenses for an eligible student to attend an eligible

educational institution during the tax year. In addition, the 

taxpayer must include on the tax return the name and taxpayer 

identification number of the qualified student.

Qualified Expenses

Qualified tuition and related expenses include tuition and fees 

required for enrollment or attendance at an eligible educational 

institution and generally include fees for:

■ Course-related books, supplies and equipment, and

The fees must be paid to the institution as a condition of 

enrollment or attendance.

Qualified tuition and related expenses do not include the cost of:

■ Insurance,

■ Medical expenses (including student health fees),

■ Room and board,

■ Student activities.

■ Transportation or similar personal, living or family expenses, 

even if the fees must be paid to the institution as a condition of 

enrollment or attendance.

■ Athletic fees.

■ Other expenses unrelated to an individual’s academic course of 

instruction.

 Eligible Student

The deduction can be claimed for the taxpayer, the taxpayer’s 

spouse (if filing a joint return) and any dependent (for whom the 

taxpayer claims a dependency exemption).

Married taxpayers that file as married filing separately 

cannot take the deduction.

An individual who is the dependent of another taxpayer cannot 

claim the deduction.

Eligible Educational Institution

An eligible educational institution is generally any accredited 

public, nonprofit, or private postsecondary institution eligible 

to participate in the student aid programs administered by the 
4-22 Lesson 4

BASIC

Department of Education. It includes virtually all accredited, 

public, nonprofit, and privately owned profit-making post 

secondary institutions.

If the taxpayer does not know if the educational institution is an 

eligible institution, he or she should contact the school.

Deduction Amount

The deduction amount is determined by the taxpayer’s filing 

status and adjusted gross income. Table 4 depicts when the income 

limitations apply.

The total amount of qualified tuition and related expenses are 

reduced by:

■ Distributions from qualified state tuition programs

■ Distributions from Coverdell ESAs

■ Interest from savings bonds used for higher education expenses

Table 4. Limit on Tuiton and Fees Deduction

IF your fi ling 

status is...

AND your modifi ed 

AGI is...

THEN...

Single, Head of 

Household, or 

Qualifying widow(er)

Equal to or less than 

$65,000

You can deduct all of 

your qualifi ed tuition 

and fees up to $3,000.

More than $65,000 You cannot claim the 

credit

Married fi ling jointly Equal to or less than 

$130,000

You can deduct all of 

your qualifi ed tuition 

and fees up to $3,000

More than $130,000 You cannot claim the 

credit.

Married fi ling 

separately

Any amount You cannot claim the 

credit.

Modified adjusted gross income for purposes of the deduction for 

qualified tuition and related fees is adjusted gross income before 

the deduction for qualified tuition and related fees and after adding 

back the following:

■ Foreign earned income exclusion,

■ Foreign housing exclusion or deduction,

■ Exclusion of income for bona fide residents of Guam, Puerto 

Rico, American Samoa, or the Northern Mariana Islands.
Lesson 4 4-23

BASIC

Figuring the Deduction

Use the Tuition and Fees Deduction worksheet found in the Form 

1040 or Form 1040A instructions to figure the modified adjusted

gross income and the resulting deduction amount.

Example 15

Luis and Priscilla file a joint return for 2004. Their 1040 line 22 

total income is $49,620. In 2004, Priscilla paid $1,300 for classes 

taken at the local university. She had allowable IRA deductions of 

$1,500. Their allowable tuition and fees deduction is $1,300, shown 

in Exhibit 6.

Proof as of

June 18, 2004

(subject to change)

Tuition and Fees Deduction Worksheet—Line 27 Keep for Your Records

Before you begin:  Complete Form 1040, lines 28 through 34a, if they apply to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35

(see page 33).

 See the instructions for line 27 above.

 Be sure you have read the Exception above to see if you can use this worksheet

instead of Pub. 970 to figure your deduction.

1. Enter the amount from Form 1040, line 22 ........................................ 1.

2. Enter the total of the amounts from Form 1040, lines 23 through 26, 28 through 34a, plus any

write-in adjustments you entered on the dotted line next to line 35 ...................... 2.

3. Subtract line 2 from line 1. If the result is more than $80,000 ($160,000 if married filing

jointly),

STOP

 You cannot take the deduction for tuition and fees ........................ 3.

4. Tuition and fees deduction. Is the amount on line 3 more than $65,000 ($130,000 if married

filing jointly)?

Yes. Enter the total qualified tuition and fees (defined above) you paid in 2004. Do not

enter more than $2,000. Also, enter this amount on Form 1040, line 27. 4.

}

49,620.00

1,500.00

48,120.00

1,300.00

Exhibit 6 Luis and Priscilla’s Tuition and Fees Deduction Worksheet

No Double Benefits

A taxpayer cannot:

■ Deduct qualified tuition and related expenses if the same 

expense is deductible on a different line of the return.

■ Claim the Hope credit or the lifetime learning credit for an 

individual in the same year as a deduction for qualified tuition 

and related expenses are claimed.

■ Claim a credit based on expenses paid with a tax-free 

scholarship, grant, or an employer-provided educational 

assistance.

ONE-HALF OF SELF-EMPLOYMENT TAX

Report on Form 1040, Line 30, the adjustment for one-half of 

self-employment tax from Schedule SE. This subject was covered 

in Lesson 2, for volunteers who will be helping self-employed

taxpayers.
4-24 Lesson 4

BASIC

PENALTY ON EARLY WITHDRAWAL OF SAVINGS

Depositors may withdraw funds from ordinary savings accounts 

any time they wish. However, if they withdraw funds from a time 

deposit (such as a certificate of deposit) before the maturity date, a 

penalty is charged. Form 1099-INT reports the interest earned as 

well as any early withdrawal penalties.

As you learned in Lesson 2, taxpayers must report the total amount 

of interest earned. They cannot subtract the early withdrawal 

penalty from the interest earned and report the difference. The 

early withdrawal penalty can be claimed as an adjustment only 

on Form 1040, Line 33. The entire penalty is deducted, even if it is 

greater than the interest income.

Example 16

Arlene has one Form W-2 and one Form 1099-INT and no other 

income. Her Form 1099-INT shows both interest income and an 

early withdrawal penalty. Arlene does not pay alimony, and she did 

not make a contribution to a traditional IRA. She will not itemize 

deductions, and she cannot claim any tax credits. Normally, she 

would be able to file Form 1040A.

However, Arlene must file Form 1040 to claim the adjustment for 

the penalty on early withdrawal of savings.

 ALIMONY PAID

As you learned in Lesson 2, alimony and separate maintenance 

payments are taxable to the person receiving these payments. The 

person paying the alimony or separate maintenance can claim 

it as an adjustment to income. This adjustment can be claimed 

only on Form 1040. The amount paid during the year and the 

recipient’s social security number are entered on Line 34a and 34b, 

respectively. Claim the adjustment only for amounts paid during 

the tax year.

Child support is not the same as alimony or separate maintenance 

payments. Child support is not taxable to the recipient and cannot 

be claimed as an adjustment by the payer.

 JURY DUTY PAY GIVEN TO EMPLOYER

As you learned in Lesson 2, Income, jury duty pay received by 

taxpayers is included in other income on line 21 of Form 1040. 

Some employees receive their regular wages from their employers 

when they are serving on a jury instead of working at their jobs. 

Often the jury duty pay the employees receive is turned over to 

their employers. The amount given to the employer may be claimed 

as an adjustment to income. On the dotted line next to Line 35, 

write “jury pay” and the amount. Include jury duty pay with the 

adjustments claimed on Lines 23 through 35.
Lesson 4 4-25

BASIC

OTHER ADJUSTMENTS

The other adjustments that can be claimed on Form 1040 are 

beyond the scope of the VITA/TCE Program. Taxpayers who have 

adjustments that aren’t discussed in this lesson should be advised 

to seek paid professional tax assistance.

TOTAL ADJUSTMENTS AND ADJUSTED GROSS INCOME

Add all adjustments and enter the total on Form 1040A, line 20, 

or Form 1040, line 35. Subtract the total adjustments from total 

income on Form 1040A, line 15, or Form 1040, line 22. Enter 

the result on Form 1040A, line 21, or Form 1040, line 36. This 

is adjusted gross income and is often referred to as “AGI.”

Adjusted gross income is used to compute some limitations, such as 

the medical and dental deduction on Schedule A and the credit for 

child and dependent care expenses.

 TAXWISE HINTS

TaxWise will quickly complete any worksheets needed to determine 

adjustments to income.

There is one worksheet for student loan interest deduction and 

tuition and fees deduction. You can link to this form from Form 

1040, Lines 26 or 27.

Link to the Deductible and Non-deductible IRA Worksheet from 

Form 1040, Line 25. Once the IRA contribution is input for the 

taxpayer (and spouse if married), TaxWise will complete the Form 

8606, if necessary, and input the entry on Form 1040, Line 25.

One half the self employment tax will be entered automatically 

when completing Schedule C or C-EZ.

The penalty on withdrawal from savings should be entered by 

linking to the Interest Received Worksheet. This worksheet is a 

link from Schedule B.

TaxWise breaks out the remaining adjustments. Simply input the 

appropriate amount. 
4-26 Lesson 4

BASIC

  SUMMING UP THIS LESSON  

• An adjustment is an amount subtracted from total income.

The result is adjusted gross income.

• Adjustments covered in the VITA program are: 

 Contributions to a traditional IRA

 Student loan interest deduction

 Tuition and fees paid

 One-half of self-employment tax paid (volunteers trained to 

prepare Schedule C-EZ and SE can assist taxpayers claiming 

this adjustment)

 Penalty on early withdrawal of savings

 Alimony paid

 Jury duty pay given to employer

 The adjustments for traditional IRA contributions, student

loan interest deduction, tuition and fees deduction, and educator expenses deduction can be claimed either on Form 

1040A or Form 1040. The other adjustments can be claimed 

on Form 1040 only.

• Persons 70 1/2 years of age or older by the end of the tax year 

cannot make traditional IRA contributions for that tax year.

• Traditional IRA contributions generally cannot be more than 

the taxpayer’s taxable compensation or $3,000 ($3,500 if age 

50 or older), whichever amount is smaller.

• Individuals who are not covered by retirement plans at work 

may make deductible IRA contributions regardless of their 

modified adjusted gross income. Taxpayers who are covered 

by retirement plans at work may deduct all, part, or none of 

their traditional IRA contributions depending on their modified adjusted gross income and filing status.

• Taxpayers may be subject to additional tax for contributing 

more to a traditional IRA than is allowed, making traditional

IRA withdrawals before age 59 1/2, and not withdrawing 

enough traditional IRA funds after 70 1/2.
Lesson 4 4-27

BASIC

Exercise 1

(A) Yes; alimony is considered compensation for traditional IRA 

purposes.

(B) Yes; But only if they file a joint return.

(C) No; Carla has no compensation for traditional IRA purposes.

(D) $1,250; The lessor of taxable compensation or $3,500.

Exercise 2

(A) Yes; all of her contribution up to $3,000 is deductible because 

their combined modified adjusted gross income is not more 

than $150,000.

(B) Yes; all of it is deductible because her modified adjusted gross

income is less than $45,000.

(C) Richard may not deduct any of his contribution because his 

modified adjusted gross income is at least $10,000. Lynn will 

be able to deduct a portion of her IRA contribution because 

she is not covered by an employer-sponsored retirement plan 

and her income is less than $10,000.

 ADJUSTMENTS ANSWERS TO EXERCISES Lesson 4
4-28 Lesson 4

BASIC

Proof as of

June 18, 2004

(subject to change)

IRA Deduction Worksheet—Line 17 Keep for Your Records

Before you beg  Be sure you have read the list on page 26. in:

Your IRA Spouse’s IRA

1a. Were you covered by a retirement plan (see page 29)?.......................... 1a. Yes No

b. If married filing jointly, was your spouse covered by a retirement plan?............................... 1b. Yes No

Next. If you checked “No” on line 1a (and “No” on line 1b if married filing jointly), skip

lines 2 through 6, enter $3,000 ($3,500 if age 50 or older at the end of 2004) on line 7a

(and 7b if applicable), and go to line 8. Otherwise, go to line 2.

2. Enter the amount shown below that applies to you.

• Single, head of household, or married filing separately and you lived

apart from your spouse for all of 2004, enter $55,000

• Qualifying widow(er), enter $75,000 } 2a. 2b.

• Married filing jointly, enter $75,000 in both columns. But if you

checked “No” on either line 1a or 1b, enter $160,000 for the person

who was not covered by a plan

• Married filing separately and you lived with your spouse at any time

in 2004, enter $10,000

3. Enter the amount from Form 1040A, line 15 .............. 3.

4. Enter the amount, if any, from Form 1040A,

line 16 ........................................ 4.

5. Subtract line 4 from line 3. Enter the result in both columns ...................... 5a. 5b.

6. Is the amount on line 5 less than the amount on line 2?

 No. STOP None of your IRA contributions are deductible. For details on

nondeductible IRA contributions, see Form 8606.

Yes. Subtract line 5 from line 2 in each column. If the result is $10,000 or more,

enter $3,000 ($3,500 if age 50 or older at the end of 2004) on line 7 for that

column and go to line 8. Otherwise, go to line 7 .................... 6a. 6b.

7. Multiply lines 6a and 6b by 30% (.30) (or by 35% (.35) in the column for the IRA of a

person who is age 50 or older at the end of 2004). If the result is not a multiple of $10,

increase it to the next multiple of $10 (for example, increase $490.30 to $500). If the result

is $200 or more, enter the result. But if it is less than $200, enter $200 .............. 7a. 7b.

8. Enter the amount from Form 1040A, line 7 ............... 8.

If married filing jointly and line 8 is less than $6,000 ($6,500 if one spouse is

age 50 or older at the end of 2004; $7,000 if both spouses are age 50 or older

at the end of 2004), stop here and see Pub. 590 to figure your IRA deduction. CAUTION

!

9. Enter traditional IRA contributions made, or that will be made by April 15, 2005, for 2004

to your IRA on line 9a and to your spouse’s IRA on line 9b ...................... 9a. 9b.

10. On line 10a, enter the smallest of line 7a, 8, or 9a. On line 10b, enter the smallest of line

7b, 8, or 9b. This is the most you can deduct. Add the amounts on lines 10a and 10b and

enter the total on Form 1040A, line 17. Or, if you want, you may deduct a smaller amount

and treat the rest as a nondeductible contribution (see Form 8606) .................. 10a. 10b.

You may also be able to take the retirement savings contributions credit. See

the instructions for line 33 on page 37. TIP

Need more information or forms? See page 7. - 28 -

✘

✘

75,000.00 160,000.00

30,000.00

30,000.00 30,000.00

✘

51,600.00 130,000.00

3,000.00 3,000.00

30,000.00

2,000.00 400.00

2,000.00 400.00

Exercise 3 Bill and Kathy’s IRA Deductions Worksheet

Lesson 4 ADJUSTMENTS ANSWERS TO EXERCISES
Notes to

Instructors N-5-1

LESSON OVERVIEW AND OBJECTIVES

This lesson presents information about reducing adjusted gross 

income by using the standard deduction or itemizing deductions. 

Approximately 2 to 21⁄2 hours should be devoted to covering the 

objectives of this lesson. See the Suggested Class Schedules in 

Appendix B for additional information.

After completing this lesson you should be able to:

■ Identify the correct standard deduction.

■ Calculate and accurately report itemized deductions on 

Schedule A.

■ Identify the miscellaneous deductions reported on Schedule A, 

line 27.

■ Complete the Qualified Dividends and Capital Gain Tax 

Worksheet.

■ Explain the process to calculate and report tax liability.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS publications and forms. If 

you would like to provide your students with the most current revision of the publications or forms, you can download the files from 

www.irs.gov.

■ Schedule A (Form 1040) 

■ Standard deduction, exemption amount, taxable income and tax 

lines (22-28) of Form 1040A

■ Standard Deduction Chart for People Age 65 or Older or Blind 

(Form 1040 Instructions)

■ Standard Deduction Worksheet for Dependents (Form 1040 

Instructions)

■ Tax and Credits section of Form 1040 

■ Form 2106, Employee Business Expenses

■ Publication 4012, Volunteer Resource Guide is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. Direct the student to the tab 

entitled Standard Deductions for this lesson and make sure 

the student is aware of the content of the tab and how it should 

be used when assisting taxpayers. For additional technical 

information about this topic see the applicable chapter of 

Publication 17, Your Federal Tax (For Individual).

STANDARD AND ITEMIZED DEDUCTIONS,

AND TAX COMPUTATION NOTES TO INSTRUCTORS Lesson 5
Notes to N-5-2 Instructors

ADDITIONAL RESOURCES

■ Publication 530, Tax Information for First-Time Homeowners

■ Publication 529, Miscellaneous Deductions

■ Publication 502, Medical and Dental Expenses

■ Publication 463, Travel, Entertainment, Gift, and 

Car Expenses

TEACHING TIPS — STANDARD DEDUCTIONS

Emphasize the criteria that apply for blindness listed below. 

1. A taxpayer who was totally blind on the last day of 2004 should 

attach a statement to the tax return describing the blindness. 

2. A taxpayer who was partially blind on the last day of 2004 must 

get a certified statement from an eye physician or registered 

optometrist, verifying that the taxpayer’s vision in the best eye 

is not better than 20/200 with glasses or contact lenses, or that 

the field of vision is not more than 20 degrees. If the taxpayer’s 

partial vision will never improve beyond one of these two conditions, he or she also must get a statement attesting to this. The 

taxpayer must keep the statement for his or her records.

TEACHING TIPS — ITEMIZED DEDUCTIONS

1. Explain the procedure to follow when you start page 2 of 

Form 1040A or 1040.

(Transfer the adjusted gross income from line 21 or 36 to line 22 

or 37, respectively.)

2. Identify at least two reference tools used to compute taxpayers’ standard deduction.

(Standard Deduction Chart for People Age 65 or Older or Blind, 

and Standard Deduction Worksheet for Dependents.) Refer students to Publication 4012, Volunteer Resource Guide.

3. Review with students that some taxpayers may itemize 

deductions even if the standard deduction is greater.

When this happens, volunteers should enter “IE” (itemized 

elected) next to line 39, Form 1040. 

4. Emphasize to students that the only types of points that 

can be deducted on Schedule A are the points paid for 

the use of money (as a form of interest), including sellerpaid points (deductible by buyer). Any other points paid for 

a service (such as those paid for the lender’s appraisal fee) are 

NOT considered interest, and, therefore, are not deductible.

5. Students should be aware that taxpayers cannot deduct 

as charitable contributions any money spent buying 

raffle tickets, playing bingo, or playing other games 

of chance. 
Notes to

Instructors N-5-3

6. Taxpayers who have made deductible contributions 

based on fair market value may ask volunteers if they 

can deduct the appraisal fees they paid to find the fair 

market value of the items. Volunteers should explain to taxpayers that appraisal fees are not deductible as contributions, 

but as miscellaneous expenses on Schedule A, line 22.

GUIDED QUESTIONS — STANDARD DEDUCTIONS

1. Name at least three factors that determine the taxpayer’s 

standard deduction amount.

(The taxpayer’s filing status, whether the taxpayer or the 

taxpayer’s spouse is 65 or older and/or blind, and whether the 

taxpayer can be claimed as a dependent on another taxpayer’s 

return.)

2. How is the standard deduction affected when the 

taxpayer’s filing status is married filing a separate 

return and the taxpayer’s spouse files Form 1040 and 

itemizes deductions?

(The taxpayer’s standard deduction in this case is zero; if the 

taxpayer wishes to itemize deductions, he or she should file 

Form 1040.)

3. Mary is 68 years old and blind. She cannot be claimed 

as a dependent on another taxpayer’s return. What 

reference will you use to figure her standard deduction?

(Standard Deduction Chart for People Age 65 or Older or Blind.)

4. Consuela is 14 years old and is claimed as a dependent 

on her father’s return. What reference tool will you use 

to figure her standard deduction?

(You must use the Standard Deduction Worksheet for 

Dependents.)

5. Louis and Carmella are married filing separate returns. 

Louis itemized his deductions on Form 1040. Can 

Carmella take a standard deduction?

(Yes, but her standard deduction amount will be zero.) 

6. Lu is blind. Her daughter and son-in-law claim her as 

a dependent. What reference tool will you use to figure 

Lu’s standard deduction?

(Standard Deduction Worksheet for Dependents.)
Notes to N-5-4 Instructors

GUIDED QUESTIONS — ITEMIZED DEDUCTIONS

 1. How do standard deductions and itemized deductions 

affect adjusted gross income?

(They are subtracted from adjusted gross income and result in 

a smaller taxable income.)

 2. When might a married taxpayer lose the option to either 

take the standard deduction or itemize deductions?

(If married taxpayers are filing separate returns and one 

spouse itemizes deductions, the other spouse should also 

itemize deductions. Otherwise, his or her standard deduction is 

zero.)

 3. Should itemized deductions be figured on Schedule A 

before or after figuring adjusted gross income?

Explain. (Itemized deductions should be figured on Schedule A 

after figuring adjusted gross income. For some itemized deductions, only the portion that exceeds a specific percentage of 

adjusted gross income is deductible.)

 4. What three conditions must be met in order for a tax to 

be deductible?

((1) The tax must be imposed on the taxpayer. (2) The tax must 

be paid by the taxpayer. (3) The tax must be paid during the 

tax year.) 

 5. Can a taxpayer deduct income taxes and real estate 

taxes paid to a state, local, or foreign government? (Yes; 

a taxpayer can deduct income taxes and real estate taxes that 

are paid to any of these governments.) 

 6. Are all federal, state, and local taxes, including general 

sales tax, deductible?

(No; many federal, state, and local taxes, such as general sales 

tax, are not deductible.)

 7. The amount of mortgage interest that a taxpayer can 

deduct depends upon what three conditions?

(The date of the loan, the amount of the loan, and the use of 

the proceeds of the loan.) 

 8. After what date do restrictions apply on the deductible 

amount of a taxpayer’s mortgage interest debt?

(October 13, 1987.)

 9. Can taxpayers deduct contributions made directly to 

needy individuals?

(No; in order to be deductible, contributions must be made to a 

qualified organization, not an individual.) 
Notes to

Instructors N-5-5

10. How do taxpayers use the fair market value of a 

charitable contribution?

(Taxpayers can deduct the fair market value of clothing, 

furniture, etc. given to qualifying organizations, and they can 

deduct the amount of their contribution that was in excess 

of the fair market value for items such as merchandise and 

tickets to charity balls or sporting events.) 

11. Are all deductible contributions reported on Schedule A 

on the same line?

(No; report cash and check contributions on line 15 [the car 

mileage deduction for charity is treated as a cash contribution]; 

report all other contributions on line 16.) 

12. Taxpayers should be referred to a paid professional tax 

preparer if their non-cash contributions exceed what 

amount?

($500)

13. What constitutes Total Itemized Deductions, reported on 

line 28 of Schedule A?

(Total Itemized Deductions is the sum of these deductible 

amounts: medical and dental expenses (line 4), taxes (line 9), 

interest (line 14), gifts to charity (line 18), casualty and theft 

losses (line 19), job expenses and most other miscellaneous 

deductions (line 26), and other miscellaneous deductions 

(line 27).) 

14. How is the amount of Total Itemized Deductions used to 

determine the amount entered on Form 1040, line 39?

(The amount of Total Itemized Deductions is compared with 

the standard deduction, and then the larger amount is entered 

on Form 1040, line 39.)

LESSON REVIEW

 1. Students may ask whether the attorney’s fee for drawing 

up a will qualifies as “tax counsel and assistance” which is 

deductible on Schedule A as a miscellaneous itemized deduction. Explain to students that the attorney’s fee for a will is 

considered a “personal legal expense,” and, therefore, is not a 

deductible expense. Review with students that in order for a 

legal expense to qualify as a miscellaneous itemized deduction, 

the expense must be incurred in one of the following ways: to 

produce or collect income; to manage, conserve, or maintain 

property held for producing income; or to determine, contest, 

pay, or claim a refund of any tax.

 2. Tell volunteers that the 2004 exemption amount is $3,100 for 

each personal and dependency exemption the taxpayer can 

take. This information is built into the computation on the 

return forms (Form 1040, line 41; Form 1040A, line 26; Form 

1040EZ, line 5). 
Notes to N-5-6 Instructors

STUDENT NOTES
Lesson 5 5-1

BASIC

INTRODUCTION AND OBJECTIVES

In this lesson you will learn about the standard

deduction, itemized deductions and tax computations. You will learn which expenses can be included 

in itemized deductions. You will also learn when the 

taxpayer will use the tax tables and the Qualified

Dividends and Capital Gain Tax Worksheet to 

compute their total tax.

After completing this lesson you should be able to:

■ Identify the correct standard deduction.

■ Calculate and accurately report itemized deductions on Schedule A.

■ Identify the miscellaneous deductions reported 

on Schedule A, line 27.

■ Complete the Qualified Dividends and Capital 

Gain Tax Worksheet.

■ Explain the process to calculate and report tax 

liability.

STANDARD DEDUCTION

The standard deduction is a dollar amount that 

reduces the amount of income on which you are 

taxed. The standard deduction depends on: 

■ the taxpayer’s filing status,

■ whether the taxpayer (or the taxpayer’s spouse) 

is 65 or older and/or blind, and

■ whether the taxpayer can be claimed as a 

dependent on another taxpayer’s return.

Based on the taxpayer’s situation, you will 

figure the standard deduction by using one of 

the following:

■ Standard Deduction Chart for Most People 

(Exhibit 1),

■ Standard Deduction Chart for People Age 65 or 

Older or Blind, (Exhibit 2) or

■ Standard Deduction Worksheet for Dependents 

(Exhibit 3).

STANDARD AND ITEMIZED

DEDUCTIONS, AND TAX

COMPUTATION Lesson 5

ALERT

Remind students that 

Publication 4012, 

Volunteer Resource 

Guide, has the 

Standard Deduction 

charts, and amounts. 
5-2 Lesson 5

BASIC

Exhibit 1 Standard Deduction Chart for Most If you are married filling a separate return and your spouse

People* itemizes deductions, or if you are a dual-status alien, you cannot

take the standard deduction even if you were 65 or older or blind. CAUTION

!

Your Standard

If Your Filing Status is: Deduction is: Exhibit 3 Standard Deduction Worksheet for

Single Dependents* $4,850

Married filing joint return or Qualifying If you were 65 or older or blind, check the correct number of

widow(er) with dependent child 9,700 boxes below. Then go to the worksheet.

Married filing separate return 4,850 You 65 or older Blind

Head of household 7,150 Your spouse, if claiming 65 or older Blind

spouse's exemption *Do not use this chart if you were 65 or older or blind, or if someone else can

claim an exemption for you (or your spouse if married filing Total number of boxes you checked jointly). Use Exhibit 2 or Exhibit 3 instead.

1. Enter your earned income (defined 1.

below). If none, enter -0-.

2. Additional amount 2. $250

3. Add lines 1 and 2. 3.

4. Minimum amount. 4. $800 Exhibit 2 Standard Deduction Chart for People Age 5. Enter the larger of line 3 or line 4. 5. 65 or Older or Blind*

Check the correct number of boxes below. Then go to the 6. Enter the amount shown below for

chart. your filing status.

You 65 or older Blind Single or Married filing separately—

Your spouse, if claiming 65 or older Blind $4,850 6.

spouse's exemption Married filing jointly or Qualifying Total number of boxes you checked widow(er) with dependent child—

And the Number Your $9,700

in the Box Standard Head of household— $7,150 If Your Above is: Deduction

Filing Status is: is: 7. Standard deduction.

Single 1 $6,050 a. Enter the smaller of line 5 or line 6. If

2 7,250 under 65 and not blind, stop here.

This is your standard deduction. Married filing joint 1 10,650 Otherwise, go on to line 7b. 7a. return or Qualifying 2 11,600

widow(er) with 3 12,550 b. If 65 or older or blind, multiply $1,200

dependent child 4 13,500 ($950 if married or qualifying

widow(er) with dependent child) by Married filing 1 5,800 the number in the box above. 7b.

separate return 2 6,750

c. Add lines 7a and 7b. This is your 3 7,700 standard deduction for 2004. 7c. 4 8,650

Head of household 1 8,350 Earned income includes wages, salaries, tips, professional fees, and

2 9,550 other compensation received for personal services you performed. It

also includes any amount received as a scholarship that you must *If someone can claim an exemption for you (or your spouse if married filing include in your income. jointly), use Exhibit 3, instead.

*Use this worksheet only if someone else can claim an exemption for

you (or your spouse if married filing jointly).

Example 1

Bob is 55 years old and is married to Janice, age 50. If they are 

filing a joint return and neither is blind, they can enter $9,700 

on either Form 1040 or Form 1040A for their standard deduction 

amount.

Example 2

John is 73 years old, blind, and files a single tax return. To find his 

standard deduction, use the Standard Deduction Chart for People 

Age 65 or Older or Blind. His standard deduction is $7,250.
Lesson 5 5-3

BASIC

PERSONAL EXEMPTION IN CONNECTION WITH STANDARD DEDUCTION

ON FORM 1040EZ

If the taxpayer (or his or her spouse, if married filing a joint return) 

can be claimed as a dependent on another taxpayer’s return, check 

the Yes box on line 5 of the Form 1040EZ. To fill in the amount on 

line 5 for this taxpayer, you must then turn the form over and complete the worksheet (Exhibit 4 shows a completed worksheet from 

Form 1040EZ, page 2).

If the taxpayer (or his or her spouse, if filing a joint return) cannot

be claimed as a dependent on another taxpayer’s return, check the 

No box on line 5. Enter on line 5 the amount shown below that 

applies to the taxpayer (and spouse, if married filing jointly).

A. Single, enter $7,950. This is the total of the taxpayer’s standard 

deduction ($4,850) and personal exemption ($3,100).

B. Married, enter $15,900. This is the total of the taxpayer’s 

and spouse’s standard deduction ($9,700), exemption for the 

taxpayer ($3,100), and exemption for the taxpayer’s spouse 

($3,100).

Exhibit 4 Form 1040EZ, page 2 Pr

June 18,

(subject to chang

Use this worksheet to figure the amount to enter on line 5 if someone can claim you (or your

spouse if married filing jointly) as a dependent, even if that person chooses not to do so. To find

out if someone can claim you as a dependent, use TeleTax topic 354 (see page 6).

Worksheet

for

dependents

who

checked

“Yes” on

line 5

A .

A . Amount, if any, from line 1 on front

B . Minimum standard deduction B .

C. Enter the larger of line A or line B here C.

D.

D. Maximum standard deduction. If single, enter $4,850; if married

filing jointly, enter $9,700

E . Enter the smaller of line C or line D here. This is your standard

deduction E .

F. Exemption amount.

G . Add lines E and F. Enter the total here and on line 5 on the front

If you checked “No” on line 5 because no one can claim you (or your spouse if married filing

jointly) as a dependent, enter on line 5 the amount shown below that applies to you.

● Single, enter $7,950. This is the total of your standard deduction ($4,850) and your exemption

($3,100).

● Married filing jointly, enter $15,900. This is the total of your standard deduction ($9,700), your

exemption ($3,100), and your spouse’s exemption ($3,100).

F.

G .

● If single, enter -0-.

● If married filing jointly and—

—only one of you can be claimed as a dependent, enter $3,100.

—both you and your spouse can be claimed as dependents, enter -0-.

+ Enter total 

(keep a copy for

your records)

800.00

250.00

4,650.00

4,900.00

4,900.00

4,850.00

4,850.00

0.00

4,850.00

Example 3

Clarence is 22 years old and a full time student. He is single 

and can be claimed as a dependent on his parents’ tax return. 

Clarence works part-time and earned $4,650 during 2004. His 

savings account earned $56 in interest. Clarence’s standard 

deduction is $4,850. See Exhibit 4 above.
5-4 Lesson 5

BASIC

Exercise 1

Use Exhibits 1 thru 3 on page 5-2 to determine the standard 

deduction amounts below.

A. James is 37 years old. He has two children who live with him 

and he files as head of household. What is James’ standard

deduction?

B. Paul is 37 years old. He was divorced in 2004. He is blind and 

has no dependent children. What is Malcom’s standard deduction?

C. Carl is 67 years old and married to Sue, who is 59 years old. 

Neither is blind. If they file a joint return, what is their standard deduction?

D. If they are filing separate returns, what is Carl’s standard

deduction?

E. If they are filing separate returns, what is Sue’s standard

deduction?

F. Shirley is 15 years old and is claimed as a dependent on her 

parents’ tax return. She earned $1,500 during the summer and 

deposited it all into her savings account, where she earned $40 

in interest. What is her standard deduction?

 ITEMIZED DEDUCTIONS

Taxpayers can either claim the standard deduction or itemize their 

deductions. Both the standard deduction and itemized deductions 

reduce adjusted gross income. Most taxpayers choose the larger 

of their itemized deductions or the standard deduction. However, 

there are some exceptions:

■ A married taxpayer filing a separate return cannot claim the 

standard deduction if the taxpayer’s spouse itemizes deductions, 

and

■ Nonresident aliens cannot claim the standard deduction.

When itemizing, you should complete the taxpayer’s return 

through line 37 of Form 1040. Then figure itemized deductions on 

Schedule A.

POTENTIAL

PITFALLS

Entering an 

incorrect standard 

deduction amount 

is a frequently made 

error on tax returns. 

Take care to report 

the correct standard 

deduction amount.
Lesson 5 5-5

BASIC

Medical and Dental Expenses

Claim medical and dental expenses paid in 2004 on lines 1 through 

4 of Schedule A. Include expenses incurred for:

■ the taxpayer and spouse,

■ dependents claimed on the return, and

■ others who could have been claimed as dependents except that 

they had gross income of $3,100 or more, or they filed a joint 

return.

If a child of divorced or separated parents is claimed as a dependent on either parent’s return, each parent may deduct the medical 

expenses that he or she pays for the child.

Deductible expenses include:

■ Prescription medicines and drugs (including insulin)

■ Medical, dental, and nursing care, including amounts paid for 

unreimbursed qualified long-term care services

■ Medical and hospital insurance premiums, including amounts 

paid for eligible long-term care (subject to certain limitations 

based on the insured person’s age — see Exhibit 5, next page.)

■ Prescription eyeglasses, hearing aids, crutches, wheelchairs, 

braces, and guide dogs

■ Transportation for medical care at 14 cents a mile, or actual 

out-of-pocket expenses, plus parking fees and tolls

■ Certain lodging expenses

■ Certain home improvements made for medical care purposes or 

to make the home suitable for a disabled person

■ Medicare A premiums for persons not enrolled in Social 

Security

■ Medicare B

■ Certain weight-loss programs to treat disease diagnosed by a 

physician, including obesity

■ Unreimbursed costs of smoking-cessation programs, including the cost of prescription drugs designed to alleviate nicotine 

withdrawal

■ Expenses for admission and transportation to a medical 

conference relating to the chronic disease of a dependent (if 

the costs are primarily for and essential to the medical care 

of the dependent).

Total medical and dental expenses must exceed 7.5 percent of a 

taxpayer’s adjusted gross income ( Form 1040, line 37) for Schedule 

A deduction.

POTENTIAL

PITFALLS

Explain to taxpayers 

that they can only 

deduct expenses 

in the year they are 

paid. They cannot 

deduct expenses 

that are owed but 

not paid.

ALERT

The standard 

mileage rate 

for operating a 

vehicle for medical 

transportation is 

14 cents a mile.
5-6 Lesson 5

BASIC

Nondeductible expenses include:

■ Medical expenses paid from a medical savings account (MSA). 

[Refer taxpayers with MSAs to Publication 969, Medical

Savings Accounts (MSAs), Publication 502, Medical and Dental 

Expenses, and a paid professional tax preparer.]

■ Payroll tax paid for Medicare A

■ Life insurance policy premiums

■ Babysitting, child care, and nursing care for a normal healthy 

baby

■ Controlled substances

■ Nonprescription drugs or medicines

■ The cost of purchasing diet food items

■ Nonprescription nicotine gum and patches designed to stop 

smoking

■ Funeral, burial, or cremation costs

■ Unnecessary cosmetic surgery (surgery that does not correct a 

congenital abnormality or an abnormality caused by injury or 

disease)

■ Income protection policies, including nursing home policy premiums, if the policy ensures a maximum out-of-pocket expense per 

day

■ Meals and lodging while attending a medical conference relating to the chronic disease of a dependent.

Eligible Long-Term Care Premiums

Exhibit 5

IF the person was, at

the end of 2004, age . . . 

THEN the most you 

may deduct is . . . 

40 or under $260

41-50 $490

51-60 $980

61-70 $2,600

71 or older $3,250

These figures should always be checked against the figures in the 

instructions for the Form 1040, Schedule A.
Lesson 5 5-7

BASIC

Exercise 2

Sam and Paula Ferris file a joint return. Sam’s social security 

number is xxx-xx-xxxx. Their adjusted gross income is $40,000. 

They paid the following medical bills:

 Unreimbursed doctor’s bills $ 500

 Unreimbursed orthodontist bill for braces 1,200

 Hospital insurance premiums 300

 Life insurance premiums 500

 Unreimbursed prescription medicines 100

 Vitamins 70

 Hospital bill (before deducting $500)

 reimbursed by insurance company) 2,000

 Smoking cessation program 150

Complete the Medical and Dental Expenses section of Schedule A 

for the Ferris family.

SCHEDULES A&B OMB No. 1545-0074 Schedule A—Itemized Deductions

(Form 1040) (Schedule B is on back)

Department of the Treasury

Internal Revenue Service  Attach to Form 1040. Attachment

Sequence No. 07

Name(s) shown on Form 1040 Your social security number

Medical Caution. Do not include expenses reimbursed or paid by others.

and

Dental

Expenses

1 Medical and dental expenses (see page A-2) 1

2 2

3 Multiply line 2 by 7.5% (.075) 3

4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4

Enter amount from Form 1040, line 37

(99)  See Instructions for Schedules A and B (Form 1040).

2004

Exhibit 6 Schedule A, lines 1 through 4

Taxes

To be deductible, a tax must be imposed on and paid by the 

taxpayer. Taxpayers cannot deduct:

■ a tax that they do not owe, but pay for someone else,

■ a tax that they owe, but someone else pays, or

■ a tax that was not paid in 2004.

Report deductible taxes on lines 5 through 9 of Schedule A.

State and Local Taxes — State and local taxes that are deductible are either withheld taxes, estimated tax payments, or other tax 

payments made during the year. 

Taxpayers who receive a refund of state and local income taxes in a 

year after the year in which they were paid, may have to report the 

refund as income on line 10 of Form 1040, as taxable refunds.

If the taxpayer did not itemized their dedutions in the previous 

year, then they are not required to include the refund as income.
5-8 Lesson 5

BASIC

If the taxpayer deducted taxes on Schedule A in the previous year, 

then the refund should be included on line 10 as taxable refunds.

Real Estate Taxes — State, local, or foreign taxes on real property, such as the taxpayer’s house or land, are deductible. Real 

estate taxes are deductible when paid. If the taxes are paid with a 

mortgage payment and held in escrow, do not deduct the taxes until 

they are paid by the bank or mortgage lender.

Members of the clergy and military personnel can deduct real 

estate taxes even if they receive a housing allowance that is 

excluded from income. Also, they can deduct allowable mortgage 

interest even if the interest was paid from a nontaxable housing 

allowance.

Assessments to pave a street or install lighting or a sewer generally are not deductible.

Personal Property Taxes — Taxes that state and local governments charge on the value of personal property are deductible (for 

example, ad valorem taxes paid on car tags). A portion of the cost of 

personal vehicle registration may fall in this category.

Nondeductible Taxes — Many federal, state, and local 

government taxes are not deductible. The following taxes are 

not deductible:

■ General sales tax

■ Federal taxes-income tax, social security (FICA), Medicare, railroad retirement tax, gift tax, and excise taxes or customs duties

■ Hunting licenses and dog licenses

■ Water and sewer taxes

■ Taxes on alcoholic beverages, cigarettes, and tobacco

■ State, local, and federal taxes on gasoline, diesel, and other 

motor fuels used in a nonbusiness vehicle

■ Utility taxes — telephone, gas, electricity, etc.

Interest

Interest is the amount that is paid in order to borrow money. Only 

taxpayers who are legally liable for the debt can deduct the interest 

in the year it is paid or accrued. Interest expenses are reported on 

lines 10 through 14 of Schedule A.

Home Mortgage Interest — The amount of mortgage interest 

that a taxpayer can deduct depends on the:

■ date of the loan,

■ amount of the loan, and

■ use of the proceeds of the loan.
Lesson 5 5-9

BASIC

If the mortgage debt was incurred on or before October 13, 

1987, and was secured by a main or second home, the interest on 

that debt is fully deductible, regardless of the amount of the loan or 

the use of the loan proceeds.

If the mortgage debt was incurred after October 13, 1987,

and was secured by a main or second home, the interest is fully 

deductible if:

■ the loans plus any grandfathered debt do not exceed $1 million 

($500,000 if married filing separate returns), and

■ the proceeds were used to buy, build, or improve the home or 

homes.

In addition to loans used to buy, build, or improve a main or second 

home, taxpayers can deduct interest on other loans secured by a 

main or second home, regardless of the use of the proceeds, if:

■ the total of these loans does not exceed $100,000 ($50,000 if 

married filing separate returns), and

■ the total amount of the secured debt is not more than the 

home’s fair market value minus any outstanding acquisition 

debt and any grandfathered debt on the home.

Points. Certain charges paid by a borrower and/or a seller to 

a lender to secure a loan are called points. They are also called 

loan origination fees (including VA and FHA loan origination 

fees), maximum loan charges, premium charges, loan discount, 

or discount points.

Points paid only for the use of money are considered prepaid 

interest. This interest, even if it qualifies as home mortgage interest, must be spread over the life of the mortgage and is considered 

paid and deductible over that period unless it meets the following 

exception.

Exception. A taxpayer may fully deduct points in the year he or 

she pays them only if all of the following conditions apply:

■ The taxpayer itemizes deductions.

■ The taxpayer’s loan is secured by his or her main home. (The 

main home is the one the taxpayer lives in most of the time.)

■ Paying points is an established business practice in the area 

where the loan was made.

■ The points paid were not more than the points generally 

charged in that area.

■ The taxpayer uses the cash method of accounting. (The cash 

method means that the taxpayer reports income in the year 

received and deducts expenses in the year paid.)

■ The points were not paid in place of amounts that ordinarily 

are stated separately on the settlement statement, such as 

appraisal fees, inspection fees, title fees, attorney fees, and 

property taxes.
5-10 Lesson 5

BASIC

■ The taxpayer uses his or her loan to buy or build his or her 

main home.

■ The points were computed as a percentage of the principal 

amount of the mortgage.

■ The amount is clearly shown on the settlement statement 

(such as Form HUD-1) as points charged for the mortgage.

■ The points may be shown as paid from either the taxpayer’s 

or the seller’s funds.

■ The funds the taxpayer provided at or before closing, plus 

any points the seller paid, were at least as much as the 

points charged. The funds the taxpayer provided do not have 

to have been applied to the points. They can include a down 

payment, an escrow deposit, earnest money, and other funds 

the taxpayer paid at or before closing for any purpose. The 

taxpayer cannot have borrowed these funds from his or her 

lender or mortgage broker.

Charges by the lender for specific services, such as appraisal fees, 

preparation costs, VA funding fees, or notary fees, may be called 

points. However, these charges are not considered interest and are 

not deductible.

Points paid by the seller are deductible as interest by the buyer.

Points paid to refinance a mortgage are generally not deductible 

in full in the year the taxpayer paid them (unless they are paid 

in connection with the improvement of a main home and the first 

seven statements, discussed earlier under Exception, are true).

Points paid in excess of those generally charged in the area and 

points paid to refinance a mortgage can be deducted over the life of 

the mortgage. Deduct points reported to the taxpayer on Form 1098 

on line 10 of Schedule A ( Form 1040). Deduct points not reported to 

the taxpayer on Form 1098 on line 12 of Schedule A ( Form 1040).

Investment Interest. Interest that is paid on money borrowed 

to buy or carry property held for investment is called investment

interest. Taxpayers with investment interest expense that exceeds 

investment income (interest and ordinary dividend income) should 

see a paid professional tax preparer.

Interest that cannot be deducted. Interest that cannot be 

deducted includes:

■ Interest on car loans where the car is used for personal use and 

other personal loans,

■ Credit investigation fees,

■ Loan fees; aid for services necessary to get a loan,

■ Interest on a debt the taxpayer is not legally liable to pay, and

■ Finance charges on credit card purchases of personal items.

POTENTIAL

PITFALLS

Personal interest 

cannot be claimed 

as an itemized 

deduction. Personal 

interest includes 

interest on car loans, 

credit card balances, 

and installment 

plan loans that are 

incurred for personal 

use or for personal 

expenses.
Lesson 5 5-11

BASIC

Exercise 3

John and Shannon file a joint return. During the year, they paid 

the bank $2,180 of interest on their home mortgage that was 

reported to them on Form 1098 (all qualified), $400 in credit card 

interest, $300 on an installment loan, and $2,000 on a car loan. 

Complete the Interest You Paid section of Schedule A for John and 

Shannon.

Proof as of

18, 2004

change)

Interest 10 Home mortgage interest and points reported to you on Form 1098

You Paid

10

Home mortgage interest not reported to you on Form 1098. If paid

to the person from whom you bought the home, see page A-3 and

show that person’s name, identifying no., and address 

11

(See

page A-3.)

11

12

Points not reported to you on Form 1098. See page A-3

for special rules

12

13 Investment interest. Attach Form 4952 if required. (See

page A-4.) 13

14 Add lines 10 through 13 14

Note.

Personal

interest is

not

deductible.

Exhibit 7 Schedule A, lines 10 through 14

Contributions

Taxpayers can deduct contributions to organizations that are:

■ Organized and operated exclusively for religious, charitable, 

educational, scientific, or literary purposes,

■ Organizations that work to prevent cruelty to children or animals, and

■ Organizations that foster national or international amateur 

sports competition if they do not provide athletic facilities or 

equipment.

To be deductible, contributions must be made to an organization, 

not an individual. Qualifying organizations include:

■ Churches, synagogues, temples, mosques, Salvation Army, 

Red Cross, CARE, United Way, Boy Scouts, Girl Scouts, World 

Wildlife Fund, etc.,

■ Fraternal orders (if used for the purposes listed above),

■ Nonprofit schools and hospitals,

■ Nonprofit medical research organizations,

■ Veterans’ groups and certain cultural groups, and

■ Federal, state, and local governments (if the gifts are exclusively 

for public purposes).

Nonqualifying organizations include:

■ Business organizations, such as the Chamber of Commerce,

■ Civic leagues and associations,
5-12 Lesson 5

BASIC

■ Political organizations and candidates,

■ Social clubs,

■ Foreign organizations,

■ Homeowners’ associations, and

■ Communist organizations.

Deductible items include:

■ Money gifts,

■ Dues, fees, and assessments paid to qualified organizations 

above the value of the benefits received (not country clubs or 

other social organizations),

■ Fair market value (FMV is the price at which the property 

would change hands between a willing buyer and a willing 

seller, neither having to buy or sell, and both having reasonable 

knowledge of all the necessary facts.) of used clothing, furniture, 

(i.e., the price paid in used clothing stores, consignment shops, 

and thrift stores)

■ Cost and upkeep of uniforms that have no general use but must 

be worn while performing donated services,

■ Unreimbursed transportation expenses that relate directly 

to the services the taxpayer gave the qualified organization, 

including bus fare, parking fees, tolls, and either the actual cost 

of gas and oil or a standard mileage charge of 14 cents per mile, 

and

■ The part of a contribution above the fair market value for items 

such as merchandise and tickets to charity balls or sporting 

events.

Nondeductible items include:

■ Cost of raffle, bingo, or lottery tickets,

■ Tuition,

■ Value of a person’s time or service,

■ Blood donated to a blood bank or the Red Cross,

■ Car depreciation, insurance, general repairs, or maintenance,

■ Direct contributions to an individual,

■ Sickness or burial expenses for members of a fraternal society, 

and

■ The part of a contribution that personally benefits the taxpayer 

(such as the fair market value of the meal eaten at a charity 

dinner).

Report cash and check contributions on Schedule A, line 15. 

Contributions other than cash or check are entered on line 16. 

Taxpayers with noncash contributions exceeding $500 should see a 

paid professional tax preparer. 

POTENTIAL

PITFALLS

If the taxpayer 

makes a contribution 

to a qualifying 

organization that 

is more than $75 

and is partly for 

goods or services, 

the qualifying 

organization must 

give the taxpayer a 

written statement. 

For more information, 

see Publication 526, 

Charitable

Contributions.
Lesson 5 5-13

BASIC

The taxpayer must keep records to prove the amount of the cash 

and noncash contributions he or she makes during the year. 

A taxpayer can claim a deduction for any single contribution of 

$250 or more only if he or she has a written acknowledgment of 

the contribution from the qualifying organization. You do not have 

to see the written acknowledgement, but you should ask the taxpayer if they have one.

Exercise 4

Rose contributed $600 to St. Martin’s Church (church gave letter verifying amount), $32 to the Girl Scouts, and $40 to a family 

whose house burned. She purchased $50 worth of lottery tickets 

and spent $100 playing bingo at her church. She donated used 

furniture with a fair market value of $200 to Goodwill.

Complete the Gifts to Charity section of Schedule A for Rose.

P

June 1

ubject to 

G

Char

ifts to 

ity cha 15

15 Gifts by cash or check. If you made any gift of $250 or

more, see page A-4

16

Other than by cash or check. If any gift of $250 or more,

see page A-4. You must attach Form 8283 if over $500

16

17 Carryover from prior year 17

18 Add lines 15 through 17 18

If you made a

gift and got a

benefit for it,

see page A-4.

Exhibit 8 Schedule A, lines 15 through 18

Casualty and Theft Losses

A casualty occurs when property is damaged as a result of a sudden, unexpected, or unusual event such as fire, storm, shipwreck, 

flood, earthquake, or automobile accident. Theft is the unlawful taking and removing of money or property with the intent to 

deprive the owner of it. Theft does not include the mere disappearance of money or property.

A casualty or theft may result in a gain if the insurance proceeds 

or other reimbursements exceed the adjusted basis of destroyed or 

stolen property.

Usually, however, a casualty or theft results in a loss. Part of a 

casualty or theft loss may be deductible if the taxpayer can prove 

that the casualty or theft occurred to property that the taxpayer 

owned. The taxpayer must also prove the dollar amount of the loss. 

Taxpayers with a casualty and theft loss should seek assistance 

from a paid professional tax preparer.

Miscellaneous Itemized Deductions

Certain employee expenses, expenses of producing income, and 

other qualifying expenses are reported as miscellaneous itemized 

deductions on Schedule A. Miscellaneous itemized deductions that 
5-14 Lesson 5

BASIC

exceed 2% of adjusted gross income are deductible. There are some 

miscellaneous itemized deductions that are deductible, regardless 

of a taxpayer’s adjusted gross income.

Examples of deductions that are subject to the 2% limit and that 

are reported on lines 20 through 22 of Schedule A are:

■ Union dues and fees,

■ Professional society dues,

■ Uniforms not adaptable to general use,

■ Small tools and supplies,

■ Professional books, magazines, journals,

■ Employment-related educational expenses,

■ Expenses of looking for a new job,

■ Investment counsel fees,

■ Investment expenses,

■ Tax counsel and assistance,

■ Fees paid to an IRA custodian, and

■ Safe deposit box rental for investment documents.

Examples of deductions that are not subject to the 2% limit and 

that are reported on line 27 of Schedule A are: 

■ Unrecovered after-tax pension contributions (see Lesson 14).

■ Gambling losses to the extent of gambling winnings, and

■ Work-related expenses for an individual with a disability, such 

as attendant-care services at the individual’s place of work, that 

are necessary for the person to work.

Nondeductible expenses include:

■ Burial or funeral expenses,

■ Wedding expenses,

■ Fees and licenses, such as car and marriage licenses and dog 

tags,

■ Fines and penalties, such as parking tickets,

■ Home repairs, insurance, and rent,

■ Illegal bribes and kickbacks,

■ Insurance premiums (except medical insurance premiums),

■ Losses from the sale of a taxpayer’s home, furniture, or personal 

car,

■ Lost or misplaced cash or property,

■ Personal legal expenses, and

■ Commuting expenses to and from work.
Lesson 5 5-15

BASIC

Exercise 5

Robert is a janitor. His adjusted gross income is $20,000. He wants 

to deduct the following items on his tax return:

 2003 income tax preparation fee $ 100

 Safe deposit box rental (used to keep bonds) 75

 Life insurance premiums 300

 Investment expenses 70

 Loss on sale of personal home 800

 Investment journals and newsletters 250

 Investment advisory fees 200

 Attorney fees for preparation of will 100

Complete Robert’s Schedule A, line 20 through 26.

(

Unreimbursed employee expenses—job travel, union

dues, job education, etc. Attach Form 2106 or

2106-EZ if required. (See page A-5.) 

Job Expenses 20

and Most

Other

Miscellaneous

Deductions

22 Other expenses—investment, safe deposit box, etc. List

type and amount 

(See

page A-5.)

23 Add lines 20 through 22

24 Enter amount from Form 1040, line 37

25 Multiply line 24 by 2% (.02)

26 Subtract line 25 from line 23. If line 25 is more than line 23, enter -0- 26

24

20

22

23

25

21 Tax preparation fees 21

Exhibit 9 Schedule A, lines 20 through 26

TOTAL ITEMIZED DEDUCTIONS

Schedule A, line 28, is Total Itemized Deductions. It is the sum of 

lines 4, 9, 14, 18, 19, 26, and 27.

Compare the amount on line 28 to the standard deduction, and 

enter the larger of the two on Form 1040, line 39.
5-16 Lesson 5

BASIC

Exercise 6

Seth A. and Karen Yale’s adjusted gross income is $30,500. Seth’s 

social security number is xxx-xx-xxxx. They gave you a list of their 

itemized deductions. They received no insurance reimbursement 

for medical expenses. They purchased their home in 1989, and a 

commercial mortgage company holds the mortgage. They have not 

refinanced the mortgage or increased the principal balance since 

they bought their home. They are both under age 65 and not blind. 

Neither can be claimed as a dependent by another taxpayer.

Unreimbursed medical expenses:

 Medical insurance premiums $350

 Hospital 200

 Doctors and dentists 1,000

 Vitamins 100

 Prescription drugs 300

 Insulin 120

Taxes:

 State income tax $1,200

 Federal income tax 3,000

 Real estate tax 800

 Ad valorem 200

Interest:

 Interest on mortgage (reported on Form 1098) $5,500

 Car loan 900

 Credit cards 500

Contributions:

 Church (gave Yales’ letter verifying this amount) $1,200

 Bingo costs 60

 American Cancer Society 200

 Canned goods donated to a food drive 15

 Fair market value of donated used clothing 60

Miscellaneous:

 Union dues $50

 IRA custodial fee 10

 Traffic fine 100

 Investment expenses 50

Complete Seth and Karen’s Schedule A. Should they take the 

standard deduction or itemized deducation?
Lesson 5 5-17

BASIC

Exhibit 10 Complete the Yale’s Schedule A

Proof as of

June 18, 2004

(subject to change)

SCHEDULES A&B OMB No. 1545-0074 Schedule A—Itemized Deductions

(Form 1040) (Schedule B is on back)

Department of the Treasury

Internal Revenue Service  Attach to Form 1040. Attachment

Sequence No. 07

Name(s) shown on Form 1040 Your social security number

Medical Caution. Do not include expenses reimbursed or paid by others.

and

Dental

Expenses

1 Medical and dental expenses (see page A-2) 1

2 2

3 Multiply line 2 by 7.5% (.075) 3

4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4

Taxes You 5 State and local income taxes 5

Paid 6 Real estate taxes (see page A-2) 6

8 Other taxes. List type and amount 

(See

page A-2.)

8

9 Add lines 5 through 8 9

Interest 10 Home mortgage interest and points reported to you on Form 1098

You Paid

10

Home mortgage interest not reported to you on Form 1098. If paid

to the person from whom you bought the home, see page A-3 and

show that person’s name, identifying no., and address 

11

(See

page A-3.)

11

12

Points not reported to you on Form 1098. See page A-3

for special rules

12

13 Investment interest. Attach Form 4952 if required. (See

page A-4.) 13

14 Add lines 10 through 13 14

Gifts to 

Charity 15

15 Gifts by cash or check. If you made any gift of $250 or

more, see page A-4

16

Other than by cash or check. If any gift of $250 or more,

see page A-4. You must attach Form 8283 if over $500

16

17 Carryover from prior year 17

18 Add lines 15 through 17 18

19 Casualty or theft loss(es). Attach Form 4684. (See page A-5.)

Casualty and 

Theft Losses 19

Unreimbursed employee expenses—job travel, union

dues, job education, etc. Attach Form 2106 or

2106-EZ if required. (See page A-5.) 

Job Expenses 20

and Most

Other

Miscellaneous

Deductions

22 Other expenses—investment, safe deposit box, etc. List

type and amount 

(See

page A-5.)

23 Add lines 20 through 22

24 Enter amount from Form 1040, line 37

25 Multiply line 24 by 2% (.02)

26 Subtract line 25 from line 23. If line 25 is more than line 23, enter -0- 26

Other 27 Other—from list on page A-6. List type and amount  

Miscellaneous

Deductions 27

Total 28

Itemized

Deductions 28

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule A (Form 1040) 2004

24

20

22

23

If you made a

gift and got a

benefit for it,

see page A-4.

25

Enter amount from Form 1040, line 37

No. Your deduction is not limited. Add the amounts in the far right column

for lines 4 through 27. Also, enter this amount on Form 1040, line 39.

Yes. Your deduction may be limited. See page A-6 for the amount to enter.

Cat. No. 11330X



Note.

Personal

interest is

not

deductible.



7 Personal property taxes 7

21 Tax preparation fees 21

Is Form 1040, line 37, over $142,700 (over $71,350 if married filing separately)?

(99)  See Instructions for Schedules A and B (Form 1040).

2004
5-18 Lesson 5

BASIC

ELECTING TO ITEMIZE

Even if the taxpayer’s itemized deductions are less than the 

amount of his or her standard deduction, he or she may want to 

do this, for example, if the tax benefit of being able to itemize the 

deductions on his or her state tax return is greater than the tax 

benefit he or she loses on their federal return by not taking the 

standard deduction. To make this election, he or she must enter 

“IE” (itemized elected) on the dotted line next to line 39, Form 1040.

FINDING THE TAX

Taxpayers with taxable income of less than $100,000 use the Tax 

Table to find their tax. However, children under 14 years of age 

who have more than $1,500 of investment income (interest, dividends, etc.) might not be able to use the Tax Table. Their income 

might have to be taxed at the parents’ tax rate. These taxpayers 

should be referred to a paid professional tax preparer.

The Tax Table is in the back of this book. The tax is based on the 

person’s filing status and taxable income. To find the tax, use the 

taxable income from the tax forms (1040EZ, line 6; 1040A, line 

27; and 1040, line 42), and:

■ locate the income bracket for the taxable income,

■ read across that line until you reach the column for the appropriate filing status, and

■ find the amount where the taxable income and filing status 

meet. This is the tax liability.

If the taxable income is the same as the ending amount in an 

income bracket, go to the next bracket to find the tax.

Qualifying widows(ers) use the married filing jointly column.

Enter the tax on Form 1040EZ, line 10, Form 1040A, line 28, or 

Form 1040, line 43.

Double check the amount entered. Common errors include:

■ Using the wrong standard deduction,

■ Incorrectly figuring the exemption amount,

■ Using an amount other than taxable income to find the tax,

■ Picking up the wrong number from the Tax Table, and

■ Transposing the numbers when entering the tax amount.
Lesson 5 5-19

BASIC

TAXABLE INCOME COMPUTATION

Once you have determined the standard deduction, compare it to 

the total itemized deductions. In most cases, you will enter the 

larger of the two amounts on Form 1040, line 39. Subtract line 

39 from line 37 and enter the result on line 40. Then subtract the 

exemption deduction (line 41) to compute the taxable income.

If the taxpayer has capital gain distributions that are reported 

directly on Form 1040 or Form 1040A, the taxpayer should use the 

Qualified Dividends and Capital Gain Tax Worksheet to determine 

if the tax is less.

The taxpayer should:

■ Check the box next to line 13, Form 1040 and

■ Use the Qualified Dividends and Capital Gain Tax Worksheet 

(Exhibit 11) from either the Form 1040A or 1040 instruction 

booklet to compute tax.

Example 4

Marjorie is a single taxpayer with taxable income of $46,575. She 

files Form 1040 and does not have to file a Schedule D. In 2004, she 

received capital gain distributions of $650 from XYZ Investments. 

Marjorie pays less tax by using the Qualified Dividends and 

Capital Gain Tax Worksheet (Exhibit 11).
5-20 Lesson 5

BASIC

Exhibit 11 Marjorie’s Qualified Dividends Capital Gain Tax Worksheet

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

46,575.00

0.00

✘

650.00

650.00

0.00

650.00

45,925.00

29,050.00

✘

✘ 650.00

0.00

650.00

98.00

8,219.00

8,317.00

8,381.00

8,317.00

 TAXWISE HINT

If a taxpayer wants to determine whether the standard or 

itemized deduction is best for him or her, input Schedule A 

information. TaxWise will automatically select the deduction 

that is more beneficial. 
Lesson 5 5-21

BASIC

  SUMMING UP THIS LESSON  

Both the standard deduction (or total itemized deductions, if 

greater) and exemption amounts are subtracted from adjusted

gross income to arrive at taxable income.

The standard deduction depends upon: 

 filing status, 

 age, eyesight, and 

 whether the taxpayer can be claimed as a dependent on 

 another taxpayer’s return.

Determine the standard deduction by using the:

 Standard Deduction amount for the appropriate filing status 

 from the appropriate tax form, or

 Standard Deduction Chart for Most People

 Standard Deduction Chart for People Age 65 or Older or 

 Blind, or

 Standard Deduction Worksheet for Dependents

Itemized deductions are specifically allowed by law. Claim itemized deductions on Schedule A ( Form 1040).

Itemized deductions include:

 Medical and dental expenses

 Taxes paid

 Home mortgage and certain investment interest paid

 Charitable contributions

 Casualty and theft losses

 Miscellaneous itemized deductions.

Medical and dental expenses that exceed 7.5 percent of adjusted

gross income are deductible.

To be deductible as a charitable contribution, a donation of $250 

or more must be acknowledged in writing by the charitable organization that received the donation.

Most miscellaneous itemized deductions that exceed 2% of 

adjusted gross income are deductible. However, there are certain miscellaneous itemized deductions that are fully deductible, 

regardless of gross income.

If deducted investment interest expense exceeds investment 

income, refer the taxpayer to a paid professional tax preparer.

If you are uncertain whether an expense qualifies as a deduction, do not guess. Use on site reference material to determine.
5-22 Lesson 5

BASIC

  SUMMING UP THIS LESSON  

(continued)

Most taxpayers compare their total itemized deductions to their 

standard deduction and enter the larger amount on Form 1040, 

line 39.

Do not use the Tax Table for taxpayers with taxable income of 

$100,000 or more.

Common errors include:

 Using the wrong standard deduction,

 Incorrectly figuring the exemption amount, 

 Using an amount other than taxable income to find the tax,

 Picking up the wrong number from the Tax Table, and

 Transposing the numbers when entering the tax amount.
Lesson 5 5-23

BASIC

STANDARD AND ITEMIZED

DEDUCTIONS AND TAX

COMPUTATION ANSWERS TO EXERCISES

Exercise 1

(A) $7,150 (Exhibit 1)

(B) $6,050 (Exhibit 2)

(C) $10,650 (Exhibit 2)

(D) $5,800 (Exhibit 2)

(E) $4,850 (Exhibit 1)

(F) $1,750 (Exhibit 3)

SCHEDULES A&B OMB No. 1545-0074 Schedule A—Itemized Deductions

(Form 1040) (Schedule B is on back)

Department of the Treasury

Internal Revenue Service  Attach to Form 1040. Attachment

Sequence No. 07

Name(s) shown on Form 1040 Your social security number

Medical Caution. Do not include expenses reimbursed or paid by others.

and

Dental

Expenses

1 Medical and dental expenses (see page A-2) 1

2 2

3 Multiply line 2 by 7.5% (.075) 3

4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4

Enter amount from Form 1040, line 37

(99)  See Instructions for Schedules A and B (Form 1040).

2004

Sam and Paula Ferris 000 00 8612

3,750

40,000

3,000

750

Exercise 2 Sam and Paula’s Schedule A

Proof as of

18, 2004

change)

g

Interest 10 Home mortgage interest and points reported to you on Form 1098

You Paid

10

Home mortgage interest not reported to you on Form 1098. If paid

to the person from whom you bought the home, see page A-3 and

show that person’s name, identifying no., and address 

11

(See

page A-3.)

11

12

Points not reported to you on Form 1098. See page A-3

for special rules

12

13 Investment interest. Attach Form 4952 if required. (See

page A-4.) 13

14 Add lines 10 through 13 14

Note.

Personal

interest is

not

deductible.

2,180

2,180

Exercise 3 John and Shanon’s Schedule A

xxx xx xxxx
5-24 Lesson 5

BASIC

STANDARD AND ITEMIZED

DEDUCTIONS AND TAX

COMPUTATION ANSWERS TO EXERCISES

P

June 1

ubject to 

G

Char

ifts to 

ity cha 15

15 Gifts by cash or check. If you made any gift of $250 or

more, see page A-4

16

Other than by cash or check. If any gift of $250 or more,

see page A-4. You must attach Form 8283 if over $500

16

17 Carryover from prior year 17

18 Add lines 15 through 17 18

If you made a

gift and got a

benefit for it,

see page A-4.

632

200

832

Exercise 4 Robert’s Schedule A

(

Unreimbursed employee expenses—job travel, union

dues, job education, etc. Attach Form 2106 or

2106-EZ if required. (See page A-5.) 

Job Expenses 20

and Most

Other

Miscellaneous

Deductions

22 Other expenses—investment, safe deposit box, etc. List

type and amount 

(See

page A-5.)

23 Add lines 20 through 22

24 Enter amount from Form 1040, line 37

25 Multiply line 24 by 2% (.02)

26 Subtract line 25 from line 23. If line 25 is more than line 23, enter -0- 26

24

20

22

23

25

21 Tax preparation fees 21 100

595

695

20,000

400

295

Exercise 5 Robert’s Schedule A

 Safe deposit box $75; Investment Expenses 

$70; Investment Journals $250; Investment advisory fees $200
Lesson 5 5-25

BASIC

STANDARD AND ITEMIZED

DEDUCTIONS AND TAX

COMPUTATION ANSWERS TO EXERCISES

Proof as of

June 18, 2004

(subject to change)

SCHEDULES A&B OMB No. 1545-0074 Schedule A—Itemized Deductions

(Form 1040) (Schedule B is on back)

Department of the Treasury

Internal Revenue Service  Attach to Form 1040. Attachment

Sequence No. 07

Name(s) shown on Form 1040 Your social security number

Medical Caution. Do not include expenses reimbursed or paid by others.

and

Dental

Expenses

1 Medical and dental expenses (see page A-2) 1

2 2

3 Multiply line 2 by 7.5% (.075) 3

4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4

Taxes You 5 State and local income taxes 5

Paid 6 Real estate taxes (see page A-2) 6

8 Other taxes. List type and amount 

(See

page A-2.)

8

9 Add lines 5 through 8 9

Interest 10 Home mortgage interest and points reported to you on Form 1098

You Paid

10

Home mortgage interest not reported to you on Form 1098. If paid

to the person from whom you bought the home, see page A-3 and

show that person’s name, identifying no., and address 

11

(See

page A-3.)

11

12

Points not reported to you on Form 1098. See page A-3

for special rules

12

13 Investment interest. Attach Form 4952 if required. (See

page A-4.) 13

14 Add lines 10 through 13 14

Gifts to 

Charity 15

15 Gifts by cash or check. If you made any gift of $250 or

more, see page A-4

16

Other than by cash or check. If any gift of $250 or more,

see page A-4. You must attach Form 8283 if over $500

16

17 Carryover from prior year 17

18 Add lines 15 through 17 18

19 Casualty or theft loss(es). Attach Form 4684. (See page A-5.)

Casualty and 

Theft Losses 19

Unreimbursed employee expenses—job travel, union

dues, job education, etc. Attach Form 2106 or

2106-EZ if required. (See page A-5.) 

Job Expenses 20

and Most

Other

Miscellaneous

Deductions

22 Other expenses—investment, safe deposit box, etc. List

type and amount 

(See

page A-5.)

23 Add lines 20 through 22

24 Enter amount from Form 1040, line 37

25 Multiply line 24 by 2% (.02)

26 Subtract line 25 from line 23. If line 25 is more than line 23, enter -0- 26

Other 27 Other—from list on page A-6. List type and amount  

Miscellaneous

Deductions 27

Total 28

Itemized

Deductions 28

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule A (Form 1040) 2004

24

20

22

23

If you made a

gift and got a

benefit for it,

see page A-4.

25

Enter amount from Form 1040, line 37

No. Your deduction is not limited. Add the amounts in the far right column

for lines 4 through 27. Also, enter this amount on Form 1040, line 39.

Yes. Your deduction may be limited. See page A-6 for the amount to enter.

Cat. No. 11330X



Note.

Personal

interest is

not

deductible.



7 Personal property taxes 7

21 Tax preparation fees 21

Is Form 1040, line 37, over $142,700 (over $71,350 if married filing separately)?

(99)  See Instructions for Schedules A and B (Form 1040).

2004

Seth and Karen Yale XXX XX XXXX

1,970

30,500

2,288

0

1,200

800

Ad valorem

$200 200

2,200

5,500

$200

5,500

1,400

75

1,475

0

50

60

110

30,500

610

0

0

✘ 9,175

Exercise 6 Schedule A
5-26 Lesson 5

BASIC

STUDENT NOTES
Notes to

Instructors N-6-1

LESSON OVERVIEW AND OBJECTIVES

In this lesson you will learn about four “miscellaneous credits.” The 

credit for the elderly or the disabled, the mortgage interest credit, 

the foreign tax credit and the credit for qualified retirement savings are covered in this lesson.

See Appendix B for suggested class schedules and approximate 

teaching times.

After completing this lesson you should be able to:

■ Calculate the credit for the elderly or the disabled using 

Schedule R or Schedule 3.

■ Calculate the credit for qualified retirement savings contributions by using Form 8880.

■ Accurately report the foreign tax credit if Form 1116 is not 

required.

■ Be aware of the mortgage interest credit.

Important tax terms presented in this lesson appear in boldfaced 

type in the student text. Emphasize these terms as they are 

introduced:

■ credit rate

■ maximum allowable contribution

■ eligible contributions

■ testing period

MATERIALS

This lesson refers to a number IRS publications and forms. If you 

would like to provide your students with the most current revision 

of the publications and forms, you can download the files from 

www.irs.gov.

■ Publication 524, Credit for the Elderly or Disabled

■ Schedule R (Form 1040), Credit for the Elderly or Disabled

■ Schedule 3 (Form 1040A), Credit for the Elderly or Disabled

TEACHING TIPS

Some elderly or disabled taxpayers may feel entitled to the tax credit 

even if they are ineligible. Advise students that it is important to be 

as tactful as possible when assisting these taxpayers. If the taxpayer 

becomes emotional, the volunteer should listen to what the taxpayer 

MISCELLANEOUS TAX CREDITS

NOTES TO INSTRUCTORS Lesson 6
Notes to N-6-2 Instructors

has to say. Then, the volunteer should calmly explain why the 

taxpayer is ineligible, using actual information from the taxpayer’s 

forms. 

Students may ask whether a taxpayer is considered to be 

permanently and totally disabled if, because of a physical or mental 

condition, the taxpayer cannot engage in the trade or profession 

in which he or she is trained or experienced. Point out that, for 

the purposes of this tax credit, the taxpayer must not be able to 

perform any substantial gainful activity and a physician must 

have determined that the taxpayer’s disabling physical or mental 

condition has lasted or can be expected to last continuously for at 

least a year or can lead to death.

A substantial gainful activity consists of the performance of 

significant duties over a reasonable period of time for pay or for 

profit, or performance of such duties which generally are done 

for pay or for profit. Full-time or part-time work done at the 

employer’s convenience, in a competitive work situation for at least 

the minimum wage, shows that a taxpayer is able to engage in a 

substantial gainful activity.

The fact that a taxpayer has not worked for an extended period of 

time is not conclusive evidence that the taxpayer cannot engage in 

substantial gainful activity.

Emphasize to students that, as volunteers, they should not treat 

disabled taxpayers differently from other taxpayers. Even though 

it may be tempting to help disabled taxpayers with more than 

their taxes, explain to students that most disabled people are 

selfsufficient and resent being patronized. It is usually best to wait 

for the disabled person to ask for assistance.

Some taxpayers may be eligible to take a nonrefundable tax credit 

for first-time homebuyers if they buy a main home in the District 

of Columbia. The credit is based on the purchase price and cannot 

exceed $5,000. To claim this credit, a taxpayer must file a Form 

1040 and complete Form 8859, District of Columbia First-Time 

Homebuyer Credit. For additional information on this credit, see 

the instructions for Form 8859.

GUIDED QUESTIONS

1. What two criteria determine whether a taxpayer is 

permanently and totally disabled?

 A taxpayer is permanently and totally disabled if he or she 

cannot engage in any substantial gainful activity because of a 

physical or mental condition, and a physician certifies that the 

disability has lasted, or is expected to last, continuously for one 

year or more, or is expected to result in death.

2. How is disability income reported?

 Before the taxpayer reaches mandatory retirement age, disability income is reported as normal wages on Form W-2. After 

the taxpayer has reached retirement age, disability income is 

reported on Form 1099-R.
Lesson 6 6-1

BASIC EARNER

MISCELLANEOUS TAX CREDITS Lesson 6

INTRODUCTION AND OBJECTIVES

In this lesson you will learn about four “miscellaneous 

credits”. The credit for the elderly or the disabled, the 

mortgage interest credit, the foreign tax credit and the 

credit for qualified retirement savings are covered in 

this lesson. 

After completing this lesson you should be able to:

■ Determine who is a qualified individual for the 

credit for the elderly or disabled and apply the 

income limits.

■ Calculate the credit for the elderly or the disabled.

■ Calculate the credit for qualified retirement 

savings contributions by using Form 8880.

■ Accurately report the foreign tax credit if Form 

1116 is not required.

■ Be aware of the mortgage interest credit.

CREDITS

A credit is a dollar-for-dollar reduction of the taxpayer’s tax liability. A refundable credit can be 

greater than the tax. Taxpayers not only can have 

their tax reduced to zero; they can also receive a 

“refund” of excess credit. A nonrefundable credit

can also be greater than the tax, but the nonrefundable credit can only reduce the tax to zero. Therefore, 

taxpayers will not receive a refund for any excess 

nonrefundable credit. All of the credits discussed in 

this lesson are non-refundable.
6-2 Lesson 6 

BASIC EARNER

CREDIT FOR THE ELDERLY OR THE DISABLED

Elderly individuals and individuals who are permanently and 

totally disabled may be able to claim a special credit on their tax 

returns if they are a U.S. citizen or resident.

To be eligible for the credit, an individual must be:

■ At least 65 years old by the end of the year, or

■ Under age 65, retired on permanent and total disability by 

the end of the year and did not reach mandatory retirement 

age before this year. They must also have received taxable 

disability income for this year.

Although physician statements are no longer required to be 

attached to the return, they must be completed and kept with the 

taxpayer’s records.

Certain work offered at qualified locations to persons with 

disabilities or with mental retardation is considered sheltered 

employment. Because a person has accepted sheltered 

employment is not proof of the person’s ability to engage in 

substantial gainful activity.

Exhibit 1 helps to determine if the taxpayer is a qualified 

individual for this credit.

 Income Limits

Taxpayers cannot exceed the income limits for their filing status 

(see Exhibit 2).

CALCULATE THE CREDIT

If the taxpayer is a qualified individual and meets the income 

limits, complete a Schedule 3 for 1040A filers or a Schedule R for 

1040 filers. Schedule R ( Form 1040) and Schedule 3 ( Form 1040A) 

are nearly identical. 

Example 1

John (000-00-9850) and Sarah Hillsdale are married and file a 

joint return. Their respective ages are 66 and 68. They received 

nontaxable social security benefits of $4,500 in 2004. They had 

adjusted gross income (line 36, Form 1040) of $13,000. Parts I and 

III of the Schedule R will be completed and the schedule attached 

to their Form 1040 for 2004. (Part II need not be completed since 

both are age 65 or older.) See Exhibits 3 and 4. 
Lesson 6 6-3

BASIC EARNER

Exhibit 1 Are you a Qualified Individual?

1 If you were a nonresident alien at any time during the tax year and were married to a U.S. citizen or resident at the end of

the tax year, see U.S. citizen or resident under Qualified individual. If you and your spouse both choose to be treated as U.S.

residents, answer yes to this question. 2 Mandatory retirement age is the age set by your employer at which you would have been required to retire, had you not

become disabled.

Are you a U.S. citizen or resident?1

Were you 65 or older at the end of the 

tax year?

Are you retired on permanent and total

disability?

Did you reach mandatory retirement

age before this year?2

Did you receive taxable disability

benefits this year?

Start Here

No

Yes

No

Yes

Yes

Yes

No

No

Yes

No

You are a qualified

individual and may

be able to take the

credit for the

disabled unless your

income exceeds the

limits in Figure B.

You are not a qualified individual and

cannot take the 

credit for the eld- erly or the disabled.

Exhibit 2 Income Limits

Even if you qualify (see Figure A), you CANNOT take the credit if:

AND OR

Your filing status is your adjusted gross income your nontaxable social security

(AGI)* is equal to or more than or other nontaxable pension(s)

is equal to or more than

Single, Head of household, or $17,500 $5,000

Qualifying widow(er) with 

dependent child

Married filing a joint return and $25,000 $7,500

both spouses qualify in Figure A

Married filing a joint return and $20,000 $5,000

only one spouse qualifies in

Figure A

Married filing a separate return $12,500 $3,750

and you did not live with your

spouse at any time during the year

You are a qualifi ed

individual and may 

be able to take the 

credit unless your

income exceeds the 

limits in Figure B.

Even if you qualify, you CANNOT take the credit if:
6-4 Lesson 6 

BASIC EARNER

Exhibit 3 John and Sarah Hillsdale’s Schedule R, page 1 

Proof as of

June 18, 2004

(subject to change)

(Form 1040) Credit for the Elderly or the Disabled

Attachment

 Attach to Form 1040.  See Instructions for Schedule R (Form 1040). Sequence No. 16

Your social security number

You may be able to take this credit and reduce your tax if by the end of 2004:

● You were age 65 or older or

You filed a physician’s statement for this disability for 1983 or an earlier year, or you filed or got a

statement for tax years after 1983 and your physician signed line B on the statement, and

If:

Due to your continued disabled condition, you were unable to engage in any substantial gainful activity

in 2004, check this box 

● If you checked this box, you do not have to get another statement for 2004.

OMB No. 1545-0074 Schedule R

For Paperwork Reduction Act Notice, see Form 1040 instructions.

Department of the Treasury

Internal Revenue Service

Name(s) shown on Form 1040

But you must also meet other tests. See page R-1.

In most cases, the IRS can figure the credit for you. See page R-1.

Check the Box for Your Filing Status and Age

Statement of Permanent and Total Disability (Complete only if you checked box 2, 4, 5, 6, or 9 above.)

1

Schedule R (Form 1040) 2004

2

If your filing status is:

1 You were 65 or older 1

2 You were under 65 and you retired on permanent and total disability 2

3 Both spouses were 65 or older 3

4 Both spouses were under 65, but only one spouse retired on

permanent and total disability 4

5 Both spouses were under 65, and both retired on permanent and total

disability 5

Married filing

jointly

6 One spouse was 65 or older, and the other spouse was under 65 and

retired on permanent and total disability 6

7 One spouse was 65 or older, and the other spouse was under 65 and

not retired on permanent and total disability 7

8 You were 65 or older and you lived apart from your spouse for all of

Married filing 2004 8

separately

9 You were under 65, you retired on permanent and total disability, and

you lived apart from your spouse for all of 2004 9

Did you check

box 1, 3, 7,

or 8?

Single,

Head of household, or 

Qualifying widow(er)

And by the end of 2004: Check only one box:

Cat. No. 11359K

Part I

Part II

● You were under age 65, you retired on permanent and total disability, and

you received taxable disability income.

Yes Skip Part II and complete Part III on back.

No Complete Parts II and III.





● If you did not check this box, have your physician complete the statement on page R-4. You must

keep the statement for your records.

(99)

2004

TIP

John and Sarah Hillsdale 000 00 9850

X
Lesson 6 6-5

BASIC EARNER

Exhibit 4 John and Sarah Hillsdale’s Schedule R, page 2 

Proof as of

June 18, 2004

(subject to change)

Schedule R (Form 1040) 2004 Page 2

Figure Your Credit

Box 1, 2, 4, or 7 $5,000

10 Enter:

10

● Box 6, add $5,000 to the taxable disability income of the

spouse who was under age 65. Enter the total.

11

If you completed line 11, enter the smaller of line 10 or line 11; all others, enter the

amount from line 10

12

12

Enter the following pensions, annuities, or disability income that

you (and your spouse if filing a joint return) received in 2004.

13

a Nontaxable part of social security benefits and

13a Nontaxable part of railroad retirement benefits

treated as social security (see page R-3).

b Nontaxable veterans’ pensions and

13b Any other pension, annuity, or disability benefit that

is excluded from income under any other provision

of law (see page R-3).

Add lines 13a and 13b. (Even though these income items are

not taxable, they must be included here to figure your credit.)

If you did not receive any of the types of nontaxable income

listed on line 13a or 13b, enter -0- on line 13c

c

13c

14

Enter the amount from Form 1040,

line 37

14

15

15

Subtract line 15 from line 14. If zero or

less, enter -0-

16

16

17 Enter one-half of line 16 17

18 Add lines 13c and 17 18

Subtract line 18 from line 12. If zero or less, stop; you cannot take the credit. Otherwise,

go to line 20

19

19

24

20 Multiply line 19 by 15% (.15)

Did you check

box 2, 4, 5, 6,

or 9 in Part I?

Box 3, 5, or 6 $7,500

Box 8 or 9 $3,750

If you checked (in Part I):

Box 1 or 2 $7,500

Enter:

Box 3, 4, 5, 6, or 7 $10,000

Box 8 or 9 $5,000

If you checked (in Part I):

Part III







● Box 2, 4, or 9, enter your taxable disability income.

● Box 5, add your taxable disability income to your spouse’s

taxable disability income. Enter the total.

For more details on what to include on line 11, see page R-3.

11

If you checked (in Part I):



Yes You must complete line 11.

No Enter the amount from line 10

on line 12 and go to line 13.







Enter the amount from Form 1040, line 43, minus the amount,

if any, on line 46

21

23 Subtract line 22 from line 21. If zero or less, stop; you cannot take the credit

22 Enter the amount, if any, from Form 6251, line 31 (page R-3)

Credit for the elderly or the disabled. Enter the smaller of line 20 or line 23 here and

on Form 1040, line 47

24

22

21

20

23

TIP

7,500 00

7,500 00

4,500 00

4,500 00

13,000 00

10,000 00

3,000 00

1,500 00

6,000 00

225 00

0 00

-0-

1,500 00
6-6 Lesson 6 

BASIC EARNER

 TAXWISE HINTS

The credit for the elderly will be calculated automatically. The 

software will check age, income, and filing status to determine eligibility. However, it is extremely important to input Social Security 

Benefit income even if you know it is not taxable. Without this 

information the software may incorrectly calculate the credit.

CREDIT FOR QUALIFIED RETIREMENT SAVINGS CONTRIBUTIONS

If the taxpayer contributed to a retirement plan or an IRA, he or 

she may be eligible for the credit for qualified retirement savings 

contributions credit. The amount of the saver’s credit is determined 

by the taxpayer’s filing status, adjusted gross income, and his or 

her qualified contributions.

The credit is reported on line 52 of Form 1040, or line 33 of Form 

1040A.

To be eligible for the saver’s credit, the taxpayer:

■ Must be age 18 or older by the end of the tax year,

■ Cannot be claimed on another person’s tax return, and

■ Cannot be a full-time student.

A full-time student is anyone who attends school full-time for 

some part of each of five calendar months of the year. The five 

months need not be consecutive. An individual is a full-time student if he or she is enrolled for the number of hours or courses the 

school considers as full-time attendance.

FIGURING THE CREDIT

The credit for qualified retirement savings contributions is figured 

by multiplying the credit rate by the lesser of the:

■ Maximum allowable contribution ($2,000) or

■ Eligible contributions.
Lesson 6 6-7

BASIC EARNER

The credit rate is determined by using the following table.

IF your fi ling 

status is...

AND your adjusted

gross income is...

THEN your credit

rate is...

Married fi ling jointly

Less than $30,001 50%

Between $30,001 and 

$32,500

20%

Between $32,501 and 

$50,000

10%

Over $50,000 0

Head of Household

Less than $22,501 50%

Between $22,501 and 

$24,375

20%

Between $24,376 and 

$37,500

10%

Over $37,500 0

Single, Married fi ling 

separately, or qualifying widow(er)

Less than $15,001 50%

Between $15,001 and 

$16,250

20%

Between $16,251 and 

$25,000

10%

Over $25,000 0

Adjusted gross income is determined without regard to:

■ The foreign income exclusion

■ The foreign housing exclusion or deduction

■ Income from sources within Guam, American Samoa, and the 

Northern Mariana Islands

■ Income from Puerto Rico

Eligible contributions are determined by reducing the taxpayer’s 

qualified retirement savings contributions by the following 

distributions that were received during the testing period.

■ Any distribution that is included in the taxpayer’s gross income 

from a qualified retirement plan or from an eligible deferred 

compensation plan.

■ Any distribution from a Roth IRA that is not a qualified rollover 

contribution.

If the distributions received by the taxpayer are for loans or 

for excess IRA contributions returned before the due date of 

the return, they are not used to reduce the taxpayer’s qualified 

retirement savings contributions.

Qualified retirement savings contributions are contributions 

made to a traditional or Roth IRA and salary reduction contributions to a 401(k) plan (including a SIMPLE 401(k)), a tax-sheltered 

annuity (403(b)) plan, an eligible deferred compensation plan of a 

state or local government (457(b)) plan), a SIMPLE IRA plan, or a 

salary reduction SEP.
6-8 Lesson 6 

BASIC EARNER

Qualified retirement savings contributions also include voluntary 

after-tax employee contributions to a tax-qualified retirement plan 

or a tax-sheltered annuity (403(b)) plan. For purposes of the credit, 

an employee contribution will be voluntary as long as it is not 

required as a condition of employment.

The testing period includes:

■ The tax year,

■ The two preceding tax years, and

■ The period between the end of the tax year and the due date of 

the return (including extensions).

Example 1

Terry contributes $3,000 to a 401(k) plan during 2004. In 2003, 

Terry withdrew $500 from his IRA. In 2004, he withdrew $900 from 

his IRA. Neither of these withdrawals were rolled over. In 2004, 

Terry’s adjusted gross income was $23,000 and his filing status 

was head of household. Based on these facts, Terry would figure his 

saver’s credit as follows:

(Qualified retirement contributions – withdrawals) x credit rate 

(per table)

($3,000 – $1,400) × .20

$1,600 × .20 = $320 saver’s credit

The credit is figured on Form 8880, Credit for Qualified 

Retirement Savings Contributions.

Married filing jointly. If the taxpayer is married filing a joint 

return, he or she and his or her spouse may both use the credit. 

Both the taxpayer and spouse are eligible for a credit of the maximum annual contribution amount of $2,000.

If the taxpayers file a joint return, the qualified contribution is 

reduced by the taxable distributions received by the taxpayer or 

the taxpayer’s spouse if the taxpayers filed jointly for both:

■ the year a distribution was made, and

■ the year the credit is claimed.

Exercise 1

Jason is 22 and earned $30,000 in 2004. He is single and contriuted $3,000 to his 401(k) plan at work. Is Jason eligible for the 

credit for qualified retirement savings contributions?

Exercise 2

Martha Barnard (000-00-0088) is 32 and files as Head of 

Household. Her only income is wages of $26,819. This year, she 

was able to contribute $1,000 to her employer’s 401(k) plan. She 

did not put any money in an IRA. Use Exhibit 1 to complete 

Martha’s Form 8880 through line 10.
Lesson 6 6-9

BASIC EARNER

Exhibit 5 Martha Barnard’s Form 8880

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1805

8880 Credit for Qualified Retirement Savings Contributions Form

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 129

 Attach to Form 1040 or Form 1040A.

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 33394D Form 8880 (2004)

● The amount on Form 1040, line 37, or Form 1040A, line 22, is more than $25,000 ($37,500 if head of household;

$50,000 if married filing jointly).

You cannot take this credit if either of the following applies.

4

1

Traditional and Roth IRA contributions for 2004. Do not include rollover

contributions

1

3

2

5

6

7

8

9

10

11

12

13

14

Elective deferrals to a 401(k) or other qualified employer plan, voluntary

employee contributions, and 501(c)(18)(D) plan contributions for 2004

(see instructions) 

2

3 Add lines 1 and 2

Certain distributions received after 2001 and before the due date

(including extensions) of your 2004 tax return (see instructions). If

married filing jointly, include both spouses’ amounts in both columns.

See instructions for an exception 

4

5 Subtract line 4 from line 3. If zero or less, enter -0-

6 In each column, enter the smaller of line 5 or $2,000 

8 Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

9 Enter the applicable decimal amount shown below:

Note: If line 9 is zero, stop; you cannot take this credit.

10 Multiply line 7 by line 9 

11 Enter the amount from Form 1040, line 45, or Form 1040A, line 28

Enter the total of your credits from Form 1040, lines 46 through 51, or

Form 1040A, lines 29 through 32

12

13 Subtract line 12 from line 11. If zero, stop; you cannot take this credit 

Credit for qualified retirement savings contributions. Enter the smaller of line 10 or line

13 here and on Form 1040, line 52, or Form 1040A, line 33

14

(a) You (b) Your spouse

● The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1987, (b) is

claimed as a dependent on someone else’s 2004 tax return, or (c) was a student (see instructions).

7 Add the amounts on line 6. If zero, stop; you cannot take this credit 

*See Pub. 590 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

If line 8 is— 

Enter on line 9—

Single, Married filing 

separately, or 

Qualifying widow(er)

Over— But not 

over—

Married

filing jointly

Head of 

household

---

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

---

.5

.5

.5

.5

.5

.5

.2

.1

.1

.0

.5

.5

.5

.2

.1

.1

.1

.1

.0

.0

.5

.2

.1

.1

.1

.0

.0

.0

.0

.0

X .

And your filing status is—

 See instructions on back.

2004

CAUTION
6-10 Lesson 6 

BASIC EARNER

MORTGAGE INTEREST CREDIT

Taxpayers who hold qualified mortgage credit certificates under a 

qualified state or local government program may claim a credit for 

mortgage interest paid. The certificate must be for the taxpayer’s 

main home. If the interest is paid to certain related parties (such as 

relatives), the credit cannot be claimed.

The credit is figured on Form 8396, Mortgage Interest Credit.

Include the amount of the credit on Form 1040, Line 49. Also, check 

box a on Line 49 for Form 8396.

Any mortgage interest credit that the taxpayer cannot use in 2004 

can be carried forward for up to three tax years. Figure the carryforward credit in Part II of Form 8396.

Reduce the mortgage interest deduction claimed on Schedule A, 

Form 1040, by the amount shown on Line 3 of Form 8396.

Caution: If the taxpayer was issued (and used) a qualified mortgage credit certificate after 1990 for a home, the taxpayer may have 

to recapture (repay) all or part of the benefit if the taxpayer sells 

that home within 9 years. The recapture is figured on Form 8828, 

Recapture of Federal Mortgage Subsidy.

 FOREIGN TAX CREDIT

If the taxpayer paid income, war profits, or excess profits taxes to 

any:

■ Foreign country,

■ U.S. possession, or

■ Any political subdivision, or agency or instrumentality of the 

country or possession, he or she may be able to take a Foreign 

Tax Credit (FTC) for taxes paid.

To determine if the tax paid is eligible for the foreign tax credit, the 

taxpayer may need to consult a paid professional preparer.

Generally, to claim the FTC, a taxpayer is required to file Form 

1116, Foreign Tax Credit (Individual, Estate, Trust, or Nonresident 

Alien Individual); however, the taxpayer does not have to file 

Form 1116 to take the credit if he or she meets all of the following 

requirements.

■ All of the taxpayer’s gross foreign source income is from interest and dividends that are reported on Form 1099-INT, or Form 

1099-DIV (or substitute statement)

■ If the taxpayer has dividend income from shares of stock, he or 

she held those shares for at least 16 days.

■ The taxpayer is not filing Form 4563, Exclusion of Income for 

Bona Fide Residents of American Samoa, or excluding income 

from sources within Puerto Rico.

■ The total of the taxpayer’s foreign taxes is less than or equal to 

$300 ($600 if married filing jointly).
Lesson 6 6-11

BASIC EARNER

■ All of the taxpayer’s foreign taxes were:

■ Legally owed and not eligible for a refund, and

■ Paid to countries that are recognized by the United States 

and do not support terrorism.

For additional information, see the Instructions for Form 1116.

If the taxpayer meets all of the requirements listed above, enter 

the foreign tax credit on line 50 of Form 1040. Form 1116 is not 

required.

Example 2

Tabitha received a 1099-DIV that shows $219 of foreign taxes (box 

6) in 2004. According to Tabitha she paid no other foreign taxes. 

She can claim the $219 on line 50 of Form 1040.

Exercise 3

Clyde comes to your site seeking help with his foreign tax credit. 

He is single and his 1099-DIVs show a total of $423 of foreign tax. 

Does Clyde need Form 1116 to claim his credit?

HEALTH COVERAGE TAX CREDIT

The Health Coverage Tax Credit (HCTC) is a federal tax credit 

established by the Trade Act of 2002 to assist 

1. Workers who lose their jobs due to the effects of international 

trade and/or 

2. People who receive benefits from the Pension Benefit Guaranty 

Corporation (PBGC) and are at least 55 years old.

The HCTC is beyond the scope of the Volunteer Return Preparation 

Program. Taxpayers who are potentially eligible should be referred 

to a paid preparer or to www.irs.gov for more information.

  SUMMING UP THIS LESSON  

 Due to the income limitations, very few taxpayers are eligible 

to receive the credit for the elderly or disabled.

 The credit for the elderly or the disabled is based on filing 

status, age, and income.

 The credit is calculated and reported on Form 1040, Schedule 

R, or Form 1040A, Schedule 3.
6-12 Lesson 6 

BASIC EARNER

Exercise 1

No; Jason is not eligible for the credit because his income exceeds 

the threshold limit.

Exercise 2

See the completed Form 8880 on the next page.

Exercise 3

Yes, Clyde needs to complete a Form 1116 since his foreign taxes 

exceed $300. Clyde will need to seek the assistance of a paid professional preparer.

MISCELLANEOUS TAX CREDITS

Lesson 6 ANSWERS TO EXERCISES
Lesson 6 6-13

BASIC EARNER

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1805

8880 Credit for Qualified Retirement Savings Contributions Form

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 129

 Attach to Form 1040 or Form 1040A.

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 33394D Form 8880 (2004)

● The amount on Form 1040, line 37, or Form 1040A, line 22, is more than $25,000 ($37,500 if head of household;

$50,000 if married filing jointly).

You cannot take this credit if either of the following applies.

4

1

Traditional and Roth IRA contributions for 2004. Do not include rollover

contributions

1

3

2

5

6

7

8

9

10

11

12

13

14

Elective deferrals to a 401(k) or other qualified employer plan, voluntary

employee contributions, and 501(c)(18)(D) plan contributions for 2004

(see instructions) 

2

3 Add lines 1 and 2

Certain distributions received after 2001 and before the due date

(including extensions) of your 2004 tax return (see instructions). If

married filing jointly, include both spouses’ amounts in both columns.

See instructions for an exception 

4

5 Subtract line 4 from line 3. If zero or less, enter -0-

6 In each column, enter the smaller of line 5 or $2,000 

8 Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

9 Enter the applicable decimal amount shown below:

Note: If line 9 is zero, stop; you cannot take this credit.

10 Multiply line 7 by line 9 

11 Enter the amount from Form 1040, line 45, or Form 1040A, line 28

Enter the total of your credits from Form 1040, lines 46 through 51, or

Form 1040A, lines 29 through 32

12

13 Subtract line 12 from line 11. If zero, stop; you cannot take this credit 

Credit for qualified retirement savings contributions. Enter the smaller of line 10 or line

13 here and on Form 1040, line 52, or Form 1040A, line 33

14

(a) You (b) Your spouse

● The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1987, (b) is

claimed as a dependent on someone else’s 2004 tax return, or (c) was a student (see instructions).

7 Add the amounts on line 6. If zero, stop; you cannot take this credit 

*See Pub. 590 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

If line 8 is— 

Enter on line 9—

Single, Married filing 

separately, or 

Qualifying widow(er)

Over— But not 

over—

Married

filing jointly

Head of 

household

---

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

---

.5

.5

.5

.5

.5

.5

.2

.1

.1

.0

.5

.5

.5

.2

.1

.1

.1

.1

.0

.0

.5

.2

.1

.1

.1

.0

.0

.0

.0

.0

X .

And your filing status is—

 See instructions on back.

2004

CAUTION

MARTHA BARNARD 000 00 0088

1,000

1,000

1,000

1,000

26,819

10

100

1,000
6-14 Lesson 6 

BASIC EARNER

STUDENT NOTES
Notes to

Instructors N-7-1

LESSON OVERVIEW AND OBJECTIVES

This lesson explains how to figure total federal income tax 

withheld. The lesson also covers how to figure and report estimated 

tax. In addition, the material covers how to determine the 

overpayment or the amount owed. 

After completing this lesson you should be able to:

■ Calculate and report federal income tax withheld from all 

sources.

■ Calculate and report estimated tax payments.

■ Calculate the refund due.

■ Determine if estimated taxes should be paid.

■ Determine if changes to the taxpayer’s Form W-4 or Form W-4P 

should be suggested.

See Appendix B for suggested class schedules and approximate 

teaching times.

TRAINING MATERIAL AND ON-SITE REFERENCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like the most current revision of the publications or 

forms, you can download the files from www.irs.gov.

■ Form W-2, Wage and Tax Statement

■ Form W-4, Employee Withholding Allowance Certificate

■ Form W-4P, Withholding Certificate for Pension or Annuity 

Payments

■ Form 1040A, US Individual Income Tax Return

■ Form 1040, US Individual Income Tax Return

■ Form 1040ES, Estimated Tax for Individuals

■ Form 1040-V, Payment Voucher

■ Form 1099DIV, Dividends and Distributions

■ Form 1099INT, Interest Income

■ Form 1099R, Distributions From Pensions, Annuities, 

Retirement or Profit-Sharing Plans, IRA, Insurance 

Contracts, etc.

FINISHING THE RETURN NOTES TO INSTRUCTORS Lesson 7
Notes to N-7-2 Instructors

TEACHING TIPS

Review with students the two most common ways that federal 

income tax is paid: it is either withheld from wages and other 

types of payments, or it is paid through estimated tax payments. 

Remind students that estimated tax payments include part or all 

of the overpayment from the prior year’s return that was applied 

to 2004 estimated tax and estimated tax payments made after 

January 15, 2004 and through January 15, 2005. To complete line 

63 of Form 1040 or line 39 of Form 1040A, volunteers must know 

the total federal income tax withheld from Forms W-2, 1099-R, 

1099-INT, and 1099-DIV. For example, to complete line 64 or line 

40, volunteers must know the amounts and payment dates of 

estimated tax payments, including any refund applied from the 

taxpayer’s 2003 return to his or her 2004 tax.

GUIDED QUESTIONS — TAXES PAID

1. In what two ways is most federal income tax paid? (It is 

either withheld from wages and other types of payments, or it is 

paid through estimated tax payments.) 

2. In how many installments can estimated tax payments be 

paid? (Taxpayers can pay their estimated tax in one payment 

or they can make up to four quarterly payments. However, 

additional estimated tax payments may be paid; if necessary).

3. Does an amount due and paid with the tax return qualify 

as an estimated tax payment? (No; do not include as an 

estimated tax payment the amount due with the tax return.) 

GUIDED QUESTIONS — ESTIMATED TAXES

1. Under what circumstances do taxpayers make estimated

tax payments? (When income is not subject to withholding or 

when the tax withheld is expected to be inadequate.)

2. Explain the procedure for determining the amount of the 

total estimated tax payment. (Figure the expected tax for the 

coming year and subtract expected credits, deductions, and tax 

withheld.)
Notes to

Instructors N-7-3

GUIDED QUESTIONS — OVERPAYMENT/ESTIMATED TAXES APPLIED TO

NEXT YEAR AND PENALTY

1. Under what circumstances will an amount be entered 

on line 45a and/or on line 46 of Form 1040A, or line 72a 

and/or 73 of Form 1040? If the taxpayer has an overpayment 

(refund) on line 44 of Form 1040A, or line 71 of Form 1040, then 

he or she should complete lines 45a and/or 46 of Form 1040A or 

lines 72a and/or 73 of Form 1040.

2. Under what circumstances will an amount be entered on 

line 48 of Form 1040A or line 75 of Form 1040, estimated

tax penalty? (If line 47 or line 74 is $1,000 or more and it is 

more than 10 percent of the tax shown on the return, or if the 

taxpayer underpaid his or her 2004 estimated tax liability, the 

taxpayer may owe a penalty for underpayment of estimated 

tax. If no exceptions apply and a penalty is owed, it should be 

entered on line 48 or line 75 and included in the amount shown 

on line 47 or line 74.) 

LESSON REVIEW — ESTIMATED TAXES AND REFUND OF

LESS THAN $1.00

1. Students may inquire about the circumstances under which federal income tax is usually withheld from dividend and interest 

payments. Tell them that tax is usually withheld if the taxpayer 

does not provide his or her social security number to the payer.

2. If a taxpayer has not rounded the amounts reported on a tax 

form, it is possible that the amounts overpaid or owed could be 

less than $1. Students may wonder if a taxpayer must send a 

check or money order to the IRS for that amount. The answer is 

no. Conversely, a taxpayer who has overpaid by less than $1 will 

not receive a refund unless the taxpayer sends a written request 

asking for the refund.
Notes to N-7-4 Instructors

TEACHING TIPS — ESTIMATED TAXES

1. Many taxpayers who pay estimated tax are self-employed, 

either on a full-time or a part-time basis. Volunteers should 

remember that self-employment situations, other than those 

reported on Schedule C-EZ, are beyond the scope of the VITA/

TCE Program and that these taxpayers should be referred to 

paid professional tax preparers.

2. Explain to volunteers that nonresident aliens are also required 

to make estimated tax payments. Nonresident aliens who must 

make estimated tax payments should file Form 1040-ES(NR), 

U.S. Estimated Tax for Nonresident Alien Individuals. These filers should be referred to paid professional tax preparers.

3. To help students figure the estimated tax payment due per 

quarter, copy the following equation onto a chalkboard or 

flip-chart: 

PAYMENT CALCULATION

Total Estimated Tax

4 = Amount of each equal 

quarterly payment due

THEN: 

 Multiply the quarterly payment by the number of quarters due 

 and past due at time of first payment. 

4. Students should be aware that a recently retired taxpayer may 

owe estimated tax for the first time. Retirees may owe tax on 

pension, interest, or annuity income. Advise volunteers to be 

careful when determining whether there will be any tax withheld from the taxpayer’s payments and to figure the estimated 

tax accordingly. 

LESSON REVIEW — WITHHOLDING

1. Students may wonder what advice to give to taxpayers who had 

too much tax withheld because they did not claim all the allowances to which they were entitled. 

 A taxpayer in this situation should submit a new Form W-4 to 

his or her employer. The employer, however, cannot reimburse 

the taxpayer for any of the tax withheld under the old Form W-4.

2. Some taxpayers may try to claim more withholding allowances 

than they are entitled to in order to increase their take-home 

pay. Explain to students that, as volunteers, they should inform 

taxpayers that there are penalties for willfully supplying false 

or fraudulent information on Form W-4 or for willfully failing to 

supply information that would increase the amount withheld.
Notes to

Instructors N-7-5

LESSON REVIEW — NAME CHANGE/ESTIMATED TAX PAYMENT

1. Students may ask how to clear up confusion caused by a 

taxpayer changing his or her name after making estimated 

tax payments using another name. A taxpayer in this situation should attach a brief statement to the front of the tax 

return indicating the following: when payments were made, the 

amount of each payment, the address(es) to which each 

payment was sent, the name under which each payment was 

made, and the taxpayer’s social security number. 

2. To review students’ understanding of estimated tax payment 

and underpayment of estimated tax, tax withheld, and refund or 

amount owed, divide the class into groups of four or five. Have 

each group write five questions that review the material 

covered in this lesson. Allow five to seven minutes for this part 

of the activity. 

 When all groups have finished writing their questions, have 

students from each group read their questions to the class and 

have the other groups answer the questions. Continue the 

activity until all groups have asked their questions. 

 You may wish to take some time to review any points that 

students found difficult. 

TEACHING TIPS — FINISHING THE TAX RETURN

1. Remind students a Quality Review Checklist should be used to 

verify the completeness and accuracy of every tax return. 

2. Volunteers should inform taxpayers who have a substantial 

overpayment (line 44 of Form 1040A or line 71 of Form 1040) 

that they might wish to file a new Form W-4, Employee’s 

Withholding Allowance Certificate, to reduce the amount of 

income tax withheld from their pay. Conversely, volunteers 

should inform taxpayers who owe a substantial amount of 

tax (line 47 of Form 1040A or line 74 of Form 1040) that they 

might wish to file a new Form W-4 to increase the amount of tax 

withheld from their pay or pay estimated taxes.

3. If the taxpayer filed a joint return in 2003 and is filing a joint 

return for 2004 with the same spouse, the taxpayer should enter 

his or her name and SSN and that of his or her spouse in the 

same order as on the 2003 return. 

4. Remind students to make certain that taxpayers understand 

that their decision to contribute $3 to the Presidential Election 

Campaign Fund will not increase or decrease the amount owed 

to the IRS or decrease the amount that they will receive as a 

refund. 
Notes to N-7-6 Instructors

LESSON REVIEW — QUALITY REVIEW

Students sometimes wonder what specific kinds of information the 

IRS quality review program has yielded.

You may wish to share these statistics with the class: Of all the 

mistakes made on Form 1040EZ, the most common were math 

errors—committed, collectively, by the taxpayers, their paid preparers, and VITA/TCE volunteers.

GUIDED QUESTIONS — FINISHING THE RETURN

1. When should the taxpayer identification section be 

completed? (After the rest of the return has been completed.)

2. If there are errors on the taxpayer’s pre-addressed label, 

should the label be discarded? (No; mark through any errors 

and print the correct information on the label.)

3. Is it important to have the taxpayer sign the return? 

(Yes; an unsigned return is not considered valid and cannot be 

processed.)

4. If an amount is owed, how should you end the interview? 

(Remind the taxpayer not to attach payments to the return. The 

check or money order should be made payable to the United 

States Treasury and placed loose in the envelope. The taxpayer 

can also pay by credit card or by authorizing a direct debit 

from his or her checking or savings account on the date he/she 

chooses—by April 15, 2005. If the taxpayer is a Form 1040 

filer, he or she should voluntarily send Form 1040-V, Payment 

Voucher, with the payment. Form 1040-V should also be placed 

loose in the envelope. This will allow the IRS to process the 

payment more accurately and efficiently. The instructions for 

completing the voucher appear on the Form 1040-V. The check 

or money order should include the taxpayer’s name, address, 

social security number, daytime telephone number, and the 

notation “2004 Form 1040 (or 1040A or 1040EZ, whichever 

applies).” Tell the taxpayer to mail the return by April 15. If the 

taxpayer cannot pay the full amount owed on his/her return, 

he/she may ask permission to make monthly installment 

payments. The taxpayer should file Form 9465, Installment

Agreement Request, and pay a nonrefundable processing fee. 

File Form 9465 with the tax return.)

5. How does a taxpayer request direct deposit? (To choose 

direct deposit, the taxpayer should fill in lines 11b, c, and d of 

Form 1040EZ, or lines 45b, c, and d of Form 1040A, or lines 72b, 

c, and d of Form 1040.)
Notes to

Instructors N-7-7

LESSON REVIEW — REFUND/BALANCE DUE

1. Federal income tax is withheld only from payments that 

are earned income. (Disagree; federal income tax can also be 

withheld from other kinds of payments, including distributions 

from pensions, annuities, IRAs, interest income, and dividends.)

2. Taxpayers who have overpaid their tax must receive a 

complete refund. (Disagree; taxpayers can opt to apply all or 

part of the overpayment to next year’s estimated tax.)

3. The method of payment that a taxpayer should follow in 

paying tax is the same whether the taxpayer uses Form 

1040 or Form 1040A except the words “2004 Form 1040” 

should be written on the payment for filers of Form 1040; 

whereas the words “2004 Form 1040A” should be written 

on the payment for filers of Form 1040A. (Agree) 

4. If a taxpayer owes a penalty for underpayment of tax, 

he or she can enter the amount of the penalty on Form 

1040, line 75 or leave line 75 blank so that the IRS figures 

the amount of the penalty, as with Form 1040A, line 48.

(Agree)
Notes to N-7-8 Instructors

STUDENT NOTES
Lesson 7 7-1

BASIC

FINISHING

THE RETURN Lesson 7

INTRODUCTION AND OBJECTIVES

In this lesson you will learn how to report federal 

income tax payments and figure the overpayment or 

balance due. You will also learn how to determine if 

estimated taxes should be paid. Additionally, you will 

learn how to finish the return and have the taxpayer 

sign the return.

After completing this lesson you should be able to:

■ Calculate and report federal income tax withheld 

from all sources.

■ Calculate and report estimated tax payments.

■ Calculate the refund or amount due.

■ Determine if estimated taxes should be paid.

■ Determine if changes to the taxpayer’s W-4 or

W-4P should be suggested.

Please pay close attention to the section about 

identifying the returns that you work on. It is 

critical for you to enter the correct site identification number in the preparer’s signature 

section of the return. The number goes in the 

designated area on the forms with the preprinted “S” followed by 8 digits or in the PTIN/

SSN field of the return.

This lesson will provide detailed information on how 

to finish the tax return. The following checklist is provided as a quick reference of the steps needed to finish the return.

CHECKLIST FOR FINISHING THE RETURN

Withholdings, Payments and Other Credits:

■ Add all Federal Income Tax Withholding from 

Form W-2, box 2, and include on return.

■ Add all Federal Income Tax Withholding from box 

4 of Forms 1099R, 1099INT, 1099DIV and 1099G. 

Include in the payments section of the return.

■ Include all estimated tax payments in the payment section.

POTENTIAL

PITFALLS

When a taxpayer 

worked for more than 

one employer during 

the year, add up the 

amounts shown in 

box 4 of all Forms 

W-2. If the total in 

box 4 of all forms 

exceeds $5,449.80 

the taxpayers should 

claim a refund of 

excess social security 

tax withheld. Use the 

worksheet in Pub. 505, 

Tax Withholding and 

Estimated Tax to 

compute the refund.

ALERT

The letter “P” in the 

site identifi cation 

number has been 

replaced by the 

letter “S”. This 

change was made 

to better track the 

number of volunteer 

prepared returns.

POTENTIAL

PITFALLS

Form W-2, box 4, 

shows social security 

tax withheld and box 

6 shows Medicare 

tax withheld. These 

are not the same 

as federal income 

tax withheld. Do not 

report the amounts 

in box 4 and box 6 as 

federal income tax 

withheld.
7-2 Lesson 7

BASIC

■ Include the amount of last year’s refund that was applied to 

this year in the payment section. Note: If you need assistance 

with how to do this with TaxWise®, ask your site coordinator 

or computer specialist.

■ Calculate all of the refundable credits (covered in later lessons) 

that the taxpayer is entitled to and include them in the payments section of the return. Using TaxWise® software will help 

you determine what credits that the taxpayer is entitled to.

■ Add all payments together and enter them on the total payments line. TaxWise® will do this step for you.

■ Subtract the total payments from the total tax. TaxWise® will 

also complete this step for you.

■ Record the account number and the routing number for taxpayers who want their refund direct deposited. Note: TaxWise® will 

ask you for this information on the Main Information screen 

and on the tax form. This is to help ensure that you have keyed 

in the correct information. Complete the line to apply part of the 

refund to next year, if the taxpayer wishes to use this option.

Paying Taxes or Adjusting Withholding Taxes if Balance 

Due:

■ Explain the payment option (check, credit card, direct debit and 

installment agreement) to a taxpayer who owes money.

■ Inform the taxpayer about the identifying information to 

include on payments made by check.

■ Explain that interest and penalties continue to accrue on the 

unpaid balance even if the taxpayer has a valid installment 

agreement.

■ Explain estimated taxes to taxpayers who expect to owe tax in 

2005.

■ Assist the taxpayer with completing form 1040ES for 2005. 

TaxWise® can do this for you. It will even print the vouchers for 

the payments. See publication 4012, Volunteer Resource 

Guide for further guidelines.

■ Provide the taxpayer with the mailing address for the estimated 

payments. (Some sites provide unstamped envelopes for the taxpayers.)

■ Encourage taxpayers to consider adjusting their withholding (on 

Form W-4 or W-4P) if they have a large refund or owe more than 

$1,000 on the return.

Advance Earned Income Tax Credit (AEIC):

■ Inform taxpayers about the Advance Earned Income Credit, if 

they were eligible for EIC this year and have at least one qualifying child. Be prepared to give the taxpayer a Form W-5, if they 

request it.
Lesson 7 7-3

BASIC

Name, Address, and Taxpayer Identification Section of 

Return:

■ Complete the name and address section of the tax return. Use 

the taxpayer’s label (if available) on a return prepared by hand. 

For computer generated returns, this section will be completed 

based on the information you entered in the Main Information 

section of the TaxWise® software.

■ Make sure that you include the Taxpayer Identification Number 

for all taxpayers and dependents listed on the return. Note: If 

you are using TaxWise®, you will get an error when you run 

diagnostics if you have not included the identifying number. 

TaxWise® also has a diagnostic feature that helps you check 

the accuracy of the identifying number by comparing 

it to a database of information from the Social Security 

Administration. This does not guarantee that the name and 

social security number match. You should always look at the 

actual Social Security cards if possible. To validate the identity 

of the taxpayer you should also ask to see an official picture 

identification item.

■ Mark the Presidential Election Campaign Box for the taxpayer. 

Note: If the taxpayer has a total tax of zero, the presidential 

campaign box should be marked no.

Return Assembly and Copy:

■ Assemble the return. If filing a paper return for the taxpayer, 

forms should be in the order of the sequence number in the 

upper right corner. Procedures on assembling electronic returns 

may vary from site to site. Please ask your site coordinator for 

this information.

■ Retain an electronic copy of all returns e-filed. Remember that 

you are not allowed to retain copies of the tax returns at your 

site past the end of the filing season. The retained copies should 

be forwarded to your local IRS territory office, where they will 

be retained until the end of the calendar year (as prescribed by 

the electronic filing regulations). For exception see 

Publication 4299, Privacy and Confidentiality.

Site Identification Number on Forms 1040, 1040A, & 1040EZ

Congress annually asks the IRS to provide the number of returns 

that were filed by volunteer tax assistance sites. For statistical 

purposes, the IRS requests that all Federal returns be identified 

with a Site Identification Number. The Site Identification Number 

is entered in the Paid Preparer’s section of the tax return. The 

Internal Revenue Service Submission Processing Center will 

count each return processed using this data. 

More about this topic is covered later in this lesson.
7-4 Lesson 7

BASIC

On Site Quality Review:

■ Submit the completed return to the quality reviewer at your 

site. Note: Not all sites have enough volunteers to have a designated quality reviewer. In this case, ask another volunteer to 

review the form you prepared. Using TaxWise® is not a substitute for quality review. 

Signing the Return and Third Party Designation:

■ Mark the area where the taxpayer should sign the return or 

Form 8453. Publication 3189 will contain additional information 

on how to use the PIN program to sign electronic returns.

■ Complete the third party designation section of the return if 

the taxpayer wishes to allow someone else to discuss the return 

with the IRS. (You cannot designate yourself.)

Taxpayer Question:

■ Ask the taxpayer if they have any additional questions. 

Where to Mail Paper Returns:

■ Tell the taxpayer where to mail the return (if filing by paper). 

Electronically filed returns are automatically transmitted to the 

correct IRS Processing Center. Paper tax returns must be mailed 

in by the taxpayer to the IRS processing Center for the area 

(state) where the taxpayer resides. Each tax package contains a 

pre-addressed envelope for a particular area based on the last 

address filed with the IRS. If the taxpayer has moved or does not 

have a pre-addressed envelope the address and other mailing 

information is located in the individual federal tax package and 

in your Volunteer Resource Guide, Publication 4012. Some sites 

provide unstamped pre-addressed envelope for their taxpayers. 

(You might be able to get the envelopes donated from a local 

office supply store. Your site receptionist could address the 

envelopes or you could print computer labels to use on them.)
Lesson 7 7-5

BASIC

PAYMENTS

The federal government has a pay-as-you-earn tax system. The 

information for the payments section of the return has three 

sources: federal income tax withholdings, estimated tax payments, 

and refundable credits.

Income tax withheld can appear on:

■ Form W-2, Wage and Tax Statement, in box 2

■ Form 1099-R, Distributions From Pensions, Annuities, 

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, 

etc., in box 4

■ Form 1099-INT, Interest Income, in box 4

■ Form 1099-DIV, Dividends and Distributions, in box 4

■ Form W-2G, Certain Gambling Winnings, in box 2

■ Form 1099-G, Certain Government and Qualified State Tuition 

Program Payments, box 4

■ SSA-1099, Social Security Benefits

■ RRB-1099, Railroad Retirement Benefits Tier 1

■ RRB-1099R, Railroad Retirement Benefits Tier 2

■ Form 1099B, Proceeds from Broker and Barter Exchange 

Transactions
7-6 Lesson 7

BASIC

Example 1

Kamica has one Form W-2 (Exhibit 1).

The entry in Box 1 of Form W-2 goes on line 7, Form 1040EZ, 

line 39, Form 1040A, or line 63, Form 1040, is $988.

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B To Be Filed with Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury-––Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 2004

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS Web Site

at www.irs.gov.

For Privacy Act Notice, see back of Copy D.

Exhibit 1 Kamica’s Form W-2

Kamica A. Howard

134 Dawes Blvd.

Tampa, FL 33621

XYZ Associates

2112 Third Street

Tampa, FL 33621

10-0864213 12,350.00

12,350.00

12,350.00

988.00

765.70

179.08

xxx-xx-xxxx
Lesson 7 7-7

BASIC

Example 2

Lucas has a Form 1099-INT (Exhibit 2), a Form 1099-R (Exhibit 3), 

and a Form 1099-DIV (Exhibit 4). His total income tax withheld is 

entered on line 39, Form 1040A. It is $1,247.

Exhibit 2 Lucas’s Form 1099-INT

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Second Federal Bank

210 Miller Avenue

Denver, CO 86011

10-4213597 000-00-4213 935.00

Lucas B. George

1360 Shannon Avenue

Denver, CO 86011

187.00

Exhibit 3 Lucas's Form 1099-R

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

APEX Triangles 2004

213 Hickory Meadows

Denver, CO 86011

10-9753124 000-00-4213

Lucas B. George

1360 Shannon Ave.

Denver, CO 86011

12,000.00

960.00
7-8 Lesson 7

BASIC

Exhibit 4 Lucas's Form 1099-DIV

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0110

Dividends and

Distributions

PAYER’S Federal identification number RECIPIENT’S identification number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Form 1099-DIV Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-DIV

4 Federal income tax withheld

$

8 Cash liquidation distr.

$

6 Foreign tax paid

$

3 Nontaxable distributions

$

5 Investment expenses

9 Noncash liquidation distr.

$

7 Foreign country or U.S. possession

$

$

2a Total capital gain distr.

2d Unrecap. sec. 1250 gain

$ $

2c Qualified 5-year gain

$

2e Section 1202 gain

$

1 Ordinary dividends

$

2b 28% rate gain

2004

Denver Sheet Metal

214 16th Street

Denver, CO 86013

10-2846731 000-00-4213

Lucas B. George

1360 Shannon Avenue

Denver, CO 86011

500.00

100.00

Estimated Tax Payments

Add all estimated tax payments made by the taxpayer for the year. 

Be sure to include:

■ Payment made from last year’s overpayment (see last year’s tax 

return.)

■ Quarterly payments made using the Form 1040ES, including 

the one made in January of the current tax year.

Record total estimated tax payments on Line 40 of Form 1040A or 

Line 64 of Form 1040.

Refundable Credits

Make sure that any refundable credits you have calculated are 

entered on the proper lines. The Earned Income Credit is reported 

on line 8 of the Form 1040 EZ, Line 41 of the Form 1040A, and Line 

65 of the Form 1040. Any refundable Child Tax Credit is reported 

on Line 42 of the Form 1040A and Line 67 of the Form 1040. If 

excess Social Security deductions were made because of multiple 

employers, that amount is shown on Line 66 of the Form 1040.

Total Payments

Add the total of withholdings, estimated tax payments made, and 

refundable credits together. Enter this total on Line 9 of the Form 

1040EZ, Line 43 of the Form 1040A, or Line 70 of the Form 1040.
Lesson 7 7-9

BASIC

Proof as of

June 18, 2004

(subject to change)

FIGURING THE OVERPAYMENT OR THE TAX DUE

 Overpayments

If there has been more tax payments made than the amount of tax 

liability (line 10, Form 1040EZ, line 38, Form 1040A, or line 62, 

Form 1040), this is considered an overpayment. A taxpayer may 

wish to have a portion of the overpayment applied to next year’s 

taxes. If so, then enter the amount to be applied to the following 

year on line 46 of the Form 1040A or line 73 of the Form 1040. 

Subtract this amount from the total overpayment and enter the 

remainder on line 45a of the Form 1040A or line 72a of the Form 

1040.

Only a total refund can be entered on the Form 1040EZ, line 12a. 

Any overpayment on Form 1040EZ must be refunded; It cannot be 

applied to next year’s taxes.

Example 3

Exhibit 5 shows Form 1040A, lines 28 through 46, for Zxavien. His 

total tax is $3,491. His total payments are $5,000. Zxavien overpaid 

and wants $900 to be applied to his 2005 estimated tax. Note that 

line 45a plus line 46 equals the amount on line 44.

Exhibit 5 Zxavien’s 1040A, page 2

30

28 Tax, including any alternative minimum tax (see page 35). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2003 estimated tax payments and amount

applied from 2002 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Amount of line 44 you want applied to your

2004 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 53. 

47

47

48 Estimated tax penalty (see page 53). 48

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33 33

Retirement savings contributions credit. Attach

Form 8880.

32

32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d



41 Earned income credit (EIC). 41

34 34

Child tax credit (see page 38).

Type:

3,491.00

 0.00

3,491.00

3,491.00

2,600.00

2,400.00

5,000.00

1,509.00

 609 .00

 900 .00

 0 .00
7-10 Lesson 7

BASIC

Refunds

If the taxpayer wants an overpayment refunded, advise that a 

check should be mailed within 6-8 weeks after the return is filed. 

Remind the taxpayer of the availability to have the refund deposited directly into a financial account, such as a bank account.

Direct Deposit

Instead of getting a paper check, taxpayers may choose to have 

their refund deposited directly into their account at a bank or other 

financial institution such as a mutual fund, brokerage firm, or 

credit union.

Note. Taxpayers should check with their financial institution to 

make sure their direct deposit will be accepted and to get the correct routing and account number.

Exhibit 6 shows the general location of the routing and account 

number on a sample check. The routing number must be nine digits 

(the first two digits must begin with 01 through 12 or 21 through 

32, otherwise the direct deposit will be rejected and a check sent 

instead). The account number can be up to 17 characters (both 

numbers and letters). It can include hyphens but not spaces or special symbols. The number should be entered from left to right with 

any unused boxes left blank.

Exhibit 6

LERON BROWN

RENA BROWN

123 Main Street

Anyplace, CA 10000

PAY TO THE

ORDER OF

1234

15-000000000

|:250250025 |:202020❚ 86❚'1234

ANYPLACE BANK

Anyplace, NY 10000

For

DOLLARS

$

20

Routing SAMPLE

number

(line 70b)

Account

number

(line 70d) Do not include

the check number

Tax Due

If there are less tax payments than the amount of tax liability, then 

there is tax due to be paid with the return. When this happens, 

remind the taxpayer to make the check or money order payable 

to the “United States Treasury.” Taxpayers can also pay by credit 

card or by authorizing a direct debit from their checking or savings account on the date they choose (anytime up to April 15, 2005). 

Encourage a 1040 filer to voluntarily send Form 1040-V, Payment 

Voucher, with his or her payment. The instructions for completing 

the voucher appear on the 1040-V. The taxpayer should write his or 

her name, address, social security number, daytime telephone number, and “2004 Form 1040 (or 1040A or 1040EZ, whichever applies)” 

(line 72b) (line 72d)
Lesson 7 7-11

BASIC

on the check or money order. The payment and Form 1040-V should 

be enclosed, but not attached to the tax return. Taxpayers should 

not mail cash with their returns.

To help IRS process the payment, the taxpayer should enter the 

amount on the right side of the check like this: $XXX.XX. Do not 

use dashes or lines (for example, do not enter “$XXX—” or “$XXX 

XX/100”). 

 Electronic Payment Options

If the taxpayer owes an amount on his or her return, he/she can 

make the payment electronically. To pay by credit card, the taxpayer must use one of the service providers listed in the instructions for Forms 1040, 1040A, or 1040EZ. The taxpayer can also 

pay by authorizing a direct debit out of his/her checking or savings 

account by April 15, 2005.

If the taxpayer cannot pay the full amount owed shown on his/her 

return, the taxpayer may ask permission to make monthly installment payments. To ask for an installment agreement, the taxpayer 

should file Form 9465, Installment Agreement Request, with the tax 

return.

Estimated Tax Penalty. If line 12, Form 1040EZ, line 47, Form 

1040A, or line 74, Form 1040, is $1,000 or more and it is more 

than 10 percent of the tax shown on the return, or if the taxpayer 

underpaid his or her 2004 estimated tax liability, the taxpayer can 

owe a penalty for underpayment of estimated tax. If so, report the 

penalty on line 48 for Form 1040A or line 75 of Form 1040. Line 47 

or line 74 should include the amount owed with the return plus the 

penalty reported on line 48 of Form 1040A or line 75 of Form 1040, 

respectively.

Because the Form 2210, Underpayment of Estimated Tax by 

Individuals, Estates, and Trusts, used to compute estimated tax 

penalty is complicated, the IRS encourages taxpayers to let the 

IRS figure the penalty for them. The IRS will figure the penalty 

for underpayment of estimated tax and, if a penalty is owed, the 

taxpayer will be sent a bill. If taxpayers want the IRS to figure the 

penalty for them, the taxpayers should leave the penalty line on 

their return blank and should not complete Form 2210. As long 

as the taxpayer files the return by April 15, 2005, the IRS will not 

charge interest on the penalty if the bill is paid by the date specified on the bill.
7-12 Lesson 7

BASIC

FIGURING ESTIMATED TAX FOR NEXT YEAR

Estimated tax is the amount a taxpayer expects to owe for the 

year after deducting any tax credits or federal income tax withheld. 

In other words, it is the amount the taxpayer anticipates will be 

owed on his or her 2005 federal income tax return.

If a taxpayer is an employee, the taxpayer’s employer generally 

must withhold income, Medicare, and social security taxes on the 

wages paid. Also, most payers of taxable pensions withhold income 

tax and pay it to the government. However, a taxpayer may receive 

many types of taxable income that are not subject to having tax 

withheld.

A taxpayer who receives interest, dividends, alimony, unemployment compensation, rent, gains from the sale of assets, prizes, or 

awards, generally will have no income tax withheld on the payments. As a result, the taxpayer may find that he or she owes estimated tax. Most self-employed taxpayers will also find they are 

required to pay estimated tax.

Who Must Pay Estimated Tax

Estimated tax payments are required if certain conditions are met. 

Generally a taxpayer must make payments of estimated tax if:

1. He or she expects to owe $1,000 or more in tax for 2005 after 

subtracting federal income tax withheld and credits from taxable income,

AND

2. He or she expects the 2005 tax withheld and credits to be less 

than the smaller of:

a) 90 percent of the tax to be shown on his or her 2005 tax 

return, or

b) 100 percent of the tax shown on his or her 2004 tax return. 

The return must cover all 12 months.

Married taxpayers can pay estimated tax either separately or 

jointly. How they pay their estimated tax will not affect their choice 

of filing a joint return or separate returns for the year. Joint estimated tax payments may be divided between the spouses if they 

later choose to file separate returns.

POTENTIAL

PITFALLS

When fi guring 

estimated tax, be 

sure to include 

all taxes, such as 

tax on lump-sum 

distributions and 

self-employment tax.
Lesson 7 7-13

BASIC

Example 4

Jayne is single and retired. She works part time as an usher in 

a movie theater. She estimates her 2005 income will be $16,421, 

which includes $3,500 of interest income from which there will be 

no tax withheld. Jayne calculates that she expects to owe $1,008 

(after taking into account her expected tax withheld and credits). 

Jayne meets condition 1 (mentioned earlier) and may have to pay 

estimated tax. Further checking tells Jayne that her expected 2005 

tax withheld will be less than 100 percent of the tax shown on her 

2004 return and less than 90 percent of the tax she will show on 

her 2005 tax return. Since Jayne also meets condition 2 (mentioned 

earlier), she is required to pay estimated tax.

Limit on the use of prior year’s tax. Married taxpayers with 

joint AGI exceeding $150,000 or $75,000 if married filing separately cannot use 100% of their 2004 tax to figure their 2005 estimated tax payments.

For more information, see Publication 505, Tax Withholding and 

Estimated Tax.

How to Figure Estimated Tax

Estimated tax is paid by using Form 1040-ES, Estimated Tax For 

Individuals. Form 1040-ES also contains a worksheet that can be 

used in figuring a taxpayer’s estimated tax. The taxpayer should 

keep the worksheet for his or her records.

To figure the estimated tax, the taxpayer must first figure his or 

her expected adjusted gross income, taxable income, taxes, and 

credits for 2005. All available facts that will affect those items during the year must be taken into account. Use the 2004 tax return 

as a starting point for estimating 2005 income, deductions, and 

credits. However, be careful to make adjustments both for anticipated changes in the taxpayer’s situation and for recent changes in 

the tax law.

Form 1040-ES contains both the 2005 Tax Rate Schedules and the 

2005 standard deduction and exemption amounts. Be sure to use 

the 2005 figures when figuring the estimated tax.
7-14 Lesson 7

BASIC

When to Pay Estimated Tax

For estimated tax purposes, the year is divided into four payment 

periods. Each period has a specific due date.

Date taxpayer

receives income

Due date of fi rst

installment

No. of

payments

January 1– March 31 April 15, 2005 4

April – May 31 June 16, 2005 3

June 1 – August 31 September 15, 2005 2

September 1 – 

December 31

January 16, 2006 1

Most of the taxpayers that you assist will pay their estimated tax 

in four equal installments. However, a taxpayer does not have to 

make estimated tax payments until he or she has income on which 

tax is owed. If a taxpayer receives income after one or more of the 

payment periods have passed, he or she will begin making payments during the period when the income is received.

The minimum payment due during the period when the income is 

received is one-fourth of the total estimated tax for the year, generally, plus an additional fourth of the yearly total for each period 

which has already passed. The balance of the estimated tax will be 

paid during the remaining periods (one-fourth of the yearly total 

for each remaining period).

The taxpayer also has the option of paying all the estimated tax 

at once. Instead of paying by installments, he or she may choose to 

pay the entire amount by the due date of the period during which 

the income is received.

Some taxpayers choose to pay all of their estimated tax with the 

first payment, April 15, 2005. It alleviates the need for them to 

remember to make the remaining payments.

Also, a taxpayer can apply all or part of an overpayment from his or 

her 2004 Form 1040 or Form 1040A to the estimated tax for 2005. 

The overpayment amount to be credited is entered on Form 1040, 

line 73, or Form 1040A, line 46. All of the credit can be applied to 

the first payment or it can be spread out among any or all of the 

payments.

If any due date falls on a Saturday, Sunday, or legal holiday, the 

payment is due on the next business day.

If a taxpayer files his or her 2005 Form 1040 or Form 1040A by 

January 31, 2006, and pays the entire amount of tax owed at that 

time, he or she is not required to make the estimated tax payment 

that would be due on January 16, 2006.

POTENTIAL

PITFALLS

Advise the 

taxpayer to use 

the pre-addressed 

envelopes that 

came with his or 

her Form 1040-ES 

package, or mail 

payment vouchers 

to the address 

shown in the Form-ES 

instructions for 

the place where 

he or she lives. Do

not use the address 

shown in the Form 

1040 or Form 1040A 

instructions.
Lesson 7 7-15

BASIC

How Much Estimated Tax to Pay

The computed estimated tax is based on expected income and 

deductions and should take into account all facts known at the time 

the estimate is made. If the taxpayer is unsure about the accuracy 

of the estimate, he or she may want to pay more than the required 

minimum 90 percent of the 2005 estimated tax. Taxpayers who do 

not pay enough tax by the due date of each payment period may 

be charged a penalty, even if the filed 2005 return shows a refund. 

Generally, the simplest and safest procedure is to make sure that 

the total of tax withheld plus the amount of estimated tax for each 

payment period during 2005 is at least one-fourth of the tax shown 

on the 2004 return. For more information, see Publication 505.

How to Pay Estimated Tax

Estimated tax payments can be sent electronically to the IRS 

by direct debit payment from the taxpayer’s checking or savings account, by credit card, or can be sent along with a payment 

voucher from Form 1040-ES. Each voucher is inscribed with its due 

date. Be sure to use the correct voucher for each payment. For more 

information on electronic filing and payments, see Form 1040-ES 

instructions.

If the taxpayer paid estimated tax in 2004, he or she should have 

received a Form 1040-ES package containing preprinted vouchers. 

These vouchers show the taxpayer’s preprinted name, address, and 

social security number. To use them, simply enter the amount of 

the payment on the appropriate line. If a taxpayer does not have 

the preprinted forms, use a set of blank vouchers from Form 1040-

ES and enter the information on the appropriate lines. Advise the 

taxpayer to write his or her social security number and “2004 Form 

1040-ES” on the check or money order (payable to the “United 

States Treasury”) when paying estimated tax.

FORMS W-4 AND W-4P

An employer withholds tax based on wages paid and information the employee provides on Form W-4, Employee’s Withholding 

Allowance Certificate. The employee uses his or her expected 

income, deductions, adjustments to income, and credits to figure 

the total withholding allowances to claim on Form W-4. In addition, 

an employee can claim extra allowances in certain situations.

A taxpayer who receives distributions from a pension, an annuity, an IRA, a stock bonus plan, or certain deferred compensation

plans should use Form W-4P, Withholding Certificate for Pension 

or Annuity Payments, to notify the payer whether, and how much, 

income tax should be withheld.
7-16 Lesson 7

BASIC

Income, deductions, and credits should be estimated carefully. 

Taxpayers who do not have enough federal income tax withheld 

can be subject to interest and penalties. Taxpayers who have a very 

large refund or who owe should consider adjusting their withholding.

Some taxpayers want their withholding to be high enough to 

ensure that they receive a tax refund. They do not want to pay 

an additional amount when filing their tax return. If a taxpayer 

wishes, it is legal to claim fewer allowances than he or she is 

allowed. More tax than required will be withheld each pay period 

and, at the end of the year, the taxpayer should be eligible for a 

refund of overpaid taxes.

Forms W-4 and W-4P also contain:

■ Instructions

■ Personal Allowances Worksheet

■ Deductions and Adjustments Worksheet

■ Two-Earner/Two-Job, Multiple Pension/More Than One Income

Worksheets

■ Tables

The worksheets incorporate the number of allowances, adjustments, deductions, and credits that the employee expects on his or 

her 2005 income tax return. Some or all of these additional worksheets will then be used by the employee in completing the allowance certificate.

If an employee has a working spouse or income from two jobs, only 

one set of Form W-4 Worksheets should be completed. Complete 

the Form W-4 Worksheets using the combined expected income 

(from all sources and for both spouses if filing a joint return), 

adjustments, deductions, and exemptions. The number of total 

allowances from this Form W-4 can then be divided among all jobs. 

Withholding will usually be the most accurate when an employee 

claims zero allowances on all jobs except for the highest paying one. 

Reminder: A separate Form W-4 is needed for each job.

Certain events can occur during the year that can change an 

employee’s marital status, exemptions, allowances, deductions or 

credits. When this happens, the employee may have to change his 

or her withholding allowances by submitting a new Form W-4 to 

the employer. The original Form W-4 remains in effect until the 

employee changes it.

For more information on withholding, refer to Publication 919, How

Do I Adjust My Tax Withholding?

W-5, Advance Earned Income Credit (AEIC)

At this time, you as the preparer have the opportunity and the 

means to assist the taxpayer with the Form W-5, Earned Income

Credit Advance Payment Certificate. The amount of the AEIC 
Lesson 7 7-17

BASIC

payments are based on wages by payroll cycle. Only persons with 

at least one qualifying child can get AEIC payments. If the taxpayer qualifies for the Earned Income Credit for 2004 refer them to 

Publication 596, Earned Income Credit or Form W-5 for additional 

information.

Completing and Assembling the Return

After all the decisions have been made regarding payments, overpayments, and estimated taxes, you should complete the taxpayer 

identification section, assemble the return, and submit it for quality review. When the review is completed, have the taxpayer sign 

the return and provide instructions on where and when to send it 

to the IRS. These steps are provided below.

Taxpayer Identification Section

This section is completed after the rest of the return. Often, this 

saves time because after you begin preparing Form 1040A, you may 

discover that Form 1040EZ or Form 1040 is more appropriate. If 

this happens, you will not have to complete the taxpayer identification section twice.

Taxpayers who filed returns last year probably received a forms 

package by mail this year. The package includes a preaddressed 

label which shows the name and address of the taxpayer(s).

Peel the label off and place it in the address area of the return. 

Mark through any errors on the label, and print the correct information on the label. Be sure to enter the social security number(s) 

Individual Taxpayer Identification Number (ITIN) to the right of 

the label area.

If a taxpayer did not receive a forms package or does not have 

a pre-addressed label, PRINT the required information. Enter 

the taxpayer’s name and social security number (or ITIN) on the 

first line. If married taxpayers are filing a joint return, enter one 

spouse’s complete name and social security number (or ITIN) on 

the first line and the other spouse’s complete name and social security number (or ITIN) on the second line. Be sure that each taxpayer’s name and social security number (or ITIN) appear on one line, 

separate from the spouse’s information. If you enter the husband’s 

name and the wife’s social security number (or ITIN) on the same 

line, there can be a considerable delay in processing the return.

Enter the address where any refund or notices should be sent. If 

the post office delivers mail to a post office box rather than to a 

street address, enter the P.O. box number on the line for the home 

address.

The Presidential Election Campaign Fund appears in the name 

and address area of Forms 1040EZ, 1040A, or 1040. Check Yes

if the taxpayer wishes to have $3 go to the Presidential Election 

ALERT

Before you complete 

any tax return 

you must request 

proof of identity. 

Follow guidelines in 

Lesson 1.
7-18 Lesson 7

BASIC

Campaign Fund. Otherwise, check No. Checking Yes will not 

change the tax or reduce the refund. On a joint return, each taxpayer chooses whether or not $3 should go to the fund.

Assembling the Return

Make sure that all forms, schedules, and attachments show the 

taxpayer’s name and social security number. List the names in the 

same order that they appear on the front of the return and use the 

first social security (or ITIN) number that appears on the front of 

the return.

Attach forms and schedules behind Form 1040 according to the 

attachment sequence number shown in the upper right corner of 

the form or schedule. Items without an attachment sequence number should be placed at the end. For Form 1040A, attach any forms 

or schedules in order by number with Schedule EIC last.

Attach Form(s) W-2 to the left margin of the return. If any Form 

1099 shows federal income tax withheld, include that amount in 

the payments section of the return.

When any Form 1099 shows federal income tax withheld, attach a 

copy to the return, along with any Form(s) W-2.

IDENTIFYING RETURNS

■ If taxpayers ask about the site identification number designation at the bottom of the return in the paid preparer’s section, 

explain that this is entered for statistical purposes. Inform the 

taxpayers that the site identification number does not affect the 

likelihood of an IRS examination (audit) of the return.

■ If you prepare over 50 percent of the tax return and you are 

reasonably sure that the return will be filed as you prepared it, 

enter the site identification number at the bottom of the return 

in the Paid Preparer Section in the PTIN/SSN field.

■ Most sites will have forms preprinted with the site identification number format entered in the Paid Preparer Section of the 

return. You must enter the number that has been assigned by 

the Territory Office for that site.

■ If you do not have forms with the pre-printed site identification 

number format, print the appropriate site identification number 

for that site in the Paid Preparer Section of the return.

■ The e-file administrator will set up computers to default the 

SIDN in the Paid Preparer section of the return (e-file administrators should refer to Publication 3189, e-file Administrator 

Guide for detailed instructions.)

POTENTIAL

PITFALLS

Using the preaddressed label 

reduces processing 

time. However, 

to protect the 

taxpayer’s privacy, 

the peel-off label 

that he or she 

received in the mail 

with the tax return 

booklet does not 

have his or her SSN 

(or that of his or her 

spouse if fi ling a 

joint return) printed 

on it. Therefore, be

sure the taxpayer’s 

SSN (and spouse’s, 

if applicable) is 

entered in the space 

provided on the tax 

form (1040, 1040A, or 

1040EZ).

Further, if the 

taxpayer fi led a joint 

return for 2003 and 

is fi ling a joint return 

for 2004 with the 

same spouse, be

sure the taxpayer’s 

and spouse’s names 

and SSNs are 

entered in the same 

order as on the 2003 

tax return. 
Lesson 7 7-19

BASIC

SITE IDENTIFICATION NUMBER

 The Internal Revenue Service (IRS) will capture statistical information using the Individual Master File Report (IMF Report) and 

the Electronic Tax Administration (ETA) report. Based on this 

change, it is very important that all returns prepared by a volunteer tax preparation site be identifi ed as VITA or TCE prepared.

The following procedures must be used when returns are prepared 

in a VITA or TCE site.

■ The site identification number should be entered in the Paid 

Preparer Section of the return. (See Exhibit 7).

■ The following procedures must be followed when returns are 

prepared in a VITA or TCE site.

1. Paper Returns

■ All sites will enter the letter S followed by an 8 digit site identification number that is provided by the territory office. Sites 

should use the overprint form with the bold S format indicated 

in the Paid Preparer Section. Each of the numbers represent 

a certain area determined by the territory office. For instance, 

the fourth digit of the number will be 1 for VITA, 2 for Military 

VITA, 3 for Co-located site, 4 for TCE and 5 for AARP.

■ If you use a return without the bold S format for the number 

enter the assigned number in the space provided in the Paid 

Preparer section of the return. Forms 1040EZ, 1040A, and 1040 

with the bold “S” format are available from IRS and will be 

ordered by each site coordinator.

2. Electronically Filed Returns

■ E-file administrators will set up computers to default to the 

proper location on the return where the number will already be 

entered. Ensure the default number has been entered for the 

site you are working.

Exhibit 7 illustrates a site identification number in the Paid 

Preparers section of three tax forms, 1040EZ, 1040A, and 1040.
7-20 Lesson 7

BASIC

Exhibit 7 Site Identification Number Form 1040EZ

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 24. Cat. No. 11329W Form 1040EZ (2004)

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.



 ( )

S10-05-1234 Site Identifi cation

Number ➤

Form 1040A (2004)

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.



 ( )

Printed on recycled paper

S10-05-1234 Site Identifi cation

Number ➤

 Form 1040A

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.



 ( )

Form 1040 (2004)

S10-05-1234 Site Identifi cation

Number ➤

 Form 1040

Site Identifi cation 

Number

Site Identifi cation 

Number

Site Identifi cation 

Number
Lesson 7 7-21

BASIC

QUALITY SERVICE

The goal of the TCE and VITA Programs is to provide high 

quality service.

On-Site Quality Review Program

Every site must have a quality review program. Properly reviewed 

returns will help prevent taxpayers from receiving an error notice 

from the IRS. At larger sites, an experienced volunteer should be 

designated as the quality reviewer. At small sites, volunteers may 

review each other’s work. During the actual tax return, preparation 

process and while conducting the quality review of the tax return, 

volunteers should ask probing questions to get complete and accurate information that reflects the taxpayers’ circumstances. A 

Quality Review Checklist, like the one shown may be used for this 

purpose. Volunteers must review the tax return with the taxpayer 

before he/she leaves the site and make applicable changes or additions to the return. Volunteer Site Coordinators should become 

familiar with the quality review process as shown in Publication 

1084, Volunteer. On-site quality review is a mandatory part of the 

VITA/TCE programs.
7-22 Lesson 7

BASIC

 Quality Review Checklist

Entity

■ Are the name, address, and social security number correct 

for each taxpayer on the return?

■ Is the social security number(s) or ITIN(s) entered to the right 

of the label area?

■ Was the taxpayer and each dependent’s identity validated?

■ Is/Are the Presidential Election Campaign Fund box(es) 

checked?

■ Is the filing status correct? Is the box checked?

■ Are the exemptions and dependents checked, listed, and added 

correctly?

■ Are dependents’ social security numbers or ITINs entered?

 Income

■ Are income items correctly transferred from Form W-2, Form 

1099-INT, Form 1099-DIV, Form 1099-G, Form 1099-R, and 

Form SSA-1099 (or RRB-1099), for example?

■ Is tax-exempt interest income reported? Is “TEI” written to the 

left of line 2 on Form 1040EZ?

■ Is the taxable portion of social security benefits, IRA distributions, pensions, and/or annuity income correctly figured?

■ Are there IRA withdrawals to report?

■ Is there any other income to report (lottery, fees, etc.)?

■ If the taxpayer paid alimony, is the recipient’s social security 

number entered?

Tax and Credits

■ Are all appropriate boxes on line 38a, Form 1040 or line 23a, 

Form 1040A or line 5, Form 1040EZ checked?

■ Is the standard deduction correct? Complete worksheet if taxpayer is someone else’s dependent.

■ Is the tax correct?

■ Is the taxpayer eligible to claim the credit for child and dependent care expenses, child tax credit, education credits, adoption 

credit, or credit for the elderly or the disabled?

Payments

■ Does the tax withheld agree with the total of amounts shown

on all Forms W-2, 1099-INT, 1099-DIV, and 1099-R?

■ Are the estimated tax payments correct?

■ Is the taxpayer eligible to claim the earned income credit?

■ Is the overpayment or the amount owed correct? Does the 

taxpayer want any part of the refund applied to next year’s 

estimated tax? Does the taxpayer want the refund or any part 

directly deposited?
Lesson 7 7-23

BASIC

 Quality Review Checklist

(continued)

Other

■ Did you use a calculator to check your math?

■ Are all Forms W-2 and 1099 (showing tax withheld), as well as 

schedules and forms, attached to the return?

■ Is the appropriate site identification number entered?

■ Did the taxpayer(s) sign, date, and fill in his/her occupation on 

the return?

■ Is the taxpayer eligible to claim the Advanced Earned Income 

Credit?

■ Is the Site Identification Number shown on the tax return?
7-24 Lesson 7

BASIC

Signature Section

Make sure the taxpayer signs and dates the return before mailing. 

An unsigned return cannot be processed and may be sent back to 

the taxpayer. On a joint return, both spouses must sign, even if only 

one spouse had income. Also, make sure the occupation(s) of the 

taxpayer (or of both spouses, if married filing jointly) is/are entered.

If a taxpayer died before filing a return for 2004, the taxpayer’s 

spouse or personal representative may have to file and sign a 

return for that taxpayer. A personal representative can be an 

executor, administrator, or anyone who is in charge of the deceased

taxpayer’s property. If the deceased taxpayer did not have to file a 

return but had tax withheld, a return must be filed to get a refund. 

The person who files the return should enter “DECEASED,” the 

deceased taxpayer’s name, and the date of death across the top of 

the return.

If the taxpayer’s spouse died in 2004 and the taxpayer did not 

remarry in 2004, the taxpayer can file a joint return. (The taxpayer 

can also file a joint return if his or her spouse dies in 2005 before 

filing a 2004 return.) A joint return should show the taxpayer’s 

spouse’s 2004 income before death and the taxpayer’s income for all 

of 2004. The taxpayer should enter “Filing as surviving spouse” in 

the area where the taxpayer signs the return. If someone else is the 

personal representative, he or she must also sign.

The surviving spouse or personal representative should promptly 

notify all payers of income, including financial institutions, of the 

taxpayer’s death. This will ensure the proper reporting of income 

earned by the taxpayer’s estate or heirs. A deceased taxpayer’s 

social security number should not be used for tax years after the 

year of death, except for estate tax return purposes.

ALERT

Publication 4012, 

Volunteer Resource 

Guide, contains 

a section entitled 

Return Signature 

to assist you with 

completing the tax 

return.
Lesson 7 7-25

BASIC

Third-Party Designee

If the taxpayer wants to allow a friend, family member, or any 

other person he or she chooses to discuss his or her 2004 tax return 

with the IRS, the taxpayer should check the “Yes” box in the “Third 

party designee” area of the return. Also, the taxpayer should enter 

the designee’s name, phone number, and any five numbers the designee chooses as his or her personal identification number (PIN).

If the taxpayer checks the “Yes” box, he or she, and his or her 

spouse if filing a joint return, is authorizing the IRS to call the designee to answer any questions that may arise during the processing 

of the return. The taxpayer is also authorizing the designee to:

■ Give the IRS any information that is missing from the return,

■ Call the IRS for information about the processing of the return 

or the status of the taxpayer’s refund or payment(s), and

■ Respond to certain IRS notices that the taxpayer has shared 

with the designee about math errors, offsets, and return preparation. The notices will not be sent to the designee.

The taxpayer is not authorizing the designee to receive any refund 

check, bind the taxpayer to anything (including any additional tax liability), or otherwise represent the taxpayer before the IRS. If the taxpayer wants to expand the designee’s authorization, he or she should 

see Publication 947, Practice Before the IRS and Power of Attorney.

The authorization cannot be revoked. However, the authorization 

will automatically end no later than the due date (without regard 

to extensions) for filing the taxpayer’s 2005 tax return. This is April 

15, 2006, for most people.

As a volunteer preparer you may not be designated as a 

“Third Party Designee.”

Ending the Interview

Make sure the taxpayer keeps a copy of all Forms W-2 and 1099 

with a copy of the tax return. Advise the taxpayer to keep these 

copies for at least three years. As the volunteer assistor, you should 

not keep a copy of the return. Listed below is a more detailed list of 

information to discuss with the taxpayer(s) prior to him/her leaving 

the site.

If an envelope has been provided for the taxpayer’s records place 

the copies into it. Advise the taxpayer to bring the tax return 

and records back next year.

Information to provide Customer prior to their departure from sites.

As a volunteer it is your job to insure that the customers leave the 

site with all the information they need. You should answer any 

questions that the customer has and advise them that a copy of 

their return is not kept at the site. 
7-26 Lesson 7

BASIC

Here are some suggested items to give your customers:

1) Copy of return with attachments and reminder to bring to site 

next year

2) Pub 730 Important Tax Records envelope with the Quality 

Review Checklist completed

3) All documents given to volunteer to prepare return including 

Social Security cards and Photo identification

4) If e-filed:

■ Signed Forms 8453 for federal and state unless Self-Select 

PIN was used 

■ Info on direct deposit vs. paper check 

■ Explanation of the e-file process

■ Explanation that nothing needs mailing 

5) If paper: 

■ Signed return (with attached W-2’s and 1099’s if any withholding) for mailing for federal and state or knowledge of 

where to sign 

■ Envelope or address to mail return

6) Contact information if problems with return

7) If refund: 

■ Expected receipt date per Refund Cycle Chart 

■ Contacts if refund not received: www.irs.gov; 1-800-829-1954; 

1-800-829-4477

■ W-4 information if refund too high and not related to EITC 

8) If balance due: 

■ Form 1040V Payment Voucher if e-filed 

■ Address to send voucher 

■ Information to show on check: payable to U.S. Treasury; SSN, 

daytime phone number, tax year and form number (1040, 

1040EZ, 1040A) 

■ Payment options: Refer to Pub 4012 or Pub 17

■ W-4 information if balance due to withholding

■ Information on estimated payments if balance not due to 

withholding

9) Information as to how long to retain records and what to retain
Lesson 7 7-27

BASIC

VOLUNTEER ASSISTANCE SUMMARY REPORT

Reporting to IRS

Site coordinators are required to report the number of volunteers 

working at Volunteer Tax sites using the same information shown 

on Form 13206, Volunteer Summary Report. A draft copy of the 

form is shown below. This report lists the name, role and date certified of the volunteer. The data is used to identify, recognize, and 

provide information to the site sponsor. All volunteer and taxpayer 

data is covered under Privacy Act provisions. For further information on reporting, please contact your IRS SPEC office.
7-28 Lesson 7

BASIC

Date:

Site Identification Number:

Note: For filing season 2005 the SIDN (Site Identification Number) will change from 

beginning with a "P" to beginning with an "S". The remaining digits of current SIDNs will 

not change. Beginning 2004, sites were issued new SIDNs. If your site does not have a 

number contact the IRS, SPEC Territory Office.

Site Name:

Site Address:

Special Services Offered:

(i.e. hearing impaired interpreter;

Language Assistance - German)

Site Coordinator/Manager’s Name:

Site Coordinator/Manager’s Mailing and Email Address:

Site Coordinator/Manager’s Phone Number:

Reminders:

1. Total Number of Volunteers Previously Counted

2. Total Number of New Volunteers (**Enter the total number of volunteers that worked for the first time at a VITA/TCE site)

3. Total Number of New Volunteers Reported This Filing Season (Add 1 & 2)

4. For “Date Certified” an entry should be made for all volunteers who 

prepare tax returns. This includes tax professionals and other volunteers

who were previously exempt from taking a test.

VOLUNTEER LIST

The name and complete mailing address of each volunteer should only be entered on this form the first time they report to your site.

Future completion of this form is only necessary if new volunteers have reported to your site.

SPEC Use Only

Direct Site

Leveraged Site

Partner’s Name

E-file Site Paper Site

Department of the Treasury — Internal Revenue Service

Volunteer Assistance Summary Report

Please mail, fax, or e-mail this form, the preferred reporting method for volunteer assistance or a document containing

all information requested on this form to your IRS reporting office by the 3rd business day after the end of the month.

See IRS contact for mail or e-mail address.

S --

Volunteer Name and Volunteer Role Date

Certified

Check if volunteer

worked at more

than one site*

Yes No

If Yes, Indicate Site Name(s)

If Yes,

Indicate Program

VITA TCE

Catalog Number 33190J Form 13206 Page 1 (Rev. 9-2004)

Street Address

City State Zip Code

E-Mail Address

Volunteer Name

Volunteer Role

Volunteer Name

Volunteer Role

Volunteer Name

Volunteer Role

Form 13206

(Rev. 9-2004)

( )
Lesson 7 7-29

BASIC

Exercise 1

A. Helen paid $500 in estimated tax to the United States 

Treasury. Where is this reported on Form 1040A? 

B. Shirley paid $200, the amount owed on last year’s income tax 

return. Is this $200 in 2004 an estimated tax payment for this 

year’s income tax return? 

C. Elmer wants his refund deposited in his checking account. 

What information should you enter on line 45b of Form1040A?

D. Jennifer had tax withheld from her wages on Form W-2. She 

also had some withholding on her Form 1099-R. Can these 

items be combined and listed on one line on her tax return? 

Exercise 2

Look at the completed Form 1040EZ shown in Exhibit 8 and identify 

at least 3 areas that have not been properly completed.
7-30 Lesson 7

BASIC

Exhibit 8

Proof as of

June 18, 2004

(subject to change)

Do you, or your spouse if a joint return, want $3 to go to this fund? 

Taxable interest. If the total is over $1,500, you cannot use Form 1040EZ.

Department of the Treasury—Internal Revenue Service

Form Income Tax Return for Single and 1040EZ Joint Filers With No Dependents 2004 OMB No. 1545-0675

Note. Checking “Yes” will not change your tax or reduce your refund.

Presidential

Election

Campaign

(page 12)

Wages, salaries, and tips. This should be shown in box 1 of your Form(s) W-2.

Attach your Form(s) W-2.

1

1

Attach

Form(s) W-2

here.

Enclose, but

do not attach,

any payment.

2 2

Add lines 1, 2, and 3. This is your adjusted gross income.

5 Can your parents (or someone else) claim you on their return? Note. You

must check

Yes or No.

Yes. No.

5

Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0-.

This is your taxable income. 

6

6

Payments

and tax

Earned income credit (EIC).

7 7

Tax. Use the amount on line 6 above to find your tax in the tax table on pages

24–28 of the booklet. Then, enter the tax from the table on this line.

10

10

Refund

11a 11a

If line 10 is larger than line 9, subtract line 9 from line 10. This is

the amount you owe. For details on how to pay, see page 20. 

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 23.

Income

Cat. No. 11329W



4 4

12

12

Add lines 7 and 8. These are your total payments. 

8 8

9 9

Federal income tax withheld from box 2 of your Form(s) W-2.

Unemployment compensation and Alaska Permanent Fund dividends

(see page 14).

3

3

Amount

you owe

b Routing number

Account number

c Type: Checking

Enter amount from

worksheet on back.

If single, enter $7,950.

If married filing jointly, enter $15,900.

See back for explanation.

Have it directly

deposited! See

page 19 and fill

in 11b, 11c,

and 11d.

 d



Form 1040EZ (2004)

(99)

Yes No Yes No

You Spouse

Savings

Under penalties of perjury, I declare that I have examined this return, and to the best of my knowledge and belief, it is true, correct, and

accurately lists all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based

on all information of which the preparer has any knowledge.

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 11.

Daytime phone number

( )

Spouse’s occupation

( )

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 20)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

Your first name and initial Last name Your social security number

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Home address (number and street). If you have a P.O. box, see page 12. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 12.

Important! 



Label

(See page 12.)

Use the IRS

label.

Otherwise,

please print

or type.



If line 9 is larger than line 10, subtract line 10 from line 9. This is your refund. 

Jorge Mendez XXX XX XXXX

Lucinda Mendez XXX XX XXXX

1040 Main Street

Anywhere USA 99999

14,900 00

2 00

14,900 00

1,700 00

1,700 00

1,490 00

2 00

Jorge Mendez

Lucinda Mendez

1/23/05
Lesson 7 7-31

BASIC

  SUMMING UP THIS LESSON  

The information for the payment section of the return comes 

from these sources: 

 Federal income tax withheld by the employer, and 

 Forms 1099, and

 Estimated tax payments paid by the taxpayer (not reported 

on Form 1040EZ), and 

 Refundable credits.

If the amount owed is $1,000 or more, the taxpayer may have 

to pay an estimated tax penalty. If there is an overpayment, the 

taxpayer can take one of the following courses of action:

 Receive a complete refund,

 Apply the overpayment to the next year’s estimated tax, or

 Receive a partial refund and apply the remainder of the overpayment to the next year’s estimated tax.

Estimated tax payments must be made if a taxpayer:

 Expects to owe $1,000 or more in tax for 2005 after subtracting income tax withheld and credits,

AND

 Expects his or her 2005 tax withheld and credits to be less 

than the smaller of: 90 percent of the tax to be shown on his 

or her 2005 tax return or, generally, 100 percent of the tax 

shown on his or her 2004 tax return.

Withholding allowances for employees are reported on Form 

W-4. Allowances for pension or annuity recipients are reported 

on Form W-4P. They are figured by taking into account:

 Expected income

 Deductions

 Credits

 Adjustments to income
7-32 Lesson 7

BASIC

  SUMMING UP THIS LESSON  

(continued)

To finish the return:

 Consider the taxpayer’s possible eligibility for Advance 

Earned Income Credit.

 Complete the taxpayer’s identification section after you have 

finished the rest of the return.

 Enter the site identification number in the paid preparer’s 

section.

 Assemble the return correctly, attaching any Forms W-2 and 

Forms 1099 showing federal income tax withholding.

 Check each return for completeness and accuracy.

 Submit each return for on-site quality review.

 Have the taxpayer(s) sign and date the return.
Lesson 7 7-33

BASIC

 FINISHING THE RETURN— FINAL STEPS ANSWERS TO EXERCISES

Answers to Exercise 1

(A) Line 40

(B) No

(C) The routing number for his bank account.

(D) Yes

Answers to Exercise 2

■ Wife’s SSN is missing

■ Presidential Election Campaign is not marked

■ Husband’s signature is missing

■ The Site Identification Number is missing in the preparer’s 

SSN/PTIN section of the form.

■ Line 4 is blank

■ Line 5 is blank

■ Line 6 is incorrect

■ Line 11a is incorrect

■ Occupations are missing

■ Spouse’s signature is missing

Lesson 7
7-34 Lesson 7

BASIC

STUDENT NOTES
Notes to

Instructors N-8-1

LESSON OVERVIEW AND OBJECTIVES

This lesson covers a very common non-refundable credit — the 

credit for child and dependent care expenses. 

After completing this lesson students should be able to:

■ Determine who is eligible for the credit for child and dependent 

care expenses.

■ Calculate the credit, the exclusion, and report the expenses on 

the correct form.

See Appendix B for suggested class schedules and approximate 

teaching times.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publications and forms, you can download the files 

from www.irs.gov.

■ Form 2441, Child and Dependent Care Expenses

■ Schedule 2, Child and Dependent Care Expenses for Form 1040A 

Filers

■ Publication 503, Child and Dependent Care Expenses

■ Publication 4012, Volunteer Resource Guide, is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. Direct the student to the tab 

entitled Child and Dependent Care Credit for this lesson and 

make sure the student is aware of the content of the tab and 

how it should be used when assisting taxpayers. For additional 

technical information about this topic see the applicable chapter 

of Publication 17, Your Federal Tax (For Individual).

GUIDED QUESTIONS

1. How is the amount of work-related expenses eligible for 

child and dependent care expenses determined? (It is the 

lowest of: the lower-paid spouse’s earnings, the single taxpayer’s 

earnings, the actual expenses paid, or the overall limit of $3,000 

a year for one qualifying person or $6,000 a year for two or more 

qualifying persons.) 

2. How does dependent care assistance from employers 

affect the taxpayer’s limited eligible expenses? (The 

overall limit and qualified expenses incurred are reduced, dollar 

for dollar, by any reimbursement (benefits) excluded from the 

taxpayer’s income.) This also may include the fair market value 

of the employer provided benefit.

CREDIT FOR CHILD AND DEPENDENT

CARE EXPENSES NOTES TO INSTRUCTORS Lesson 8
Notes to N-8-2 Instructors

3. Under what circumstances can married taxpayers claim 

the child and dependent care credit, even though one 

spouse is not working? (If a nonworking spouse is either 

a full-time student during any five months of the year, or is 

incapable of self-care for some period during the year.)

4. What form is used in conjunction with Form 1040 or 

1040A to claim the credit for child and dependent care 

expenses? (Form 2441 or Schedule 2) 

5. Is a spouse who is physically or mentally incapable of 

self-care considered to be a qualifying person for the 

credit for child and dependent care expenses? (Yes)

6. Is the dollar amount of the child and dependent care 

credit equal to the qualifying expenses? (No; the credit is a 

percentage of qualifying expenses.)

7. For which taxpayers do you complete Part III of 

Schedule 2 or Form 2441? (Taxpayers who received benefits 

under a dependent care benefits program.)

TEACHING TIPS

1. Remind students to use the flow chart in Publication 4012, 

Volunteer Resource Guide, when determining if a taxpayer 

qualifies for the credit.

2. On a flip-chart or chalkboard, draw the following graphic organizer that shows the order in which to complete Parts I through 

III of Schedule 2 or Form 2441. The order is determined by 

whether the taxpayer received benefits under a dependent care 

assistance program. 

Completing Parts I-III

Dependent Care Benefits

1. Part I

2. Part III

3. Part II

NO Dependent Care Benefits

1. Part I

2. Part II

3. Caution students to include in Part III all dependent care benefits that were reported in box 10 of Form W-2. However, students should NOT include amounts that were reported as wages 

in box 1 of Form W-2.

4. Advise the students to check and recheck that the name and 

SSN entered agree with the person’s social security card. If, 

at the time the return is processed the return and SSN do not 

agree, the credit may be reduced or disallowed. If the qualifying 

child was born and died in 2004, and did not have an SSN, enter 

“Died” in column (b) and attach a copy of the person’s birth 

certificate. If the name or SSN on the person’s social security 

card is not correct, the taxpayer will need to contact the Social 

Security Administration at 

1-800-772-1213.
Notes to

Instructors N-8-3

5. Students may question why Exhibit 1 shows $2,000 and not 

$3,000 as the amount of qualified expenses entered on line 3 

of Form 2441, Part II. Point out that Example 7 states that the 

Fullertons received $1,000 under a dependent care benefits program. Remind students that for taxpayers like the Fullertons, 

Part III of Form 2441 must be filled out before Part II. 

6. Review with students Part III of the Fullertons’ Form 2441 (see 

Exhibit 2). Call attention to the amount of excluded benefits 

entered on line 23 ($1,000). Make certain that students understand that this amount is not entered on line 3 of Part II.

LESSON REVIEW

1. Remind students to always use Publication 4012, Volunteer 

Resource Guide, when determinng eligibility for the credit.

2. A taxpayer must satisfy all six tests to qualify for the credit.

3. The taxpayer must have the name, address, and TIN of the care 

provider or show due diligence in obtaining the information.

4. Form 2441 and Schedule 2 include new lines due to the expiration of certain rules in the tax code or new rulings. Alert returning students to read the lines carefully before completing the 

form.

a. For tax years beginning in 2004, the credit is limited to the 

regular tax minus the tentative minimum tax (determined 

without regard to the alternative minimum tax or foreign 

tax credit). Lines 10 through 13 were added and all subsequent lines renumbered to reflect this change.

b. Part III has been revised to reflect the fact that selfemployed taxpayers and partnerships may have dependent 

care assistance programs, the payments from which are not 

reported on a Form W-2.
Notes to N-8-4 Instructors

STUDENT NOTES
Lesson 8 8-1

WAGE EARNER

CREDIT FOR CHILD AND

DEPENDENT CARE EXPENSES Lesson 8

INTRODUCTION AND OBJECTIVES

In this lesson you will learn about the credit for child 

and dependent care expenses. This nonrefundable 

credit is one of the most commonly used credits. The 

requirements for claiming the credit are the same 

regardless of the form used. In fact, Form 2441 (used 

with Form 1040) and Schedule 2 (used with Form 

1040A) are virtually identical. In order to qualify for 

this credit, the taxpayer must satisfy all six tests of 

eligibility.

Some taxpayers receive employer provided dependent 

care benefi ts. Dependent care benefi ts include 

amounts the employer paid directly to the taxpayer 

or to the care provider. These benefi ts can also 

include the fair market value of care in a day care 

facility provided or sponsored by the employer. The 

taxpayer’s salary may have been reduced to pay for 

these benefi ts. The employer provided benefi ts will be 

reported on Form W-2, Box 10.

After completing this lesson you should be able to: 

■ Determine who is eligible for the credit for child 

and dependent care expenses. 

■ Calculate the credit, the exclusion and report the 

expenses on the correct form. 

QUALIFYING PERSON TEST

The child and dependent care expenses must be for at 

least one qualifying person.

A qualifying person is:

■ A child who was under the age of 13 when the care 

was provided and for whom a dependency exemption 

can be claimed. Special rules apply, however, if the 

parents are divorced or separated (see next page).

■ A dependent who was physically or mentally not 

able to care for himself or herself and for whom a 

dependency exemption can be claimed (or could be 

claimed except the person had $3,100 or more of 

gross income).

■ A spouse who was physically or mentally not able to 

care for himself or herself.

ALERT

Publication 4012, 

Volunteer Resource 

Guide, contains a 

fl ow chart to assist 

you in determining 

whether a taxpayer 

can claim the credit. 

It also contains 

the defi nition of 

qualifying person 

and qualifi ed 

expenses.

POTENTIAL

PITFALLS

Normally, a qualifying 

person’s age is 

defi ned as the age 

on the last day of 

the year. However, 

this credit allows a 

taxpayer to claim 

child and dependent 

care expenses up 

to the day the child 

turns 13.
8-2 Lesson 8

WAGE EARNER

Example 1

Jim paid someone to care for his wife, Janet. Janet is physically 

unable to care for herself. Jim also paid to have someone prepare 

meals for his 12-year-old daughter, Jill. Both Janet and Jill are 

qualifying persons for the credit.

Example 2

Bob and Rhonda paid child care expenses for their son, Ronnie. 

Ronnie turned 13 on July 15. Ronnie is a qualifying person until he 

reached the age of 13.

Children of Divorced or Separated Parents Exception

If the taxpayer is the custodial parent, he or she can treat the 

child as a qualifying person for the credit even if he or she cannot 

claim the child’s dependency exemption. If the taxpayer is not the 

custodial parent, he or she cannot treat the child as a qualifying

person for the credit even if he or she can claim the child’s 

dependency exemption.

This exception applies only if all the following are true:

■ One or both parents had custody of the child for more than half 

the year.

■ One or both parents provided more than half of the child’s support for the year.

■ Either

1. The custodial parent signed Form 8332, Release of Claim to 

Exemption for Child of Divorced or Separated Parents, or a 

similar statement, agreeing not to claim the child’s exemption for the year, or

2. The noncustodial parent provided at least $600 for the 

child’s support and can claim the child’s exemption under a 

pre-1985 decree of divorce or separate maintenance, or written agreement.

Example 3

Amanda is divorced and has custody of her 8-year-old daughter, 

Carrie. Amanda signed Form 8332 to allow her ex-spouse to claim 

the dependency exemption for Carrie. In order to work, Amanda 

paid child care expenses for Carrie. Carrie is a qualifying person 

for the credit. Amanda can claim the credit for child and dependent 

care expenses. The ex-spouse cannot claim the credit.
Lesson 8 8-3

WAGE EARNER

KEEPING UP A HOME TEST

To claim the credit, the taxpayer must pay more than half the 

cost of keeping up a home for himself or herself and one or 

more qualifying persons. The cost of keeping up a home normally 

includes property taxes, mortgage interest, rent, utility charges, 

home repairs, insurance on the home, and food eaten in the home. 

Public assistance benefits are funds provided by the state not by 

the taxpayer.

EARNED INCOME TEST

The taxpayer (and spouse if married) must have earned income 

during the year. Earned income includes wages, salaries, tips, 

other taxable employee compensation, net earnings from selfemployment, strike benefits, and disability pay reported as wages.

A spouse is treated as having earned income for any month he or 

she is a full-time student or physically or mentally not able to care 

for himself or herself. His or her earned income for each month 

is considered to be at least $250 if there is one qualifying person 

in the home, or at least $500 if there are two or more qualifying 

persons in the home. This applies to only one spouse for any one 

month. If, in the same month, both taxpayers do not work and are 

either full-time students or physically or mentally not able to care 

for themselves, only one of them can be treated as having earned 

income in that month.

A full-time student is defined as enrolled and attending a school 

for the number of hours or classes the school considers full-time. 

The taxpayer (or spouse) must be a student for some part of five 

calendar months during the year. 

WORK-RELATED EXPENSE TEST

Child and dependent care expenses must be work related to qualify 

for the credit. Expenses are considered work related only if both of 

the following are true:

1. The expenses allow the taxpayer (and spouse if married) to 

work or look for work and

2. The expenses are for a qualifying person’s care.

A spouse is treated as working during any month he or she is a 

full-time student or is physically or mentally not able to care for 

himself or herself.

To be work related, the expenses must be to provide care for a 

qualifying person. Expenses are for the care of a qualifying person 

only if their main purpose is the person’s well being and protection.

Expenses for care do not include amounts paid for food, clothing, 

education, and entertainment. However, small amounts paid for 

these items can be included if they are incident to and cannot be 

separated from the cost of care.
8-4 Lesson 8

WAGE EARNER

Education. Expenses to attend first grade or a higher grade are 

not expenses for care.

Example 4

A taxpayer takes their 3-year-old child to a nursery school 

that provides lunch and educational activities as a part of its 

preschool child-care service. The total cost can be counted to 

figure the credit.

Example 5

A taxpayer places his/her 10-year-old child in a boarding school 

so he/she can work full-time. Only the part of the boarding school 

expense that is for the care of the child is a work related expense 

and only if it can be separated from the cost of education. The 

taxpayer cannot count any part of the amount paid for the child’s 

education.

Camp. The cost of sending a child to an overnight camp is not 

considered a work-related expense.

Payments to relatives. Do not count amounts paid to:

1. A dependent for whom the taxpayer (or spouse if married) can 

claim as an exemption, or

2. The taxpayer’s child who is under age 19 at the end of the year, 

even if he or she is not the taxpayer’s dependent

JOINT RETURN TEST

Generally, a married couple must file a joint return to take the 

credit. However, if the taxpayer is legally separated or living apart 

from his or her spouse, the taxpayer may be able to file a separate 

return and still take the credit.

If the taxpayer’s filing status is married filing separately and all 

of the following apply, the taxpayer is considered unmarried for 

purposes of figuring the credit:

1. The taxpayer lived apart from his or her spouse during the last 

six months of the year, and

2. The qualifying person lived in the taxpayer’s home for more 

than half of the year, and

3. The taxpayer provided over half the cost of keeping up the 

home, and

4. The taxpayer met the other five tests for eligibility to take the 

credit.

PROVIDER IDENTIFICATION TEST

The taxpayer must provide the care provider’s name, address, and 

taxpayer identification number. If the taxpayer is unable to provide 

this information or if the information is incorrect, he or she must 

show they used due diligence to obtain the information.
Lesson 8 8-5

WAGE EARNER

Due Diligence. The taxpayer can show due diligence by getting 

and keeping any of the following documents:

1. Form W-10, Dependent Care Provider’s Identification and 

Certification.

2. Copy of the provider’s social security card.

3. Copy of the provider’s driver’s license if it includes the social 

security number.

4. A copy of the provider’s Form W-4 if the provider is the 

taxpayer’s household employee.

5. A copy of the statement furnished by the taxpayer’s employer if 

the provider is a dependent care plan.

6. A letter or invoice from the provider if it shows the name, 

address, and taxpayer identification number (EIN or SSN).

Provider Refusal. If the care provider refuses to give the 

taxpayer the identifying information, report whatever information 

is available, enter “see page 2” for the missing information, and 

provide a statement at the bottom of page 2 of Form 2441 or 

Schedule 2.

LIMIT ON EXPENSES

The amount of expenses eligible for the credit is limited to the 

lowest of the following amounts for the year.

■ The lower paid spouse’s earned income (in the case of married 

taxpayers).

■ The single taxpayer’s earned income.

■ The actual expenses paid.

■ The overall limit of $3,000 for one qualifying person or $6,000 

for two or more qualifying persons.

Example 6

Mark earned $14,000. His wife, Evelyn, earned $5,600. Daycare 

expenses for their three-year-old daughter were $2,200. The 

maximum amount of qualifying child care expenses is $2,200. 

This is the lowest of:

■ The lower paid spouse’s earnings ($5,600),

■ The amount actually paid ($2,200), and

■ The overall limit for one qualifying person ($3,000).

Some taxpayers receive dependent care benefits from their 

employers. If so, the overall limit of $3,000/$6,000 is reduced, dollar 

for dollar, by any reimbursement excluded from the taxpayer’s 

income. The amount of dependent care benefits received is shown 

in box 10 of Form W-2.
8-6 Lesson 8

WAGE EARNER

Example 7

Geraldine has one dependent child, Donald, who is 6 years old. She 

paid $2,900 in qualified expenses. Box 10 of Geraldine’s Form 

W-2 shows she received $1,400 during the year from her employer’s 

dependent care assistance program. Because she received 

dependent care benefits, Part III of Form 2441 must be completed 

before completing Part II.

Nonworking Spouse

Married taxpayers usually must both work in order to claim the 

credit. However, if a spouse is either a full-time student during 

any five months of the year, or is not capable of caring for himself 

or herself for some period during the year, a credit can still be 

claimed. To figure the credit, the earned income for each month the 

spouse is either a full-time student or disabled is considered to be 

at least:

■ $250 with one qualifying person in the home, or

■ $500 with two or more qualifying persons in the home.

Example 8

Janice worked full time. Her husband, Ken, was a full-time student 

from January through May. Their son, Jason, was in daycare while 

Ken attended school. Ken’s earned income for the time he attended 

school is considered to be $1,250 (5 months ✕ $250).

Exercise 1

A. Karen earned $18,000. She paid $3,200 for child care expenses 

for her four-year-old daughter, Crystal. What is the maximum 

amount of child care expenses Karen can claim? 

B. Andrea is married to Bill. They have a seven-year-old son, 

Charles. Charles lived with Andrea for the entire year. Andrea 

paid all the expenses of keeping up the home for herself and 

Charles. Andrea also paid for before-school and after-school 

child care. Her total child care expenses were $1,800. Bill left 

the area 18 months ago. He did not live with Andrea at all during 2004, but he did send $1,200 in child support. Andrea and 

Bill will file separate returns. Andrea signed Form 8332 to 

allow Bill to claim the dependency exemption for Charles. Who 

can claim the credit for child and dependent care expenses?

C. Ellen is divorced. She has custody of her 12-year-old daughter, 

Terri. Terri takes care of herself after school. In the summer, 

Ellen spends $2,000 to send Terri to a two week long overnight 

camp. Are the camp expenses qualified expenses for the credit

for child and dependent care credit? 
Lesson 8 8-7

WAGE EARNER

FIGURING THE CREDIT

The credit is a percentage of qualifying expenses. For taxpayers 

with adjusted gross incomes of $15,000 or less, the credit is 35 

percent of qualifying expenses. As adjusted gross income increases, 

the percentage decreases. The lowest percentage is 20 percent 

for an AGI equal to or greater than $43,000. There is no upper 

limitation on income for this credit. The tables on Schedule 2 

(Form 1040A) and on Form 2441 (Form 1040) show the percentage 

for each adjusted gross income bracket. After the credit is figured 

using Form 2441 or Schedule 2, it is reported on Form 1040, line 46, 

or Form 1040A, line 29.

Example 9

David A. and Edith B. Fullerton are married and file a joint return. 

Last year, they paid $3,500 for the care of their son, Jonathan. The 

payment was made to Karen’s Kiddie Care, 456 Chapman Avenue, 

Your City, State, and Zip Code (EIN xx-xxxxxxx). The $3,500 payment includes a $1,000 dependent care benefit Edith received from 

her employer. This benefit was reported on Edith’s Form W-2, Box 

10. Edith earned $18,979 and David earned $20,450 last year. Their 

adjusted gross income is $39,429 and their tax liability is $2,349. 

Exhibits 1 and 2 show the completed Form 2441 ( Form 1040) for 

David and Edith.
8-8 Lesson 8

WAGE EARNER

Exhibit 1 The Fullerton’s Form 2441, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0068 Child and Dependent Care Expenses Form 2441

 Attach to Form 1040.

Department of the Treasury

Internal Revenue Service

Attachment

 See separate instructions. Sequence No. 21

Name(s) shown on Form 1040 Your social security number

Persons or Organizations Who Provided the Care—You must complete this part. 

(If you need more space, use the bottom of page 2.)

(b) Address

(number, street, apt. no., city, state, and ZIP code)

(d) Amount paid

(see instructions)

(c) Identifying number

(SSN or EIN) 1 (a) Care provider’sname

Credit for Child and Dependent Care Expenses

2

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying

person or $6,000 for two or more persons. If you completed Part III, enter the amount

from line 34

Enter your earned income

3

3

If married filing jointly, enter your spouse’s earned income (if your spouse was a student

or was disabled, see the instructions); all others, enter the amount from line 4

4 4

Enter the smallest of line 3, 4, or 5

5

5

6

7 Enter the amount from Form 1040, line 37 7



Decimal

amount is

If line 7 is:

Decimal

amount is

If line 7 is:

But not

Over over But notOver over

$0—15,000 .35 $29,000—31,000 .27

15,000—17,000 .34 31,000—33,000 .26

17,000—19,000 .33 33,000—35,000 .25

19,000—21,000 .32 35,000—37,000 .24

21,000—23,000 .31 37,000—39,000 .23

23,000—25,000 .30

Multiply line 6 by the decimal amount on line 8. If you paid 2003 expenses in 2004, see

the instructions 

9

For Paperwork Reduction Act Notice, see page 3 of the instructions. Form 2441 (2004)

Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions.

Cat. No. 11862M

Part I

Part II

Enter on line 8 the decimal amount shown below that applies to the amount on line 7

Did you receive

dependent care benefits? Yes

No

8

Complete only Part II below.

Complete Part III on the back next.





Caution. If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 61.

.

(99)

Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person’s name

First Last

(b) Qualifying person’s social

security number

(c) Qualified expenses you

incurred and paid in 2004 for the

person listed in column (a)

8

6

● Dependent Care Benefits ● Qualifying Person(s) ● Qualified Expenses ● Earned Income

12 Subtract line 11 from line 10. If zero or less, stop. You cannot take the credit 

Credit for child and dependent care expenses. Enter the smaller of line 9 or line 12

here and on Form 1040, line 46

13

9

12

13

25,000—27,000

27,000—29,000

.29

.28

39,000—41,000

41,000—43,000

43,000—No limit

.22

.21

.20

10

11

10

11

Enter the amount from Form 1040, line 43

Enter the amount, if any, from Form 6251, line 31 (see

the instructions)

2004

David A. and Edith B. Fullerton xxx xx xxxx

Karen's Kiddie Care 456 Chapman Ave.

Your City, State, and Zip Code xx-xxxxxxx 3,500

Jonathan Fullerton xxx xx xxxx 2,500

2,000

20,450

18,979

2,000

39,429

22

440

2,349

0

2,349

440
Lesson 8 8-9

WAGE EARNER

Exhibit 2 The Fullerton’s Form 2441, page 2

Proof as of

June 18, 2004

(subject to change)

Form 2441 (2004) Page 2

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2004. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Do not include

amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a

partner, include amounts you received under a dependent care assistance program from

your sole proprietorship or partnership

Enter the amount forfeited, if any (see the instructions)

Subtract line 15 from line 14

Enter the total amount of qualified expenses incurred

in 2004 for the care of the qualifying person(s)

15

17

Enter the smaller of line 16 or 17 18

16

Enter your earned income

17

19

Enter the amount shown below that

applies to you.

20

Enter the smallest of line 18, 19, or 20

18

21

Enter the amount from line 14 that you received from your sole proprietorship or

partnership. If you did not receive any such amounts, enter -0-

19

22

Taxable benefits. Subtract line 28 from line 23. If zero or less, enter -0-. Also, include

this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB”

20

29

Part III

To claim the child and dependent care

credit, complete lines 30–34 below.

30

31

32

21

22

29

30 Enter $3,000 ($6,000 if two or more qualifying persons)

Subtract line 31 from line 30. If zero or less, stop. You cannot take the credit.

Exception. If you paid 2003 expenses in 2004, see the instructions for line 9

Enter the smaller of line 32 or 33. Also, enter this amount on line 3 on the front of this

form and complete lines 4–13

Add lines 25 and 28

34

31

32

34

15

16

Printed on recycled paper

14

14

Complete line 2 on the front of this form. Do not include in column (c) any benefits shown

on line 31 above. Then, add the amounts in column (c) and enter the total here

33

33

Form 2441 (2004)

● If married filing jointly, enter your

spouse’s earned income (if your spouse

was a student or was disabled, see the

instructions for line 5).

● If married filing separately, see the

instructions for the amount to enter.

● All others, enter the amount from line 19. 

23 Subtract line 22 from line 16

Enter $5,000 ($2,500 if married filing separately and you were required to enter your

spouse’s earned income on line 20)

24

Deductible benefits. Enter the smallest of line 21, 22, or 24. Also, include this amount

on the appropriate line(s) of your return (see the instructions)

25

26 Enter the smaller of line 21 or 24

27 Enter the amount from line 25

28 Excluded benefits. Subtract line 27 from line 26. If zero or less, enter -0-

26

27

23

24

25

28

1,000

0

1,000

3,500

1,000

20,450

18,979

1,000

0

1,000

5,000

0

1,000

0

1,000

0

3,000

1,000

2,000

2,500

2,000
8-10 Lesson 8

WAGE EARNER

Exercise 2

Sam L. (xxx-xx-xxxx) and Sue D. Windham are married and will 

file a joint return. They have two dependent children whom they 

send to day-care to allow both parents to work. Sam’s earned 

income is $18,500 and Sue’s earned income is $19,350. Their AGI 

(Form 1040, line 36) is $37,850 and their tax liability ( Form 1040, 

line 43) is $1,651.

During 2004, they paid The Learning Center (496 Irvine Road, 

Your City, State, and Zip Code, EIN xx-xxxxxxx) $5,450 to care for 

their children. The Windhams paid $2,950 of the total and Sue’s 

employer paid $2,500 under a dependent care benefits program. 

The $2,500 is in Box 10 of Sue’s Form W-2.

The children and the amounts paid for child care are as follows:

Doug SSN xxx-xx-xxxx $3,000 $1,250 dependent care

 benefit

Sally SSN xxx-xx-xxxx $2,450 $1,250 dependent care

 benefit

Complete their Form 1040, Form 2441 (Exhibits 3 and 4).

 TAXWISE HINTS

Use the flow charts in Publication 4012, Volunteer Resource 

Guide, to determine credit eligibility. For each qualifying child, 

check the “DC” box on the Main Information Sheet, Dependents/

Non-dependents box. TaxWise will add a Form 2441 or Schedule 2 

to the forms tree. Complete all entries annotated in red. TaxWise 

will then calculate any exclusion amounts, calculate the credit, 

complete the form and insert the credit amount on Form 1040 

or Form 1040A.

  SUMMING UP THIS LESSON  

The credit for child and dependent care expenses is a nonrefundable credit which allows a taxpayer to reduce their tax liability 

for a portion of the expenses.

A taxpayer must satisfy the six tests to qualify for the credit. 

The tests are the qualifying person test; the keeping up a home 

test; the earned income test; the work-related expense test; the 

joint return test; and the provider identification test.

The credit is calculated and reported on Form 2441 ( Form 1040) 

or Schedule 2 ( Form 1040A).
Lesson 8 8-11

WAGE EARNER

Complete this form.

Exhibit 3 Exercise 2 Form 2441, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0068 Child and Dependent Care Expenses Form 2441

 Attach to Form 1040.

Department of the Treasury

Internal Revenue Service

Attachment

 See separate instructions. Sequence No. 21

Name(s) shown on Form 1040 Your social security number

Persons or Organizations Who Provided the Care—You must complete this part. 

(If you need more space, use the bottom of page 2.)

(b) Address

(number, street, apt. no., city, state, and ZIP code)

(d) Amount paid

(see instructions)

(c) Identifying number

(SSN or EIN) 1 (a) Care provider’sname

Credit for Child and Dependent Care Expenses

2

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying

person or $6,000 for two or more persons. If you completed Part III, enter the amount

from line 34

Enter your earned income

3

3

If married filing jointly, enter your spouse’s earned income (if your spouse was a student

or was disabled, see the instructions); all others, enter the amount from line 4

4 4

Enter the smallest of line 3, 4, or 5

5

5

6

7 Enter the amount from Form 1040, line 37 7



Decimal

amount is

If line 7 is:

Decimal

amount is

If line 7 is:

But not

Over over But notOver over

$0—15,000 .35 $29,000—31,000 .27

15,000—17,000 .34 31,000—33,000 .26

17,000—19,000 .33 33,000—35,000 .25

19,000—21,000 .32 35,000—37,000 .24

21,000—23,000 .31 37,000—39,000 .23

23,000—25,000 .30

Multiply line 6 by the decimal amount on line 8. If you paid 2003 expenses in 2004, see

the instructions 

9

For Paperwork Reduction Act Notice, see page 3 of the instructions. Form 2441 (2004)

Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions.

Cat. No. 11862M

Part I

Part II

Enter on line 8 the decimal amount shown below that applies to the amount on line 7

Did you receive

dependent care benefits? Yes

No

8

Complete only Part II below.

Complete Part III on the back next.





Caution. If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 61.

.

(99)

Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person’s name

First Last

(b) Qualifying person’s social

security number

(c) Qualified expenses you

incurred and paid in 2004 for the

person listed in column (a)

8

6

● Dependent Care Benefits ● Qualifying Person(s) ● Qualified Expenses ● Earned Income

12 Subtract line 11 from line 10. If zero or less, stop. You cannot take the credit 

Credit for child and dependent care expenses. Enter the smaller of line 9 or line 12

here and on Form 1040, line 46

13

9

12

13

25,000—27,000

27,000—29,000

.29

.28

39,000—41,000

41,000—43,000

43,000—No limit

.22

.21

.20

10

11

10

11

Enter the amount from Form 1040, line 43

Enter the amount, if any, from Form 6251, line 31 (see

the instructions)

2004
8-12 Lesson 8

WAGE EARNER

Complete this form.

Exhibit 4 Exercise 2 Form 2441, page 2

Proof as of

June 18, 2004

(subject to change)

Form 2441 (2004) Page 2

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2004. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Do not include

amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a

partner, include amounts you received under a dependent care assistance program from

your sole proprietorship or partnership

Enter the amount forfeited, if any (see the instructions)

Subtract line 15 from line 14

Enter the total amount of qualified expenses incurred

in 2004 for the care of the qualifying person(s)

15

17

Enter the smaller of line 16 or 17 18

16

Enter your earned income

17

19

Enter the amount shown below that

applies to you.

20

Enter the smallest of line 18, 19, or 20

18

21

Enter the amount from line 14 that you received from your sole proprietorship or

partnership. If you did not receive any such amounts, enter -0-

19

22

Taxable benefits. Subtract line 28 from line 23. If zero or less, enter -0-. Also, include

this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB”

20

29

Part III

To claim the child and dependent care

credit, complete lines 30–34 below.

30

31

32

21

22

29

30 Enter $3,000 ($6,000 if two or more qualifying persons)

Subtract line 31 from line 30. If zero or less, stop. You cannot take the credit.

Exception. If you paid 2003 expenses in 2004, see the instructions for line 9

Enter the smaller of line 32 or 33. Also, enter this amount on line 3 on the front of this

form and complete lines 4–13

Add lines 25 and 28

34

31

32

34

15

16

Printed on recycled paper

14

14

Complete line 2 on the front of this form. Do not include in column (c) any benefits shown

on line 31 above. Then, add the amounts in column (c) and enter the total here

33

33

Form 2441 (2004)

● If married filing jointly, enter your

spouse’s earned income (if your spouse

was a student or was disabled, see the

instructions for line 5).

● If married filing separately, see the

instructions for the amount to enter.

● All others, enter the amount from line 19. 

23 Subtract line 22 from line 16

Enter $5,000 ($2,500 if married filing separately and you were required to enter your

spouse’s earned income on line 20)

24

Deductible benefits. Enter the smallest of line 21, 22, or 24. Also, include this amount

on the appropriate line(s) of your return (see the instructions)

25

26 Enter the smaller of line 21 or 24

27 Enter the amount from line 25

28 Excluded benefits. Subtract line 27 from line 26. If zero or less, enter -0-

26

27

23

24

25

28
Lesson 8 8-13

WAGE EARNER

 CREDIT FOR CHILD AND DEPENDENT

CARE EXPENSES ANSWERS TO EXERCISES Lesson 8

Exercise 1

(A) $3,000, which is the lowest of: earned income ($18,000); the 

amount actually paid ($3,200); and the limit of one qualifying

person ($3,000).

(B) Andrea. Even though she is filing a separate tax return, she is 

eligible for the credit because she signed a Form 8332 to allow 

her husband to claim the depenency exemption. She also meets 

the joint return rule for married and living apart.

(C) No.
8-14 Lesson 8

WAGE EARNER

 CREDIT FOR CHILD AND DEPENDENT

Lesson 8 CARE EXPENSES ANSWERS TO EXERCISES

Exhibit 5 Exercise 2 The Windham’s Form 2441, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0068 Child and Dependent Care Expenses Form 2441

 Attach to Form 1040.

Department of the Treasury

Internal Revenue Service

Attachment  See separate instructions. Sequence No. 21

Name(s) shown on Form 1040 Your social security number

Persons or Organizations Who Provided the Care—You must complete this part. 

(If you need more space, use the bottom of page 2.)

(b) Address

(number, street, apt. no., city, state, and ZIP code)

(d) Amount paid

(see instructions)

(c) Identifying number

(SSN or EIN) 1 (a) Care provider’sname

Credit for Child and Dependent Care Expenses

2

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying

person or $6,000 for two or more persons. If you completed Part III, enter the amount

from line 34

Enter your earned income

3

3

If married filing jointly, enter your spouse’s earned income (if your spouse was a student

or was disabled, see the instructions); all others, enter the amount from line 4

4 4

Enter the smallest of line 3, 4, or 5

5

5

6

7 Enter the amount from Form 1040, line 37 7



Decimal amount is

If line 7 is:

Decimal amount is

If line 7 is:

But not

Over over But notOver over

$0—15,000 .35 $29,000—31,000 .27

15,000—17,000 .34 31,000—33,000 .26

17,000—19,000 .33 33,000—35,000 .25

19,000—21,000 .32 35,000—37,000 .24

21,000—23,000 .31 37,000—39,000 .23

23,000—25,000 .30

Multiply line 6 by the decimal amount on line 8. If you paid 2003 expenses in 2004, see

the instructions 

9

For Paperwork Reduction Act Notice, see page 3 of the instructions. Form 2441 (2004)

Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions.

Cat. No. 11862M

Part I

Part II

Enter on line 8 the decimal amount shown below that applies to the amount on line 7

Did you receive

dependent care benefits? Yes

No

8

Complete only Part II below.

Complete Part III on the back next.





Caution. If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 61.

.

(99)

Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person’s name

First Last

(b) Qualifying person’s social

security number

(c) Qualified expenses you

incurred and paid in 2004 for the

person listed in column (a)

8

6

● Dependent Care Benefits ● Qualifying Person(s) ● Qualified Expenses ● Earned Income

12 Subtract line 11 from line 10. If zero or less, stop. You cannot take the credit 

Credit for child and dependent care expenses. Enter the smaller of line 9 or line 12

here and on Form 1040, line 46

13

9

12

13

25,000—27,000

27,000—29,000

.29

.28

39,000—41,000

41,000—43,000

43,000—No limit

.22

.21

.20

10

11

10

11

Enter the amount from Form 1040, line 43

Enter the amount, if any, from Form 6251, line 31 (see

the instructions)

2004

Sam L. and Sue D. Windham xxx xx xxxx

The Learning Center 496 Irvine Rd

Your City, State, and Zip Code xx-xxxxxxx 5,450

Doug Windham xxx xx xxxx 1,750

Sally Windham xxx xx xxxx 1,200

2,950

18,500

19,350

2,950

37,850

23

679

1,651

0

1,651

679
Lesson 8 8-15

WAGE EARNER

 CREDIT FOR CHILD AND DEPENDENT

CARE EXPENSES ANSWERS TO EXERCISES Lesson 8

Exhibit 6 Exercise 2 The Windham’s Form 2441, page 2

Proof as of

June 18, 2004

(subject to change)

Form 2441 (2004) Page 2

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2004. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Do not include

amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a

partner, include amounts you received under a dependent care assistance program from

your sole proprietorship or partnership

Enter the amount forfeited, if any (see the instructions)

Subtract line 15 from line 14

Enter the total amount of qualified expenses incurred

in 2004 for the care of the qualifying person(s)

15

17

Enter the smaller of line 16 or 17 18

16

Enter your earned income

17

19

Enter the amount shown below that

applies to you.

20

Enter the smallest of line 18, 19, or 20

18

21

Enter the amount from line 14 that you received from your sole proprietorship or

partnership. If you did not receive any such amounts, enter -0-

19

22

Taxable benefits. Subtract line 28 from line 23. If zero or less, enter -0-. Also, include

this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB”

20

29

Part III

To claim the child and dependent care

credit, complete lines 30–34 below.

30

31

32

21

22

29

30 Enter $3,000 ($6,000 if two or more qualifying persons)

Subtract line 31 from line 30. If zero or less, stop. You cannot take the credit.

Exception. If you paid 2003 expenses in 2004, see the instructions for line 9

Enter the smaller of line 32 or 33. Also, enter this amount on line 3 on the front of this

form and complete lines 4–13

Add lines 25 and 28

34

31

32

34

15

16

Printed on recycled paper

14

14

Complete line 2 on the front of this form. Do not include in column (c) any benefits shown

on line 31 above. Then, add the amounts in column (c) and enter the total here

33

33

Form 2441 (2004)

● If married filing jointly, enter your

spouse’s earned income (if your spouse

was a student or was disabled, see the

instructions for line 5).

● If married filing separately, see the

instructions for the amount to enter.

● All others, enter the amount from line 19. 

23 Subtract line 22 from line 16

Enter $5,000 ($2,500 if married filing separately and you were required to enter your

spouse’s earned income on line 20)

24

Deductible benefits. Enter the smallest of line 21, 22, or 24. Also, include this amount

on the appropriate line(s) of your return (see the instructions)

25

26 Enter the smaller of line 21 or 24

27 Enter the amount from line 25

28 Excluded benefits. Subtract line 27 from line 26. If zero or less, enter -0-

26

27

23

24

25

28

2,500

0

2,500

5,450

2,500

18,500

19,350

2,500

0

2,500

5,000

0

2,500

0

2,500

0

6,000

2,500

3,500

2,950

2,950
8-16 Lesson 8

WAGE EARNER

STUDENT NOTES
Notes to

Instructors N-9-1

LESSON OVERVIEW AND OBJECTIVES

This lesson will explain the Hope scholarship credit and the lifetime learning credit. Since tax year 2002, taxpayers have had the 

option of claiming an above the line deduction for qualified tuition 

and fees. Depending on the taxpayer’s income and corresponding 

tax bracket, it may be more beneficial to take this adjustment to 

income rather than the nonrefundable tax credit. Students may not 

completely understand this concept.

After completing this lesson students should be able to:

■ Calculate the Hope credit on Form 8863.

■ Calculate the lifetime learning credit on Form 8863.

See Appendix B for suggested class schedules and approximate 

teaching times.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current 

revision of the publication or form, you can download the files from 

www.irs.gov.

■ Form 8863, Education Credits (Hope and Lifetime Learning 

Credits)

■ Publication 970, Tax Benefits for Education

■ Publication 4012, Volunteer Resource Guide, is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. Direct the student to the tab 

entitled Child and Dependent Care Credit for this lesson and 

make sure the student is aware of the content of the tab and 

how it should be used when assisting taxpayers. For additional 

technical information about this topic see the applicable chapter 

of Publication 17, Your Federal Tax (For Individual).

GUIDED QUESTIONS

1. Can a taxpayer claim both the Hope and lifetime 

learning credit for an eligible student? (No.)

2. What form is used to claim the Hope credit or the 

lifetime learning credit? (Form 8863)

EDUCATION CREDITS NOTES TO INSTRUCTORS Lesson 9
Notes to N-9-2 Instructors

TEACHING TIPS

1. Remind students that if a student is claimed as a dependent by 

the parent or another taxpayer, the eligible student is not entitled to claim a HOPE credit on his or her tax return.

2. Remind students to use the education credits table in 

Publication 4012, Volunteer Resource Guide, when determining 

if a taxpayer qualifies for one of the credits.

LESSON REVIEW

1. The Hope and lifetime learning credits are nonrefundable credits 

that allow a taxpayer to claim all or a portion of qualified tuition 

and related expenses paid for post-secondary education.

2. Remind students to always complete a taxpayers return twice: 

once using the tuition and fees deduction and once using the 

education credits. This will ensure the taxpayer takes maximum 

advantage of the deduction or credit.
Lesson 9 9-1

WAGE EARNER

EDUCATION CREDITS Lesson 9

INTRODUCTION AND OBJECTIVES

For tax year 2004, there are nine different tax benefits 

for higher education. Some of these benefits are not 

taxed (i.e., Coverdell education savings account, 

qualified tuition program, early IRA withdrawals, 

employer provided educational assistance and education 

savings bond programs). The student loan interest 

deduction and tuition and fees deduction were covered 

in Lesson 4, Adjustments. In this lesson you will learn 

about the two education credits: Hope credit and the 

lifetime learning credit.

After completing this lesson, you should be able to:

■ Calculate the Hope credit on Form 8863.

■ Calculate the lifetime learning credit on Form 8863.

GENERAL REQUIREMENTS

Taxpayers can claim the Hope Scholarship Credit

(Hope credit) and the Lifetime Learning Credit for 

higher education expenses paid in 2004 for an eligible 

student. Both credits are nonrefundable and can be 

claimed on either Form 1040 or Form 1040A. These 

two credits are also called education credits.

To claim either of the education credits the taxpayer 

must:

■ File using any filing status other than married 

filing separately,

■ Meet all of the general requirements,

■ Meet all of the specific requirements for the 

individual credit, and

■ Meet the income limits.

The general requirements provide that the taxpayer 

must have incurred qualified expenses for an 

eligible student to attend an eligible educational 

institution during the tax year. 

ALERT

Publication 4012, 

Volunteer Resource 

Guide, contains an 

Education Credits 

table to assist you 

in determining 

eligibility for the 

credits.
9-2 Lesson 9

WAGE EARNER

Qualified Expenses

The Hope credit and the lifetime learning credit are based on 

qualified tuition and related expenses the taxpayer pays for himself 

or herself, the taxpayer’s spouse, or dependents the taxpayer claims 

on his or her tax return.

Qualified tuition and related expenses are tuition and fees required 

for enrollment or attendance at an eligible educational institution 

and generally include fees for:

■ Course-related books, supplies and equipment, and

■ Student activities.

The fees must be paid to the institution as a condition of 

enrollment or attendance.

Qualified tuition and related expenses do not include the cost of:

■ Insurance,

■ Medical expenses (including student health fees),

■ Room and board,

■ Transportation or similar personal, living, or family expenses, 

even if the fees must be paid to the institution as a condition of 

enrollment or attendance.

When considering qualified tuition and related expenses for the 

Hope credit, the cost of courses for athletics, sports, games, hobbies 

or noncredit courses are not used unless the course is part of the 

student’s degree program. However, when computing the qualified 

tuition and related expenses for the lifetime learning credit, these 

types of expenses are includible if the course was taken to acquire 

or improve the job skills of the student.

If a taxpayer prepaid qualified tuition and related expenses for 

an academic period that begins in the first three months of the 

following year, he or she can use the prepaid amount in figuring the 

credit.

Example 1

Thomas pays $1,500 in December 2004 for qualified tuition for 

the winter semester that begins in January 2005. He can use the 

$1,500 paid in December of 2004 to compute his credit for 2004.

Payments with borrowed funds.

Taxpayers can claim the Hope credit and lifetime learning credit 

for qualified tuition and related expenses paid with the proceeds of 

a loan. Use the expenses to figure the credit for the year in which 

the expenses are paid, not the year in which the loan is repaid.
Lesson 9 9-3

WAGE EARNER

 Eligible Student

The taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent 

(for whom the taxpayer claims a dependency exemption) can be an 

eligible student.

In addition, for the Hope credit, the student must be:

■ Enrolled in a program that leads to a degree, certificate or other 

recognized educational credential.

■ Taking at least one-half of the normal full-time workload for his 

or her course of study for at least one academic period beginning 

during the calendar year.

■ Enrolled for one of the first two years of his or her postsecondary education.

■ Free of any felony conviction for possessing or distributing a 

controlled substance.

WHO CAN CLAIM EXPENSES?

The taxpayer must claim a dependent exemption for the eligible 

student in order to claim an education credit. Either the taxpayer 

or the dependent, but not both, can claim an education credit for 

that dependent’s higher education expenses.

If the taxpayer... Then only...

Claims an exemption on the tax 

return for a dependent who is an 

eligible student

The taxpayer can claim the Hope 

or lifetime learning credit based on 

that student·s expenses. The student 

cannot claim the credit.

Does not claim an exemption for a 

dependent who is an eligible student 

(even if entitled to the exemption)

The student can claim the Hope or 

lifetime learning credit. The taxpayer 

cannot claim the student·s expenses.

If someone other than the taxpayer, the taxpayer’s spouse, or the 

dependent (such as a relative or former spouse) makes a payment 

directly to the eligible educational institution to pay for qualified 

tuition and related expenses, the student is treated as receiving the 

payment from the other person. The student is considered to have 

paid the qualified tuition and related expenses to the eligible institution. If the taxpayer claims an exemption for the student, the 

taxpayer is considered to have paid the expenses. If the taxpayer 

does not claim a dependent exemption for the student, the student 

may claim the credit.
9-4 Lesson 9

WAGE EARNER

Example 2

Mary Birch paid her grandson, Todd’s, tuition for 2004 directly 

to the university. For purposes of claiming the Hope credit, her 

grandson is treated as receiving the money as a gift and in turn 

paying his qualified tuition and related expenses himself. Unless 

an exemption for Todd is claimed on someone else’s return, only 

Todd can use the payment to claim the Hope credit. If Todd’s 

parents claim his exemption, they may be able to use the expenses 

to claim the Hope credit. If anyone else claims an exemption for 

Todd, Todd cannot claim a Hope credit.

Eligible Educational Institution

An eligible educational institution is generally any accredited 

public, nonprofit, or proprietary (private) postsecondary institution 

eligible to participate in the student aid programs administered 

by the Department of Education. Most universities and colleges, 

including community colleges, meet these requirements.

 Income Requirements

The Hope credit and the lifetime learning credit are phased out 

(gradually reduced) if the taxpayer’s modified AGI is over $42,000 

(over $85,000 if married filing jointly). If a taxpayer’s modified AGI 

is $52,000 or more ($105,000 or more if married filing jointly), no 

credit is allowed. Education credits are not allowed to persons who 

are married filing separately.

 Modified Adjusted Gross Income (MAGI)

For most taxpayers, modified adjusted gross income (MAGI) is 

adjusted gross income (AGI) as figured on their federal income tax 

return. MAGI when using Form 1040A is the AGI on line 22 of that 

form. MAGI when using Form 1040 is the AGI on line 36 of that 

form, modified by adding back any:

1) Foreign earned income exclusion

2) Foreign housing exclusion

3) Exclusion of income for bona fide residents of America 

Samoa, and

4) Exclusion of income from Puerto Rico.
Lesson 9 9-5

WAGE EARNER

 HOPE CREDIT

A Hope credit can be claimed for each eligible student that is 

claimed on the taxpayer’s return.

Credit Amounts

The Hope credit is figured on Form 8863, Education Credits (Hope 

and Lifetime Learning Credits). The maximum Hope credit is 

$1,500 per student for each of the first two taxable years of his 

or her postsecondary education. For each eligible student who 

qualifies for the Hope credit:

■ If the expenses are $1,000 or less, the credit is the amount of 

the expenses,

■ If the expenses are $2,000 or more, the credit is $1,500, and

■ If the expenses are between $1,000 and $2,000, the credit is 

$1,000 plus one-half of the expenses over $1,000. For example, 

if the expenses are $1,500, the credit is $1,250 ($1,000 plus onehalf of $500).

Example 3

Sue and Ted Marshall paid $7,000 in qualified tuition and fees for 

their daughter, Mary, to attend the local university. They determined it would be more beneficial for them to take the Hope Credit 

rather than the Tuition and Fees Deduction. Their AGI and MAGI 

is $35,000 and their tax liability on Form 1040, Line 43, is $1,689. 

Their Form 8863 is shown in Exhibit 1.
9-6 Lesson 9

WAGE EARNER

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1618 Education Credits Form 8863

 See instructions. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 50

Name(s) shown on return Your social security number

Hope Credit. Caution: You cannot take the Hope credit for more than 2 tax years for the same student.

1

2

3

Lifetime Learning Credit

Form 8863 (2004)

Part I

Part II

3

(a) Student’s name

(as shown on page 1

of your tax return)

Cat. No. 25379M

Add the amounts in columns (d) and (f)

Tentative Hope credit. Add the amounts on line 2, columns (d) and (f). If you are taking

the lifetime learning credit for another student, go to Part II; otherwise, go to Part III 

8

Add the amounts on line 4, column (c), and enter the total

9

9

Enter the smaller of line 5 or $10,000

10

Subtract line 10 from line 9. If zero or less, stop; you cannot take

any education credits

10

12

16

19

4

11

11

15

For Paperwork Reduction Act Notice, see page 3.

(f) Enter one-half

of the amount in

column (e)

(e) Subtract

column (d) from

column (c)

(d) Enter the

smaller of the

amount in

column (c) or

$1,000

(c) Qualified

expenses (see

instructions). Do

not enter more

than $2,000 for

each student.

2

Caution: You

cannot take the

Hope credit and

the lifetime learning

credit for the same

student in the

same year.

(a) Student’s name (as shown on page 1

of your tax return)

First name Last name

(c) Qualified

expenses (see

instructions)

Tentative lifetime learning credit. Multiply line 6 by 20% (.20) and go to Part III 

5

6

7

5

6

7

Part III Allowable Education Credits

8 Tentative education credits. Add lines 3 and 7

Enter: $105,000 if married filing jointly; $52,000 if single, head of

household, or qualifying widow(er)

Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

If line 11 is equal to or more than line 12, enter the amount from line 8 on line 14 and

go to line 15. If line 11 is less than line 12, divide line 11 by line 12. Enter the result as

a decimal (rounded to at least three places)

13

14 Multiply line 8 by line 13 

Enter the amount from Form 1040, line 43, or Form 1040A, line 28 (minus any alternative

minimum tax included on Form 1040A, line 28) 

15

18

19 Subtract line 18 from line 15. If zero or less, stop; you cannot take any education credits 

20 Education credits. Enter the smaller of line 14 or line 19 here and on Form 1040,

line 48, or Form 1040A, line 31  20

14

13  .

(Hope and Lifetime Learning Credits)

(b) Student’s

social security

number (as

shown on page 1

of your tax return)

(b) Student’s social security

number (as shown on page

1 of your tax return)

Enter: $20,000 if married filing jointly; $10,000 if single, head of

household, or qualifying widow(er) 12

*See Pub. 970 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

 Attach to Form 1040 or Form 1040A.

Last name

First name

Caution: You cannot take both an education credit and the tuition and fees deduction (Form 1040, line 27, or Form 1040A, 

line 19) for the same student in the same year.

2004

Add lines 16 and 17

17

18

Enter the amount from Form 6251, line 31

16

17

Enter the total, if any, of your credits from Form 1040, lines 46

and 47, or Form 1040A, lines 29 and 30

Sue and Ted Marshall xxx xx xxxx

Mary

Marshall xxx xx xxxx 2,000 1,000 1,000 500

1,000 500

1,500

1,500

105,000

35,000

70,000

20,000

1,500

1,689

0

0

0

1,500

1,689

Exhibit 1 Sue and Ted’s Form 8863
Lesson 9 9-7

WAGE EARNER

 LIFETIME LEARNING CREDIT

The lifetime learning credit is based on the total qualified 

education expenses paid by the taxpayer and not on the number of 

eligible students. Education expenses are qualified for the lifetime 

learning credit if they are:

■ For courses taken as part of a postsecondary degree program, or

■ For courses that are not part of a postsecondary degree 

program, but that are taken to improve or acquire job skills.

Example 4

Samantha, a professional photographer, enrolls in an advanced 

photography course at a local community college. Although the 

course is not part of a degree program, she enrolls in it to improve 

her job skills. The course fee paid by Samantha is considered 

qualified tuition for the purpose of claiming the lifetime learning 

credit.

Example 5

Cleve, an engineer, plans to vacation in Europe next year. In 

preparation for the trip, he enrolls in a noncredit photography 

class at a local community college. Because Cleve is not taking the 

course as part of a degree program or to acquire or improve his job 

skills, the cost of the course is not a qualifying expense for claiming 

the lifetime learning credit.

Credit amounts

The lifetime learning credit is also figured on Form 8863. The 

maximum amount of the credit is $2,000 per taxpayer for all 

eligible students. The credit amount is figured by multiplying total 

qualified educational expenses, up to $10,000, by 20%.

Example 6

Judy Hood is single and took a course at the local college to 

recertify her to teach in public schools. Her qualified tuition 

expenses were $500. She chooses to take the lifetime learning 

credit rather than the Tuition and Fees Deduction. Her AGI and 

MAGI is $29,524 and her tax liability on Form 1040, Line 43, is 

$2,879. Her completed Form 8863 is shown in Exhibit 2.
9-8 Lesson 9

WAGE EARNER

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1618 Education Credits

Form 8863

 See instructions. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 50

Name(s) shown on return Your social security number

Hope Credit. Caution: You cannot take the Hope credit for more than 2 tax years for the same student.

1

2

3

Lifetime Learning Credit

Form 8863 (2004)

Part I

Part II

3

(a) Student’s name

(as shown on page 1

of your tax return)

Cat. No. 25379M

Add the amounts in columns (d) and (f)

Tentative Hope credit. Add the amounts on line 2, columns (d) and (f). If you are taking

the lifetime learning credit for another student, go to Part II; otherwise, go to Part III 

8

Add the amounts on line 4, column (c), and enter the total

9

9

Enter the smaller of line 5 or $10,000

10

Subtract line 10 from line 9. If zero or less, stop; you cannot take

any education credits

10

12

16

19

4

11

11

15

For Paperwork Reduction Act Notice, see page 3.

(f) Enter one-half

of the amount in

column (e)

(e) Subtract

column (d) from

column (c)

(d) Enter the

smaller of the

amount in

column (c) or

$1,000

(c) Qualified

expenses (see

instructions). Do

not enter more

than $2,000 for

each student.

2

Caution: You

cannot take the

Hope credit and

the lifetime learning

credit for the same

student in the

same year.

(a) Student’s name (as shown on page 1

of your tax return)

First name Last name

(c) Qualified

expenses (see

instructions)

Tentative lifetime learning credit. Multiply line 6 by 20% (.20) and go to Part III 

5

6

7

5

6

7

Part III Allowable Education Credits

8 Tentative education credits. Add lines 3 and 7

Enter: $105,000 if married filing jointly; $52,000 if single, head of

household, or qualifying widow(er)

Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

If line 11 is equal to or more than line 12, enter the amount from line 8 on line 14 and

go to line 15. If line 11 is less than line 12, divide line 11 by line 12. Enter the result as

a decimal (rounded to at least three places)

13

14 Multiply line 8 by line 13 

Enter the amount from Form 1040, line 43, or Form 1040A, line 28 (minus any alternative

minimum tax included on Form 1040A, line 28) 

15

18

19 Subtract line 18 from line 15. If zero or less, stop; you cannot take any education credits 

20 Education credits. Enter the smaller of line 14 or line 19 here and on Form 1040,

line 48, or Form 1040A, line 31  20

14

13  .

(Hope and Lifetime Learning Credits)

(b) Student’s

social security

number (as

shown on page 1

of your tax return)

(b) Student’s social security

number (as shown on page

1 of your tax return)

Enter: $20,000 if married filing jointly; $10,000 if single, head of

household, or qualifying widow(er) 12

*See Pub. 970 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

 Attach to Form 1040 or Form 1040A.

Last name

First name

Caution: You cannot take both an education credit and the tuition and fees deduction (Form 1040, line 27, or Form 1040A, 

line 19) for the same student in the same year.

2004

Add lines 16 and 17

17

18

Enter the amount from Form 6251, line 31

16

17

Enter the total, if any, of your credits from Form 1040, lines 46

and 47, or Form 1040A, lines 29 and 30

Judy Hood xxx xx xxxx

Judy Hood xxx xx xxxx 500

500

500

100

100

52,000

29,524

22,476

10,000

100

2,879

0

0

0

100

2,879

Exhibit 2 Judy’s Form 8863
Lesson 9 9-9

WAGE EARNER

NO DOUBLE BENEFITS

A taxpayer cannot:

■ Deduct higher education expenses and claim a credit based on 

those same expenses (as, for example, a business expense), 

■ Claim an education credit in the same year as a tuition and fees 

deduction is claimed for the same student,

■ Claim a Hope credit and a lifetime learning credit based on the 

same qualified education expenses,

■ Claim an education credit based on the expenses used to figure 

the tax-free portion of a distribution from a Coverdell ESA or 

qualified tuition program (QTP),

■ Claim a credit based on qualified education expenses paid with 

a tax-free scholarship, grant, or employer-provided educational 

assistance.

However, a taxpayer can claim a credit based on expenses paid 

with the eligible student’s earnings, loans, gifts, inheritances, or 

personal savings.

An eligible student cannot claim an education credit if he or she 

is claimed as a dependent on another taxpayer’s tax return. Any 

amounts paid by the student are considered paid by the taxpayer 

who claims the student as a dependent.

The following table summarizes the differences between the credits.

Table: Comparison of Education Credits

Hope Credit Lifetime Learning Credit

Up to $1,500 credit per eligible student Up to $2,000 credit per return

Available only until the fi rst 2 years of 

postsecondary education are completed

Available for all years of postsecondary 

education and for courses to acquire or 

improve job skills

Available only for 2 years per eligible 

student

Available for an unlimeted number of 

years

Student must be pursuing an 

undergraduate degree or other 

recognized education credential

Student does not need to be pursing a 

degree or other recognized education 

credential

Student must be enrolled at least half 

time for at least one academic period 

during the year

Available for one or more courses

No felony drug conviction on student’s 

record

Felony drug conviction rule does not 

apply

 Adjustments to Qualified Expenses

Tax-free educational assistance can include the following:

• Scholarships,

• Pell grants,

• Employer-provided educational assistance,
9-10 Lesson 9

WAGE EARNER

• Veteran’s educational assistance, and 

Any other nontaxable payments (other than gifts, bequests, 

or inheritances) received for education expenses.

If the taxpayer paid qualified tuition expenses with these tax-free 

funds, a credit cannot be claimed for these amounts. Qualified

expenses must be reduced by the amount of any tax-free educational assistance received. 

Example 7

In 2004, Jackie paid $3,000 for tuition and $5,000 for room and 

board at her local university. To help pay these costs, she was 

awarded a $2,000 scholarship and a $4,000 student loan.

The scholarship is a qualified scholarship that is excludable from 

Jackie’s income. For purposes of the education credit, she must 

first use the scholarship to reduce her tuition (her only qualified 

expense). The student loan is not considered tax-free educational 

assistance so she does not use it to reduce the qualified expenses. 

Therefore, Jackie is treated as having paid only $1,000 in qualified 

expenses ($3,000 tuition - $2,000 scholarship).

Refunds

Qualified tuition and related expenses do not include expenses 

for which the taxpayer received a refund. If the refund or tax-free 

assistance is received in the same year in which the expenses were 

paid or in the following year before the tax return is filed, reduce 

the qualified expenses by the amount received and figure the education credits using the reduced amount of qualified expenses.

If the refund or tax-free assistance is received after the tax return 

is filed for the year in which the expenses were paid, figure the 

amount by which the education credits would have been reduced if 

the refund or tax-free assistance had been received in the year for 

which the education credits were claimed. Include that amount as 

an additional tax for the year the refund or tax-free assistance was 

received. For 2004, enter the amount and “ECR” (Education Credit 

Repayment) on line 43. 

Example 8

Sally paid $2,250 tuition on December 26, 2003, for her daughter 

who began college on January 16, 2004. She filed her 2003 tax 

return on February 12, 2004, and claimed a Hope credit of $1,500. 

After Sally filed her return, her daughter dropped two courses but 

maintained one-half of a full-time workload. Sally received a refund 

of $750. She must refigure her 2003 Hope credit using $1,500 of 

qualified expenses instead of $2,250. The refigured credit is $1,250. 

She must include the difference of $250 on line 43 of her 2004 Form 

1040 and annotate next to the line: $250 ECR. 
Lesson 9 9-11

WAGE EARNER

Exercise 1

Bruce (SSN xxx-xx-xxxx) and Toni Endicott are married and file 

a joint tax return. For 2004, their modified AGI ($49,065) is the 

same as their AGI. They completed Form 1040 through line 44. 

Their tax amount on Line 43 is $3,796. Toni is attending the local 

community college part-time to earn credits toward an associate degree in nursing. She paid $2,500 in tuition and fees. Their 

son, Ben, is a full time freshman at the state university. Bruce 

and Toni paid $8,000 in tuition and fees for Ben in 2004. They 

choose to take the lifetime learning credit for Toni and the Hope 

credit for Ben. They will claim no other credits. Toni’s SSN is xxxxx-xxxx. Ben’s SSN is xxx-xx-xxxx. Complete their Form 8863 at 

Exhibit 3.

 TAXWISE HINTS

To input qualified tuition expenses and prepare a Form 8863 using 

TaxWise, link from Form 1040, line 48, to select Form 8863, enter 

the student’s name in either the Hope credit section or the lifetime 

learning credit section and complete all the entries annotated in 

red. TaxWise will automatically complete the form and carry the 

mathematical calculations to the Form 1040.

  SUMMING UP THIS LESSON 

The Hope and lifetime learning credits are nonrefundable credits that allow a taxpayers to claim all or a portion of qualified 

tuition and related expenses paid for post-secondary education.

Generally, taxpayers can claim the Hope or lifetime learning 

credit if they pay qualified tuition and related expenses to an eligible higher education institution for an eligible student who is 

either the taxpayer, the taxpayer’s spouse, or a dependent whom 

the taxpayer can claim an exemption on his or her tax return. 

A taxpayer cannot: 

 Deduct higher education expenses on his or her tax return 

and also claim a Hope or lifetime learning credit based on 

those same expenses,

 Claim a Hope credit and a lifetime learning credit based on 

the same qualified education expenses, or

 Claim a credit based on expenses paid with tax-free scholarship, grant, or employer-provided educational assistance.

The Hope and lifetime learning credits are claimed on Form 

8863 which can be filed with either Form 1040 or Form 1040A. 
9-12 Lesson 9

WAGE EARNER

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1618 Education Credits

Form 8863

 See instructions. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 50

Name(s) shown on return Your social security number

Hope Credit. Caution: You cannot take the Hope credit for more than 2 tax years for the same student.

1

2

3

Lifetime Learning Credit

Form 8863 (2004)

Part I

Part II

3

(a) Student’s name

(as shown on page 1

of your tax return)

Cat. No. 25379M

Add the amounts in columns (d) and (f)

Tentative Hope credit. Add the amounts on line 2, columns (d) and (f). If you are taking

the lifetime learning credit for another student, go to Part II; otherwise, go to Part III 

8

Add the amounts on line 4, column (c), and enter the total

9

9

Enter the smaller of line 5 or $10,000

10

Subtract line 10 from line 9. If zero or less, stop; you cannot take

any education credits

10

12

16

19

4

11

11

15

For Paperwork Reduction Act Notice, see page 3.

(f) Enter one-half

of the amount in

column (e)

(e) Subtract

column (d) from

column (c)

(d) Enter the

smaller of the

amount in

column (c) or

$1,000

(c) Qualified

expenses (see

instructions). Do

not enter more

than $2,000 for

each student.

2

Caution: You

cannot take the

Hope credit and

the lifetime learning

credit for the same

student in the

same year.

(a) Student’s name (as shown on page 1

of your tax return)

First name Last name

(c) Qualified

expenses (see

instructions)

Tentative lifetime learning credit. Multiply line 6 by 20% (.20) and go to Part III 

5

6

7

5

6

7

Part III Allowable Education Credits

8 Tentative education credits. Add lines 3 and 7

Enter: $105,000 if married filing jointly; $52,000 if single, head of

household, or qualifying widow(er)

Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

If line 11 is equal to or more than line 12, enter the amount from line 8 on line 14 and

go to line 15. If line 11 is less than line 12, divide line 11 by line 12. Enter the result as

a decimal (rounded to at least three places)

13

14 Multiply line 8 by line 13 

Enter the amount from Form 1040, line 43, or Form 1040A, line 28 (minus any alternative

minimum tax included on Form 1040A, line 28) 

15

18

19 Subtract line 18 from line 15. If zero or less, stop; you cannot take any education credits 

20 Education credits. Enter the smaller of line 14 or line 19 here and on Form 1040,

line 48, or Form 1040A, line 31  20

14

13  .

(Hope and Lifetime Learning Credits)

(b) Student’s

social security

number (as

shown on page 1

of your tax return)

(b) Student’s social security

number (as shown on page

1 of your tax return)

Enter: $20,000 if married filing jointly; $10,000 if single, head of

household, or qualifying widow(er) 12

*See Pub. 970 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

 Attach to Form 1040 or Form 1040A.

Last name

First name

Caution: You cannot take both an education credit and the tuition and fees deduction (Form 1040, line 27, or Form 1040A, 

line 19) for the same student in the same year.

2004

Add lines 16 and 17

17

18

Enter the amount from Form 6251, line 31

16

17

Enter the total, if any, of your credits from Form 1040, lines 46

and 47, or Form 1040A, lines 29 and 30

Exhibit 3 Bruce and Toni’s Form 8863
Lesson 9 9-13

WAGE EARNER

 EDUCATION CREDITS ANSWERS TO EXERCISES

Exercise 1 Bruce and Toni’s Form 8863

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1618 Education Credits Form 8863

 See instructions. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 50

Name(s) shown on return Your social security number

Hope Credit. Caution: You cannot take the Hope credit for more than 2 tax years for the same student.

1

2

3

Lifetime Learning Credit

Form 8863 (2004)

Part I

Part II

3

(a) Student’s name

(as shown on page 1

of your tax return)

Cat. No. 25379M

Add the amounts in columns (d) and (f)

Tentative Hope credit. Add the amounts on line 2, columns (d) and (f). If you are taking

the lifetime learning credit for another student, go to Part II; otherwise, go to Part III 

8

Add the amounts on line 4, column (c), and enter the total

9

9

Enter the smaller of line 5 or $10,000

10

Subtract line 10 from line 9. If zero or less, stop; you cannot take

any education credits

10

12

16

19

4

11

11

15

For Paperwork Reduction Act Notice, see page 3.

(f) Enter one-half

of the amount in

column (e)

(e) Subtract

column (d) from

column (c)

(d) Enter the

smaller of the

amount in

column (c) or

$1,000

(c) Qualified

expenses (see

instructions). Do

not enter more

than $2,000 for

each student.

2

Caution: You

cannot take the

Hope credit and

the lifetime learning

credit for the same

student in the

same year.

(a) Student’s name (as shown on page 1

of your tax return)

First name Last name

(c) Qualified

expenses (see

instructions)

Tentative lifetime learning credit. Multiply line 6 by 20% (.20) and go to Part III 

5

6

7

5

6

7

Part III Allowable Education Credits

8 Tentative education credits. Add lines 3 and 7

Enter: $105,000 if married filing jointly; $52,000 if single, head of

household, or qualifying widow(er)

Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

If line 11 is equal to or more than line 12, enter the amount from line 8 on line 14 and

go to line 15. If line 11 is less than line 12, divide line 11 by line 12. Enter the result as

a decimal (rounded to at least three places)

13

14 Multiply line 8 by line 13 

Enter the amount from Form 1040, line 43, or Form 1040A, line 28 (minus any alternative

minimum tax included on Form 1040A, line 28) 

15

18

19 Subtract line 18 from line 15. If zero or less, stop; you cannot take any education credits 

20 Education credits. Enter the smaller of line 14 or line 19 here and on Form 1040,

line 48, or Form 1040A, line 31  20

14

13  .

(Hope and Lifetime Learning Credits)

(b) Student’s

social security

number (as

shown on page 1

of your tax return)

(b) Student’s social security

number (as shown on page

1 of your tax return)

Enter: $20,000 if married filing jointly; $10,000 if single, head of

household, or qualifying widow(er) 12

*See Pub. 970 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

 Attach to Form 1040 or Form 1040A.

Last name

First name

Caution: You cannot take both an education credit and the tuition and fees deduction (Form 1040, line 27, or Form 1040A, 

line 19) for the same student in the same year.

2004

Add lines 16 and 17

17

18

Enter the amount from Form 6251, line 31

16

17

Enter the total, if any, of your credits from Form 1040, lines 46

and 47, or Form 1040A, lines 29 and 30

Bruce and Toni Endicott xxx xx xxxx

Ben

Endicott xxx xx xxxx 2,000 1,000 1,000 500

1,000 500

1,500

Toni Endicott xxx xx xxxx 2,500

2,500

2,500

500

2,000

105,000

49,065

55,935

20,000

2,000

3,796

0

0

0

2,000

3,796

Lesson 9
9-14 Lesson 9

WAGE EARNER

STUDENT NOTES
Notes to

Instructors N-10-1

LESSON OVERVIEW AND OBJECTIVES

In this lesson you will learn about the earned income credit. This 

is a refundable credit, and eligible taxpayers can receive a refund 

of this credit even if they owe no tax and had no income tax withheld. The taxpayer must file a tax return to receive the credit. 

Approximately 2 to 2 1

2 hours should be devoted to covering the 

objectives of this lesson. See the Suggested Class Schedules in 

Appendix B for additional information. 

After completing this lesson you should be able to:

■ Determine which taxpayers are eligible for the earned 

income credit.

■ Determine when a taxpayer has a qualifying child for the EIC.

■ Calculate and report the credit using the EIC worksheet.

■ Explain how to request advanced earned income credit (AEIC).

■ Report AEIC on the tax return.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS forms and worksheets. If 

you would like to provide your students with the most current revision of the forms and worksheets, you can download the files from 

www.irs.gov.

■ Form 1040A

■ Schedule EIC

■ EIC Worksheets (Form 1040, 1040A, and 1040EZ)

■ EIC Eligibility Questions (Form 1040, 1040A and Form 1040EZ)

■ Publication 4012, Volunteer Resource Guide is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. Direct the student to the tab 

entitled Earned Income Credit (EIC) for this lesson and make 

sure the student is aware of the content of the tab and how 

it should be used when assisting taxpayers. For additional 

technical information about this topic see the applicable 

chapter of Publication 17, Your Federal Tax (For Individual).

ADDITIONAL RESOURCES

■ Publication 596, Earned Income Tax Credit

■ EIC Tables, Appendix C

EARNED INCOME CREDIT NOTES TO INSTRUCTORS Lesson 10
Notes to N-10-2 Instructors

GUIDED QUESTION – WHO CAN CLAIM THE CREDIT WITH A 

QUALIFYING CHILD

1. For purposes of the earned income credit, when can 

a person age 19 or older be a qualifying child? (Both 

full-time students under age 24 and permanently and totally 

disabled individuals of any age can be qualifying children.)

GUIDED QUESTIONS – DETERMINING ELIGIBILITY AND FIGURING THE

CREDIT

1. On which worksheet is the earned income credit 

figured? EIC Worksheet. Remind students that there are two 

versions for 1040 filers and that the instructions at the top 

of those worksheets indicate which worksheet to use for the 

taxpayer that they are assisting. Additionally, remind students 

that the eligibility questions should be completed before 

figuring the earned income credit on the EIC worksheet.

2. What is the function of the earned income credit table?

The EIC Table is used to determine the amount of the earned 

income credit.

3. Is the earned income credit adjusted for the number of 

qualifying children? Yes

GUIDED QUESTIONS – SCHEDULE EIC FOR QUALIFYING CHILD(REN)

1. How many qualifying children can a taxpayer list on 

line 1 of Schedule EIC? Only two qualifying children can 

be listed.

2. Explain the income limits for the earned income credit. 

The taxpayer cannot take the EIC if his or her earned income 

and adjusted gross income is more than:

• $34,458 ($35,458 if married filing jointly) with two or more 

qualifying children,

• $30,338 ($31,338 if married filing jointly) with one 

qualifying child, or

• $11,490 ($12,490 if married filing jointly) with no qualifying 

children.

TEACHING TIPS – GENERAL EIC REQUIREMENTS

1. Remind students that the earned income credit depends on the 

taxpayer’s earned, adjusted gross income, filing status, income 

and number of qualifying children. 

2. Caution students that they should not count children who are 

not qualifying children. 

3. Remind students to use the correct column in the EIC Table for 

the number of qualifying children and filing status.
Notes to

Instructors N-10-3

TEACHING TIP – WHO CAN CLAIM THE CREDIT – WITH A 

QUALIFYING CHILD

1. Remind the students to use the eligibility worksheets for Forms 

1040, 1040A, and 1040EZ to determine eligibilty for EIC.

TEACHING TIPS – EXERCISE 1 – EIC ELIGIBILITY REQUIREMENTS

1. You may wish to use question C of Exercise 1 to reinforce the 

requirements that an individual must meet in order to be considered a qualifying child for purposes of the earned income 

credit. Ask students to determine whether Jimmy and Anna are 

qualifying children for Randy and/or Cara.

2. After students determine that both are qualifying children of 

each parent, remind students that although an individual may 

be a qualifying child of more than one taxpayer, only one taxpayer can claim the credit on the basis of that child.

TEACHING TIP – SCHEDULE EIC FOR QUALIFYING CHILD(REN)

1. Direct students’ attention to line 4(a) of Schedule EIC.

A child qualifies as a student if he or she was enrolled as a student 

at a school during any five months of 2004 or took a full-time, onfarm training course during any five months of 2004. For purposes 

of the earned income credit, “school” includes technical, trade, and 

mechanical schools, but does not include on-the-job training courses 

or correspondence schools. 

TEACHING TIP – ADVANCE EARNED INCOME CREDIT (AEIC) 

PAYMENTS

1. Taxpayers who qualify for the earned income credit may ask 

volunteers how to receive advance earned income credit payments. Taxpayers must fill out Form W-5, Earned Income Credit 

Advance Payment Certificate. Individuals who have more than 

one employer must give the form to only one employer. If a taxpayer has a spouse who works, the spouse can also give a form 

to one employer. 

If a taxpayer’s status changes during the year, making him or her 

ineligible to receive the advance earned income credit payments, he 

or she is required to complete a new Form W-5. 

Also, should a taxpayer receive advance earned income credit payments and later discovers that he or she does not qualify for the 

credit, the taxpayer will have to pay it back when filing Form 1040 

or Form 1040A. 

ALERT

Caution students 

that a new Form W-5 

must be completed 

each year. 
Notes to N-10-4 Instructors

INTERVIEW TIPS FOR VOLUNTEER ASSISTORS

To assist volunteers in asking the right questions, interview tips 

are included in this lesson. The use of probes and reference material will be stressed to arrive at a quality return. Interview tips 

have been developed as a dialogue between a volunteer and a taxpayer to assist the volunteer in preparing an accurate and quality 

return.
Lesson 10 10-1

WAGE EARNER

EARNED INCOME CREDIT (EIC) Lesson 10

INTRODUCTION AND OBJECTIVES

In this lesson we will learn about the earned income 

credit (EIC) or earned income tax credit (EITC). 

The EIC is a refundable tax credit for most people 

who work, but do not earn high incomes. Those who 

qualify can reduce their federal tax liability, potentially 

receiving a refund. 

After completing this lesson you should be able to:

■ Determine which taxpayers are eligible for the 

earned income credit.

■ Determine when a taxpayer has a qualifying child 

for the EIC.

■ Calculate and report the credit using the EIC 

worksheet.

■ Explain how to request advance earned income 

credit (AEIC) payments.

■ Report AEIC on the tax return.

GENERAL EIC REQUIREMENTS

Eligible taxpayers can receive a refund of this credit 

even if they owe no tax and had no income tax withheld. 

The taxpayer (and spouse, if filing a joint return) must 

meet certain eligibility rules and file a tax return, even 

if the taxpayer is not otherwise required to file a tax 

return. For tax year 2004 the maximum credit is: 

Two or more qualifying children $4,300

One qualifying child $2,604

No children $ 390

To be eligible for a full or partial credit, the taxpayer 

cannot have investment income of more than $2,650. 

The taxpayer must have earned income of at least $1. 

Earned income and adjusted gross income must each be 

less than the limitation amounts discussed later.

ALERT

Use the EIC decision 

tree or EIC Critical 

Interview Questions, 

in Publication 4012, 

Volunteer Resource 

Guide, to determine 

if the taxpayer 

qualifi es for EIC.
10-2 Lesson 10

WAGE EARNER

WHO CAN CLAIM THE EIC – GENERAL ELIGIBILITY RULES

All taxpayers claiming the EIC:

1. Earned income and adjusted gross income (AGI) must 

each be less than:

■ $34,458 ($35,458 married filing jointly) with two or more 

qualifying children;

■ $30,338 ($31,338 married filing jointly) with one 

qualifying child;

■ $11,490 ($12,490 married filing jointly) with no qualifying 

children.

AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 

1040A, or line 37 of Form 1040.

2. Must have a valid Social Security Number (SSN):

SSNs are required for the taxpayer (and spouse, if filing 

jointly) and any qualifying children (discussed later) listed 

on Schedule EIC. The Social Security Administration issues 

SSNs to U.S. Citizens and to certain aliens. 

If a Social Security card has the “Not Valid for 

Employment” imprint and the cardholder obtained the 

SSN to get a federally funded benefit, such as Medicaid, the 

SSN is not valid for EIC purposes.

3. Filing status cannot be married filing separately: 

To qualify for the credit, the taxpayer must file as single, 

married filing a joint return, head of household, or qualifying 

widow(er) with dependent child.

4. Must be a U.S. citizen or resident alien for the entire 

year:

There are three types of aliens for tax purposes: nonresident, 

dual-status, and resident. Dual-status and resident aliens 

are taxed as U.S. citizens. Taxpayers claiming the EIC must 

be a U.S. citizen or resident alien all year, or a nonresident 

alien married to a U.S. citizen or resident alien and filing a 

joint return.

5. Must not file Form 2555 or 2555-EZ: 

To qualify for the EIC, taxpayers must not exclude from 

gross income any income earned in foreign countries, or 

deduct or exclude a foreign housing amount.

6. Must meet the investment income limitation: 

Investment income (such as interest from savings or 

tax-exempt bonds, dividends, etc.) must be $2,650 or 

less for the tax year.

POTENTIAL

PITFALLS

If the taxpayer’s fi ling 

status is married 

fi ling separately, 

the taxpayer cannot 

claim the earned 

income credit.

ALERT

Confi rm, by 

inspection, that 

the taxpayer (and 

spouse, if fi ling 

jointly) and any 

qualifying children 

have valid Social 

Security Cards.

ALERT

If the taxpayer 

chooses to be 

treated as a resident 

alien for the entire 

year, the taxpayer 

and spouse are 

taxed on their 

worldwide income.
Lesson 10 10-3

WAGE EARNER

7. Must have earned income: 

 Taxpayers must work full- or part-time and have earned 

income during the tax year. The income must be from 

employment or self-employment. If married and filing jointly, 

at least one spouse must work and have earned income. 

Earned income is discussed in detail later.

8. Cannot be the qualifying child of another person. In

the case of a joint return, neither the taxpayer nor the spouse 

can be a qualifying child of another person. The taxpayer is 

a qualifying child of another person (the taxpayer’s parent, 

guardian, foster parent, etc.) if all the following statements are 

true:

a. Relationship: The taxpayer is the other person’s son, 

daughter, stepson, stepdaughter, or a descendant of any of 

them. Or, the taxpayer is the other person’s brother, sister, 

stepbrother, or stepsister, or a descendant of any of them, 

and that person cared for the taxpayer as his or her own 

child. Or, the taxpayer is the other person’s eligible foster 

child (placed with the other person by an authorized placement agency, and that person cared for the taxpayer as his 

or her own child.)

b. Age: On December 31st, the taxpayer was under age 19, or 

under age 24 and a full-time student, or any age and permanently and totally disabled at any time during the year.

c. Residency: The taxpayer lived with that person in the 

United States for more than half of the year.

 If the taxpayer (or spouse, if filing a joint return) is a 

qualifying child of another person, the taxpayer cannot 

claim the EIC.

INVESTMENT AND EARNED INCOME

Investment Income

Taxpayers whose investment income is more than $2,650 cannot 

claim the EIC. Investment income includes:

1. Taxable interest

2. Tax-exempt interest

3. Ordinary dividends

4. Capital gain net income

5. Certain net income from rents and royalties. (Beyond the 

scope of VITA/TCE)

6. Net income from passive activies. (Beyond the scope of 

VITA/TCE)
10-4 Lesson 10

WAGE EARNER

Earned Income

To be eligible for a full or partial credit, the taxpayer must have 

earned income of at least $1 but less than:

■ $34,458 ($35,458 married filing jointly) with two or more 

qualifying children; 

■ $30,338 ($31,338 married filing jointly) with one qualifying 

child;

■ $11,490 ($12,490 married filing jointly) with no qualifying children.

Earned income is wages, salaries, tips and other employee compensation, but only if the amounts are includible in gross income; plus 

net earnings from self-employment. Table 10-1, next page, provides 

examples of what to include and what not to include as earned 

income in computing the earned income credit. 

Notes:

Earnings while an inmate. Amounts received for work performed while an inmate in a penal institution are not considered 

earned income for purposes of the earned income credit. Enter 

“PRI” and the amount of the income earned while an inmate 

next to line 7 (Form 1040 or 1040A) or line 1 (Form 1040EZ). This 

income is still considered taxable for purposes of determining the 

taxpayer’s federal income tax.

Earnings while a household employee. If the taxpayer was a 

household employee who did not receive a Form W-2 because he or 

she was paid less than $1,400, the income must still be included on 

line 7 (Form 1040A or 1040) or line 1 (Form 1040EZ). Enter “HSH” 

and the amount not reported on Form W-2 next to line 7 (Form 

1040A or 1040) or Line 1 (Form 1040EZ).

Disability benefits. If a taxpayer retires on disability, benefits 

received under his or her employer’s disability retirement plan are 

considered earned income until the taxpayer reaches minimum 

retirement age. Minimum retirement age generally is the earliest 

age at which the taxpayer can receive a pension or annuity if not 

disabled. Taxpayers must report their taxable disability payments 

on line 7 of either Form 1040 or Form 1040A until they reach minimum retirement age (See Pension, Lesson 14).

Beginning on the day after a taxpayer reaches minimum retirement age, payments the taxpayer receives are taxable as a pension 

and are not considered earned income. Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a 

and 12b.

Disability Insurance Payments. Payments taxpayers receive 

from a disability insurance policy for which they paid the premiums are not earned income. It does not matter whether they have 

reached minimum retirement age. If this policy is through their 

employer, the amount may be shown in box 12 of their Form W-2 

with code “J.”

POTENTIAL

PITFALLS

Earnings while 

in prison are not 

considered earned 

income.

ALERT

Disability payments 

received before a 

taxpayer reaches 

minimum retirement 

age is considered 

earned income.
Lesson 10 10-5

WAGE EARNER

Examples of Earned Income for the EIC

To qualify for the EIC, taxpayers must work full- or part-time 

and have earned income during the tax year. If married and filing jointly, at least one spouse must work and have earned income. 

Earned income includes all taxable income gained from working as 

an employee and net earnings from self-employment. Nontaxable 

income generally does not count as earned income. (See Table 10-1)

Table 10-1 Earned Income Table

Earned Income

Includes Does not include

■ Taxable wages, 

salaries, and tips

■ Union strike benefi ts

■ Taxable long-term 

disability benefi ts 

received prior to 

minimum retirement 

age

■ Net earnings from 

self-employment

■ Gross income of a 

statutory employee

■ Household

employee income

■ Interest and dividends

■ Social Security and railroad retirement benefi ts

■ Welfare benefi ts

■ Workfare payments

■ Pensions and annuities

■ Veteran’s benefi ts (including VA rehabilitation payments)

■ Workers’ compensation benefi ts

■ Alimony

■ Child Support

■ Nontaxable foster care payments

■ Unemployment compensation

■ Taxable scholarship or fellowship grants that are not reported on Form W-2

■ Earnings for work performed while an inmate at a penal institution

■ Salary deferrals (for example, under a 401(k) or 403(b) plan or the Federal Thrift 

Savings Plan)

■ Basic housing and subsistence allowances for the U.S. Military (box 12,code Q of 

Form W-2)

■ The value of meals or lodging provided by an employer for the convenience of the 

employer

■ Housing allowance or rental value of a parsonage for the clergy

■ Excludable dependent care benefi ts (line 18 of either Form 2441, Form 1040, or 

Schedule 2, Form 1040A)

■ Salary reductions such as under a cafeteria plan

■ Excludable employer provided educational assistance benefi ts (may be shown in 

box 13 of Form W-2)

■ Anything else of value received from someone for services performed, if it is not 

currently taxable
10-6 Lesson 10

WAGE EARNER

The interview tips you should use when determining EIC General Eligibility Rules are 

shown in Exhibit 1 below.

Exhibit 1 EIC General Eligibility Rules

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

EIC General Eligibility Rules

Probe/Action: Ask the taxpayer: 

Step 1: Calculate the taxpayer’s earned income and 

Adjusted Gross Income (AGI) for the tax year. 

Are both less than:

  $34,458 ($35,458 married fi ling jointly) with 

two or more qualifying children;

  $30,338 ($31,338 married fi ling jointly) with 

one qualifying child; or

  $11,490 ($12,490 married fi ling jointly) with 

no qualifying children?

If yes, go to Step 2.

If no, STOP. You cannot claim the EIC.

Step 2: Do you (and your spouse, if fi ling jointly) have 

a social security number (SSN) that allows you 

to work?

 Caution: Answer “yes” if the taxpayer’s 

social security card says “NOT VALID FOR 

EMPLOYMENT” and the taxpayer or spouse 

did not obtain the SSN to get a federally 

funded benefi t. 

If yes, go to Step 3.

If no, STOP. You cannot claim the EIC.

Step 3: Is your fi ling status married fi ling separately? If yes, STOP. You cannot claim the EIC.

If no, go to Step 4.

Step 4: Are you (or your spouse, if married) a nonresident alien?

Caution: Answer “no” if the taxpayer is married 

fi ling a joint return, even if one taxpayer is a 

nonresident alien.

If yes and you are either unmarried or married but not 

fi ling a joint return, STOP. You cannot claim the EIC.

If no, go to Step 5.

Step 5: Are you (or your spouse, if fi ling jointly) fi ling 

Form 2555 or Form 2555EZ (Foreign Earned 

Income)?

If yes, STOP. You cannot claim the EIC.

If no, go to Step 6.

Step 6: Is your investment income more than $2,650? If yes, STOP. You cannot claim the EIC.

If no, go to Step 7.

Step 7: Are you (or your spouse, if fi ling jointly) an EIC 

qualifying child of another person?

If yes, STOP. You cannot claim the EIC.

If no, go to the interview tips for EIC-With A Qualifying Child (Exhibit 2) or EIC-Without A Qualifying Child 

(Exhibit 3).
Lesson 10 10-7

WAGE EARNER

WHO CAN CLAIM THE CREDIT – WITH A QUALIFYING CHILD

If the taxpayer meets the EIC general eligibility rules (previously 

discussed), you must now determine if the taxpayer can claim the 

credit with a qualifying child or without a qualifying child. 

To be a qualifying child for the EIC, a child: Must meet 

relationship, age, and residency tests. Note: A child is 

not a qualifying child until the child meets all 3 tests.

The following chart outlines the relationship, age, and 

residency tests:

Table 10-2

RELATIONSHIP AGE RESIDENCY

■ Son, daughter, 

stepson,

stepdaughter or a 

descendant of any 

of them*

or

■ Brother, sister, 

stepbrother, 

stepsister or a 

descendant of any 

of them, whom the 

taxpayer cares for as 

his or her own child

or

■ Eligible foster child

and...

■ Under age 19 at the 

end of the tax year

or

■ Under age 24 and a 

full-time student, at the 

end of the tax year

or

■ Any age and 

permanently and totally 

disabled at any time 

during the year

and...

■ Lived with the taxpayer in 

the United States for more 

than half the tax year (at 

least 184 days for 2004). 

This includes the time that 

the taxpayer and the child 

are temporarily apart due 

to a special circumstance, 

such as military service, 

school attendance, 

hospitalization or juvenile 

detention

Note: Child birth/death: If 

the child was born or died 

during the year, the child is 

considered to meet the test 

if the child lived with the 

taxpayer while the child 

was alive. 

*If the child was married at the end of the year, he or she does not meet the relationship test unless:

 1. The taxpayer can claim the child’s exemption,

 or

 2. The taxpayer cannot claim the child’s exemption because the taxpayer gave that 

right to the child’s other parent.

Definitions

An eligible foster child is a child placed with the taxpayer by an 

authorized placement agency whom the taxpayer cares for as his 

or her own child. An authorized placement agency includes a state 

or local government agency or court. It also includes a tax-exempt 

organization licensed by a state. In addition, it includes an Indian 

tribal government, or an organization authorized by an Indian 

tribal goverment to place Indian children.

ALERT

EIC requirements 

for a qualifying child 

are not the same 

requirements to be 

a qualifying child for 

the Child Tax Credit.
10-8 Lesson 10

WAGE EARNER

An adopted child is treated as a biological child and includes a 

child placed with the taxpayer for adoption by an authorized placement agency, even if the adoption is not final.

A child is permanently and totally disabled if: 

1. He or she cannot engage in any substantial gainful activity 

because of a physical or mental condition, and

2. A doctor determines the condition has lasted or can be expected 

to last continuously for at least a year, or can lead to death.

Taxpayers may be able to claim the EIC on the basis of a child

who was kidnapped by someone who is not a member of the 

taxpayer’s family or the child’s family. (See Publication 596, Earned 

Income Credit)

A taxpayer does not need a home to claim the EIC. For example, if 

the taxpayer and his or her child(ren) lived together for more than 

half the year in one or more homeless shelters, the child meets the 

residency test.

After you have determined that a child meets the three tests, make 

sure that the child has a valid SSN. (See page 10-2) 

Qualifying Child of More Than One Taxpayer

The qualifying child cannot be used by more than one person to claim the EIC. If a child is a qualifying child of more than 

one taxpayer, the taxpayers may choose which of them will claim 

the credit on the basis of that child. If two or more children are 

qualifying children of the same taxpayers (not filing a joint return 

together), the taxpayers may agree that one will claim the credit 

on the basis of one child and the other will claim the credit on the 

basis of the other child. 

In those instances where two or more persons have the same qualifying child and more than one taxpayer claims the child on their 

return for EIC purposes, the IRS will apply the Tie-Breaker Rule

to determine who can claim the credit using the child.

Table 10-3 EIC Tie-Breaker Rule

IF more than one person claims the EIC 

using the same child and ... THEN ...

Only one of the persons is the child’s parent Only the parent can treat the child as 

a qualifying child.

Two of the persons are the child’s parents, 

and they do not fi le a joint return together

Only the parent with whom the child 

lived the longest during the year can 

treat the child as a qualifying child. 

Two of the persons are the child’s parents, 

the child lived with each parent the same 

amount of time during the year, and the 

parents do not fi le a joint return together

Only the parent with the highest 

adjusted gross income (AGI) can treat 

the child as a qualifying child.

None of the persons are the child’s parent Only the person with the highest AGI 

can treat the child as a qualifying child.
Lesson 10 10-9

WAGE EARNER

Example 1 Jane (age 30) is unmarried. In 2004, Jane lived with 

her four children and her mother, Linda. Provided they each meet 

the eligibility and income requirements, Jane may claim the EIC 

based on two of the children, and Linda may claim the EIC based 

on the other two children.

Example 2 John (age 26) is unmarried. In 2004, John and his 

daughter, Lynn, lived with John’s father, Paul. John’s sole income 

was wages of $19,000. Paul’s sole income was wages of $12,000. 

Lynn is a qualifying child of both John and Paul. John and Paul 

agree that Paul will claim the EIC on the basis of Lynn, because 

Paul’s credit would be more than John’s. If John later decides to 

claim the credit, under the tie-breaker rule, Paul will lose the 

credit he claimed and must repay the EIC.
10-10 Lesson 10

WAGE EARNER

The interview tips you should use when determining EIC With A Qualifying Child are 

shown in Exhibit 2 below.

Exhibit 2 EIC - With A Qualifying Child

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

EIC With A Qualifying Child (Remember to apply the steps for each qualifying child)

Probe/Action: Ask the taxpayer: 

Step 1: Does your qualifying child have an SSN that 

allows him or her to work? Caution: Answer 

“yes” if the child’s social security card says 

“NOT VALID FOR EMPLOYMENT” and his 

or her SSN was obtained for a reason other 

than to get a federally funded benefi t.

If yes, go to Step 2.

If no, STOP. You cannot claim the EIC on the basis of this 

qualifying child. 

Step 2: Is the child your son, daughter, stepchild, or 

a descendant of 1 any of them?*

If yes, go to Step 5. 

If no, go to Step 3.

Step 3: Is the child your brother, sister, stepbrother, 

stepsister, or a descendant of 1 any of them, 

or was the child placed with you by an 

authorized placement agency?

If yes, go to Step 4.

If no, STOP. This child is not your qualifying child. Go to 

interview tips for EIC-Without A Qualifying Child (Exhibit 3).

Step 4: Did you care for the child as you would care 

for your own child?

If yes, go to Step 5.

If no, STOP. This child is not your qualifying child. Go to 

interview tips for EIC-Without A Qualifying Child (Exhibit 3).

Step 5: Was the child any of the following at the end 

of the tax year:

 Under age 19,

 Under age 24 and a full-time student, or

 Any age and permanently and totally 

disabled?

If yes, go to Step 6.

If no, STOP. This child is not your qualifying child. Go to 

interview tips for EIC-Without A Qualifying Child (Exhibit 3).

Step 6: Was the child married at the end of the 

year?*

If no, go to Step 7. 

If yes, STOP. This child is not your qualifying child (failed 

the relationship test). Go to interview tips for EIC-Without A 

Qualifying Child (Exhibit 3).

Step 7: Did the child live with you in the United 

States for more than half (184 days) of the 

tax year?

If yes, go to Step 8.

If no, STOP. This child is not your qualifying child. Go to 

interview tips for EIC-Without A Qualifying Child (Exhibit 3).

Step 8: Is the child a qualifying child of another 

person?

If yes, explain to the taxpayer what happens when more 

than one person claims the EIC using the same child (The

Tie-Breaker Rule). If the taxpayer chooses to claim the 

credit with this child, compute the EIC using the appropriate 

EIC Worksheets. 

If no, compute the EIC using the appropriate EIC 

worksheet.

* If your child was married at the end of the year, he or she does not meet the relationship test unless: You can claim the child’s exemption or you 

cannot claim the child’s exemption because you gave that right to the child’s other parent. 

1A descendant of is any generation.
Lesson 10 10-11

WAGE EARNER

WHO CAN CLAIM THE EIC – WITHOUT A QUALIFYING CHILD

In addition to meeting the basic eligibility requirements discussed 

earlier, taxpayers without a qualifying child must meet the following 

requirements:

1. Must have lived in the United States more than half the tax 

year. If filing a joint return, both spouses must have lived in 

the United States (includes the 50 states and the District of 

Columbia) for more than half the tax year. 

2. Must be at least age 25 but not age 65 or older. If filing a joint 

return, only one spouse must meet this requirement.

3. Cannot qualify as the dependent of another person. If filing a 

joint return, both spouses must meet this requirement.

The interview tips you should use when determining EIC Without 

A Qualifying Child are shown in Exhibit 3 below.

Exhibit 3 EIC - Without a Qualifying Child

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

EIC Without A Qualifying Child

Probe/Action: Ask the taxpayer: 

Step 1: Can you (or your spouse, if fi ling jointly) be 

claimed as a dependent by another person?

If yes, STOP. You cannot claim the EIC.

If no, go to Step 2. 

Step 2: Were you (or your spouse, if fi ling jointly) at 

least 25 but under age 65 on December 31 

of the tax year?

If yes, go to Step 3.

If no, STOP. You cannot claim the EIC.

Step 3: Did you (and your spouse, if fi ling jointly) live 

in the United States for more than half 

(at least 184 days) of the tax year?

If yes, compute EIC using the appropriate EIC Worksheet. 

If no, STOP. You cannot claim the EIC
10-12 Lesson 10

WAGE EARNER

Table 10-4 Summary of Eligibility Requirements

Part A

Rules for Everyone

Part B

Rules If You Have 

a Qualifying Child

Part C

Rules If You Do Not 

Have a Qualifying Child

Must have a valid social security 

number.

Child must meet the relationship, 

age, and residency tests.

Must be at least age 25 but under 

age 65.

Filing status cannot be “Married filing separately.”Qualifying child cannot be used 

by more than one person to claim 

the EIC.

Cannot be the dependent of another 

person.

Must be a U.S. citizen or resident 

alien all year.

Must have lived in the United States 

more than half the year.

Cannot file Form 2555 or Form 

2555-EZ (relating to foreign earned 

income).

Investment income must be $2,650 

or less.

Cannot be a qualifying child of 

another person.

Part D

Earned Income and AGI Limitations

Must be less than:

■ $34,458 ($35,458 for married filing jointly) if you 

have more than one qualifying child,

■ $30,338 ($31,338 for married filing jointly) if you 

have one qualifying child, or

■ $11,490 ($12,490 for married filing jointly) if you do 

not have a qualifying child

Part E

Investment Income

Investment income must not be more than $2,650.
Lesson 10 10-13

WAGE EARNER

Exercise 1 – EIC Eligibility Requirements

A. Sharon has an eligible foster child, Eric. Eric is 12 years old 

and began living with Sharon in August 2004. Sharon’s earned 

income and her adjusted gross income are $14,275. Can 

Sharon claim the earned income credit? 

_________________________________________________________

B. Doug and Donna are married and live together. Their combined earned income is $22,242. Doug reports adjusted gross 

income of $10,728 on his separate tax return, and Donna 

reports adjusted gross income of $11,514 on her separate 

return. Sam, their four-year-old son, lives with Doug and 

Donna. Can Doug and/or Donna claim the earned income 

credit?

C. Randy and Cara were married and lived together until 

August when they divorced. Randy and Cara have two children, Jimmy, age seven, and Anna, age five. The children lived 

with both of their parents until August, and then they lived 

with their mother. Randy’s earned income and adjusted gross 

income are $19,251. Cara’s earned income is $14,751, and her 

adjusted gross income is $15,362. Can Randy and/or Cara 

claim the earned income credit? 

D. Benjamin, age 26, lives alone, is single, and earns $8,250. 

His adjusted gross income is $8,950. Can Benjamin claim the 

earned income credit?

E. Melanie is 18 years old and married. Melanie’s husband is 

overseas, and she lives with her mother, Susan. Susan’s earned 

income is $18,431,and her adjusted gross income is $18,453. 

Susan cannot claim Melanie as a dependent. Can Susan claim 

the earned income credit?

F. Circle the items that are considered earned income for earned 

income credit purposes.

1. Wages

2. Child Support

3. Social security benefits

4. Interest income

5. Unemployment compensation

6. Tip income

7. Dividend income

8. Military subsistence allowances
10-14 Lesson 10

WAGE EARNER

DETERMINING ELIGIBILITY AND FIGURING THE CREDIT

The EIC is not for everyone. You can minimize delays in processing the taxpayer’s current and future returns by using the EIC 

steps and Worksheet to determine eligibility and figure the 

credit. 

Taxpayers determine their eligibility for EIC by working through 

the steps in the EIC instructions for 1040, 1040A, or 1040EZ. 

Taxpayers complete the EIC Worksheet in the instructions to figure 

the credit. Taxpayers should keep the steps and worksheet with 

their records.

Before completing line 65 of Form 1040, line 41 of Form 1040A, or 

line 8 of Form 1040EZ, you must complete the applicable EIC worksheet. If the taxpayer is not eligible to claim the credit but appears 

to be based on income limitations, write “No” next to line 65 of 

1040, line 41 of 1040A, or line 8 of 1040EZ.

The Earned Income Credit Table is used to determine the 

amount of the credit. The tables are found in the instructions for 

Forms 1040EZ, 1040A, and 1040 and also in Appendix C of this 

book.

Using the EIC Worksheets

The EIC steps are used to determine eligibility. The EIC worksheet is used to determine the credit. Since the 1040A EIC 

worksheet is the more commonly used worksheet at VITA/TCE 

sites, our exercise will focus on using the Form 1040A EIC steps 

and EIC worksheet, which together consist of 5 pages.

In most cases, all that is needed to complete EIC tax returns are 

the appropriate tax form and instructions booklets for Forms 

1040, 1040A, & 1040EZ. Each form has its own worksheet(s) as 

described below. 

■ Form 1040 EIC Worksheet. If the taxpayer files Form 

1040, you will use the steps in the Form 1040 package and 

either Worksheet A or Worksheet B. Worksheet A is for taxpayers whose earned income was received as an employee. 

Worksheet B is for taxpayers who have self-employment 

income, a member of the clergy or a church employee who 

files Schedule SE, or a statutory employee filing Schedule C 

or C-EZ.

■ Form 1040A Worksheet. If the taxpayer files Form 1040A, 

you will use the steps and EIC worksheet in the Form 1040A 

package (see Exhibits 4–8).

■ Form 1040EZ Worksheet. If the taxpayer files Form 

1040EZ, you will use the steps and EIC worksheet in the 

Form 1040EZ package. 

POTENTIAL

PITFALLS

Remember that 

the amount of the 

earned income 

credit depends 

on the taxpayer’s 

income, number of 

qualifying children, 

and fi ling status. 

Be sure to use the 

correct column from 

the EIC Table.
Lesson 10 10-15

WAGE EARNER

Using the EIC Table (See Appendix C)

When using the earned income credit table to determine the credit, 

read down the columns labeled “At least.... But less than” and find 

the line that includes the amount you are instructed to look up 

from the EIC Worksheet. Read across to the column that includes 

the number of qualifying children of the taxpayer and filing status. Enter the earned income credit from that column on the EIC 

Worksheet.

Example 6 - Using The EIC Table

 Roger’s filing status is head of household and he has two qualifying children. The amount shown on lines 1 and 3 of his Form 

1040A EIC Worksheet is $19,300.

 Roger’s earned income credit from the EIC Table is $3,187. 

Exhibits 4 thru 8 shows how Roger’s EIC is computed.

POTENTIAL

PITFALLS

Errors are easily 

made when using 

the earned income 

credit table. To 

ensure you have 

entered the correct 

amount on the tax 

form, look up the 

credit twice—once 

before you enter the 

credit on the form 

and once after you 

enter it on the form.
10-16 Lesson 10

WAGE EARNER

Exhibit 4 Roger’s Eligibility Questions, page 1

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Line 41

Step 2 Investment Income Earned Income Credit (EIC)

1. Add the amounts from 

What is the EIC? Form 1040A:

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

Line 10 + • Follow the steps below.

• Complete the worksheet that applies to you or let the IRS

figure the credit for you. Investment Income =

• If you have a qualifying child, complete and attach

Schedule EIC.

2. Is your investment income more than $2,650? If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or Yes. STOP No. Continue

CAUTION intentional disregard of the EIC rules, you will not be You cannot take the  !

allowed to take the credit for 2 years even if you are credit. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Did a child live with you in 2004?

Yes. Go to Step 3 on No. Go to Step 4 on 

page 39. page 39. Step 1 All Filers

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040A,

line 22, less than $34,458 ($35,458 if married filing

jointly)?

• 1 child lived with you, is the amount on Form 1040A, line

22, less than $30,338 ($31,338 if married filing jointly)?

• No children live with you, is the amount on Form 1040A,

line 22, less than $11,490 ($12,490 if married filing

jointly)?

Yes. Continue No.



STOP

You cannot take the credit.

2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 41)?

Yes. Continue No.



STOP

You cannot take the credit.

Put “No” to the left of the

entry space for line 41.

3. Is your filing status married filing separately?

Yes. STOP No. Continue

You cannot take the 

credit.

4. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 41.

(Continued on page 39)

Need more information or forms? See page 7. - 38 -

✘

✘

✘

✘

0.00

✘

✘
Lesson 10 10-17

WAGE EARNER

Exhibit 5 Roger’s Eligibility Questions, page 2

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 38

3. Does the child meet the conditions to be a qualifying child

Step 3 Qualifying Child of any other person (other than your spouse if filing a joint

return) for 2004?

Yes. See Qualifying No. This child is your A qualifying child is a child who is your... child of more than one qualifying child. The child

person on must have a valid social sepage 41. curity number as defined Son, daughter, adopted child, stepchild, or a descendant on page 41 unless the child of any of them (for example, your grandchild) was born and died in 2004. or Skip Step 4; go to Step 5 Brother, sister, stepbrother, stepsister, or a descendant of on page 40.

any of them (for example, your niece or nephew) whom

you cared for as you would your own child

or Step 4 Filers Without a Qualifying Child

Foster child (any child placed with you by an authorized 1. Look at the qualifying child conditions in Step 3. Could placement agency whom you cared for as you would your you, or your spouse if filing a joint return, be a qualifying own child) child of another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

AND

left of the entry space was at the end of 2004... for line 41.

Under age 19 2. Can you, or your spouse if filing a joint return, be claimed

or as a dependent on someone else’s 2004 tax return?

Yes. STOP No. Continue

 Under age 24 and a student (see page 41)

You cannot take the or credit.

Any age and permanently and totally disabled (see page 41)

3. Were you, or your spouse if filing a joint return, born before

January 2, 1980, but under age 65 at the end of 2004?

Yes. Continue No.



STOP

AND

You cannot take the credit.

who...

4. Was your home, and your spouse’s if filing a joint return, in Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. If the child did not live with you for the the military stationed outside the United States, see page 41 required time, see Exception to “time lived with you” before you answer.

condition on page 40. Yes. Go to Step 5 No. STOP

on page 40. You cannot take the credit.

Put “No” to the left of the

entry space for line 41. CAUTION

!

 If the child was married, see page 41.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

left of the entry space

for line 41.

(Continued on page 40)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip question 3; go to

question 3. Step 4, question 2.

- 39 - Need more information or forms? See page 7.

✘

✘

✘
10-18 Lesson 10

WAGE EARNER

Exhibit 6 Roger’s Eligibility Questions, page 3

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 39

Definitions and Special Rules

Step 5 Earned Income (listed in alphabetical order)

1. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an Form 1040A, line 7 authorized placement agency for legal adoption even if the adoption Subtract, if included on line 7, any: is not final. An authorized placement agency includes any person or

court authorized by state law to place children for legal adoption. • Taxable scholarship or fellowship

grant not reported on a Form W-2.

• Amount paid to an inmate in a penal Credit figured by the IRS. To have the IRS figure the credit for institution for work (put “PRI” and the you:

amount subtracted to the left of the 1. Put “EIC” to the left of the entry space for line 41 of Form entry space for line 7 of Form 1040A. 1040A). 2. If you have a qualifying child, complete and attach • Amount received as a pension or – Schedule EIC. If your EIC for a year after 1996 was annuity from a nonqualified deferred reduced or disallowed, see Form 8862, Who must file,

compensation plan or a below.

nongovernmental section 457 plan

(put “DFC” and the amount subtracted

to the left of the entry space for line 7 } Exception to “time lived with you” condition. A child is conof Form 1040A). This amount may be sidered to have lived with you for all of 2004 if the child was born shown in box 11 of your Form W-2. or died in 2004 and your home was this child’s home for the entire

If you received such an amount but time he or she was alive in 2004. Temporary absences, such as for

box 11 is blank, contact your school, vacation, medical care, or detention in a juvenile facility,

employer for the amount received as a count as time lived at home. If your child is presumed to have been

pension or annuity. kidnapped by someone who is not a family member, see Pub. 596 to

find out if that child is a qualifying child for the EIC. To get Pub.

596, see page 7. If you were in the military stationed outside the

Earned Income = United States, see Members of the military on page 41.

2. If you have: Form 8862, Who must file. You must file Form 8862 if your EIC • 2 or more qualifying children, is your earned income less for a year after 1996 was reduced or disallowed for any reason other than $34,458 ($35,458 if married filing jointly)? than a math or clerical error. But you do not have to file Form 8862 • 1 qualifying child, is your earned income less than if either of the following applies.

$30,338 ($31,338 if married filing jointly)? 1. After your EIC was reduced or disallowed in an earlier • No qualifying children, is your earned income less than year (a) you filed Form 8862 (or other documents) and $11,490 ($12,490 if married filing jointly)? your EIC was then allowed, and (b) your EIC has not been

Yes. Go to Step 6. No. STOP reduced or disallowed again for any reason other than a

math or clerical error. You cannot take the credit.

2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the

earlier year was because it was determined that a child Step 6 How To Figure the Credit listed on Schedule EIC was not your qualifying child.

1. Do you want the IRS to figure the credit for you?

Yes. See Credit fig- No. Go to the worksheet Also, do not file Form 8862 or take the credit for 2 years if it was

ured by the IRS on on page 42. determined that your error was due to reckless or intentional disrethis page. gard of the EIC rules (or 10 years if due to fraud).

(Continued on page 41)

Need more information or forms? See page 7. - 40 -

19,300.00

19,300.00

✘

✘
Lesson 10 10-19

WAGE EARNER

Exhibit 7 Roger’s Eligibility Questions, page 4

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 40

Marr The child must have a valid social security number as defined ied child. A child who was married at the end of 2004 is a

below unless the child was born and died in 2004. If you do not qualifying child only if (a) you can claim him or her as your have a qualifying child, stop; you cannot take the EIC. Put “No” to dependent on Form 1040A, line 6c, or (b) this child’s other parent the left of the entry space for line 41. If you have a qualifying child, claims him or her as a dependent under the rules on page 20 for

Children of divorced or separated parents skip Step 4; go to Step 5 on page 40. . Example. You and your 5-year-old daughter moved in with Members of the military. If you were on extended active duty your mother in April 2004. You are not a qualifying child of your outside the United States, your home is considered to be in the mother. Your daughter meets the conditions to be a qualifying child United States during that duty period. Extended active duty is for both you and your mother. If you and your mother cannot agree military duty ordered for an indefinite period or for a period of more on who will treat your daughter as a qualifying child, the above than 90 days. Once you begin serving extended active duty, you are rules apply. Under these rules, you are entitled to treat your daugh- considered to be on extended active duty even if you serve fewer ter as a qualifying child because you are the child’s parent. Your than 90 days. mother would not be entitled to claim any EIC unless she has a

different qualifying child. Nonresident aliens. If your filing status is married filing jointly,

go to Step 2 on page 38. Otherwise, stop; you cannot take the EIC. Social security number (SSN). For purposes of taking the EIC, a

valid SSN is a number issued by the Social Security Administration Permanently and totally disabled child. A child who cannot unless “Not Valid for Employment” is printed on the social security engage in any substantial gainful activity because of a physical or card and the number was issued solely to apply for or receive a mental condition and a doctor has determined that this condition: federally funded benefit. • Has lasted or can be expected to last continuously for at To find out how to get an SSN, see page 18. If you will not have least a year, or an SSN by April 15, 2005, see What if You Cannot File on Time? • Can lead to death. on page 12.

Qualifying child of more than one person. If the child meets Student. A child who during any 5 months of 2004:

the conditions to be a qualifying child of more than one person, only • Was enrolled as a full-time student at a school, or

one person can take the EIC based on that child. The other person(s) • Took a full-time, on-farm training course given by a school cannot take the EIC for people without a qualifying child, but may or a state, county, or local government agency. take the EIC based on a different qualifying child. If you and the A school includes technical, trade, and mechanical schools. It other person(s) cannot agree who will take the EIC, then the follow- does not include on-the-job training courses, correspondence ing rules apply. schools, or night schools. • If only one of the persons is the child’s parent, the child

will be treated as the qualifying child of the parent. Welfare benefits, effect of credit on. Any refund you receive as • If both persons are the child’s parents, the child will be a result of taking the EIC will not be used to determine if you are treated as the qualifying child of the parent with whom the eligible for the following programs or how much you can receive child lived for the longer period of time during 2004. If the from them. But if the refund you receive because of the EIC is not child lived with each parent for the same amount of time, spent within a certain period of time, it may count as an asset (or the child will be treated as the qualifying child of the parent resource) and affect your eligibility. who had the higher adjusted gross income (AGI) for 2004. • Temporary Assistance for Needy Families (TANF). • If none of the persons is the child’s parent, the child will be • Medicaid and supplemental security income (SSI). treated as the qualifying child of the person who had the • Food stamps and low-income housing. highest AGI for 2004.

- 41 - Need more information or forms? See page 7.
10-20 Lesson 10

WAGE EARNER

Exhibit 8 Roger’s 1040A EIC Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Earned Income Credit (EIC) Worksheet—Line 41

1040A

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

1.

2.

3.

4.

5.

1 Enter your earned income from Step 5 on

page 40.

Look up the amount on line 1 above in the EIC Table on pages 43–47

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040A, line 22.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 43–47 to find the credit. Be sure you use the correct

column for your filing status and the number of children you

have. Enter the credit here.

Enter this amount on

Form 1040A, line 41.

3

Part 3 6

Part 1

Part 2

All Filers

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” to the left of the entry space for line 41.

● No qualifying children, is the amount on line 3 less than $6,400 ($7,400

if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than $14,050

($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach

Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 40 to find out if you must file Form 8862 to take the credit

for 2004.

  

EIC

1040A

CAUTION

Need more information or forms? See page 7. - 42 -

19,300.00

3,187.00

19,300.00

✘

3,187.00
Lesson 10 10-21

WAGE EARNER

Exercise 2 – Determining Eligibility and Figuring the Credit

A. Alex and Cheryl have two qualifying children. Their filing status is married filing jointly. The amount shown on lines 1 and 

3 of their EIC Worksheet is $19,866.

What is the earned income credit from the EIC Table? 

B. Roxanne is divorced. She lives with her infant daughter. 

The amount shown on lines 1 and 3 of her EIC Worksheet is 

$17,750.

What is the earned income credit from the EIC Table? 

C. Sam U. and Robin O. Bell are married and file a joint return. 

Sam’s social security number is xxx-xx-xxxx and Robin’s is 

xxx-xx-xxxx. Form 1040A, line 7 shows that the Bells had 

wages of $21,211, line 8a shows $39 of taxable interest income, 

and line 22 shows the Bells’ adjusted gross income of $21,250.

 They have a child, Jennifer S. Bell (SSN xxx-xx-xxxx) who was 

born in 1996. Jennifer lived with her parents for the entire year.

 Complete the Form 1040A EIC Eligibility Questions and 

Worksheet, Exhibits 9–13.
10-22 Lesson 10

WAGE EARNER

Exhibit 9 Complete Sam U. and Robin O.’s Eligibility Questions, page 1

Proof as of

June 18, 2004

(subject to change)

Line 41

Step 2 Investment Income Earned Income Credit (EIC)

1. Add the amounts from 

What is the EIC? Form 1040A:

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

Line 10 + • Follow the steps below.

• Complete the worksheet that applies to you or let the IRS

figure the credit for you. Investment Income =

• If you have a qualifying child, complete and attach

Schedule EIC.

2. Is your investment income more than $2,650? If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or Yes. STOP No. Continue

CAUTION intentional disregard of the EIC rules, you will not be You cannot take the  !

allowed to take the credit for 2 years even if you are credit. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Did a child live with you in 2004?

Yes. Go to Step 3 on No. Go to Step 4 on 

page 39. page 39. Step 1 All Filers

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040A,

line 22, less than $34,458 ($35,458 if married filing

jointly)?

• 1 child lived with you, is the amount on Form 1040A, line

22, less than $30,338 ($31,338 if married filing jointly)?

• No children live with you, is the amount on Form 1040A,

line 22, less than $11,490 ($12,490 if married filing

jointly)?

Yes. Continue No.



STOP

You cannot take the credit.

2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 41)?

Yes. Continue No.



STOP

You cannot take the credit.

Put “No” to the left of the

entry space for line 41.

3. Is your filing status married filing separately?

Yes. STOP No. Continue

You cannot take the 

credit.

4. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 41.

(Continued on page 39)

Need more information or forms? See page 7. - 38 -
Lesson 10 10-23

WAGE EARNER

Exhibit 10 Complete Sam U. and Robin O.’s Eligibility Questions, page 2

Proof as of

June 18, 2004

(subject to change)

Continued from page 38

3. Does the child meet the conditions to be a qualifying child

Step 3 Qualifying Child of any other person (other than your spouse if filing a joint

return) for 2004?

Yes. See Qualifying No. This child is your A qualifying child is a child who is your... child of more than one qualifying child. The child

person on must have a valid social sepage 41. curity number as defined Son, daughter, adopted child, stepchild, or a descendant on page 41 unless the child of any of them (for example, your grandchild) was born and died in 2004. or Skip Step 4; go to Step 5 Brother, sister, stepbrother, stepsister, or a descendant of on page 40.

any of them (for example, your niece or nephew) whom

you cared for as you would your own child

or Step 4 Filers Without a Qualifying Child

Foster child (any child placed with you by an authorized 1. Look at the qualifying child conditions in Step 3. Could placement agency whom you cared for as you would your you, or your spouse if filing a joint return, be a qualifying own child) child of another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

AND

left of the entry space was at the end of 2004... for line 41.

Under age 19 2. Can you, or your spouse if filing a joint return, be claimed

or as a dependent on someone else’s 2004 tax return?

Yes. STOP No. Continue

 Under age 24 and a student (see page 41)

You cannot take the or credit.

Any age and permanently and totally disabled (see page 41)

3. Were you, or your spouse if filing a joint return, born before

January 2, 1980, but under age 65 at the end of 2004?

Yes. Continue No.



STOP

AND

You cannot take the credit.

who...

4. Was your home, and your spouse’s if filing a joint return, in Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. If the child did not live with you for the the military stationed outside the United States, see page 41 required time, see Exception to “time lived with you” before you answer.

condition on page 40. Yes. Go to Step 5 No. STOP

on page 40. You cannot take the credit.

Put “No” to the left of the

entry space for line 41. CAUTION

!

 If the child was married, see page 41.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

left of the entry space

for line 41.

(Continued on page 40)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip question 3; go to

question 3. Step 4, question 2.

- 39 - Need more information or forms? See page 7.
10-24 Lesson 10

WAGE EARNER

 Exhibit 11 Complete Sam U. and Robin O.’s Eligibility Questions, page 3

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 39

Definitions and Special Rules

Step 5 Earned Income (listed in alphabetical order)

1. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an Form 1040A, line 7 authorized placement agency for legal adoption even if the adoption Subtract, if included on line 7, any: is not final. An authorized placement agency includes any person or

court authorized by state law to place children for legal adoption. • Taxable scholarship or fellowship

grant not reported on a Form W-2.

• Amount paid to an inmate in a penal Credit figured by the IRS. To have the IRS figure the credit for institution for work (put “PRI” and the you:

amount subtracted to the left of the 1. Put “EIC” to the left of the entry space for line 41 of Form entry space for line 7 of Form 1040A. 1040A). 2. If you have a qualifying child, complete and attach • Amount received as a pension or – Schedule EIC. If your EIC for a year after 1996 was annuity from a nonqualified deferred reduced or disallowed, see Form 8862, Who must file,

compensation plan or a below.

nongovernmental section 457 plan

(put “DFC” and the amount subtracted

to the left of the entry space for line 7 } Exception to “time lived with you” condition. A child is conof Form 1040A). This amount may be sidered to have lived with you for all of 2004 if the child was born shown in box 11 of your Form W-2. or died in 2004 and your home was this child’s home for the entire

If you received such an amount but time he or she was alive in 2004. Temporary absences, such as for

box 11 is blank, contact your school, vacation, medical care, or detention in a juvenile facility,

employer for the amount received as a count as time lived at home. If your child is presumed to have been

pension or annuity. kidnapped by someone who is not a family member, see Pub. 596 to

find out if that child is a qualifying child for the EIC. To get Pub.

596, see page 7. If you were in the military stationed outside the

Earned Income = United States, see Members of the military on page 41.

2. If you have: Form 8862, Who must file. You must file Form 8862 if your EIC • 2 or more qualifying children, is your earned income less for a year after 1996 was reduced or disallowed for any reason other than $34,458 ($35,458 if married filing jointly)? than a math or clerical error. But you do not have to file Form 8862 • 1 qualifying child, is your earned income less than if either of the following applies.

$30,338 ($31,338 if married filing jointly)? 1. After your EIC was reduced or disallowed in an earlier • No qualifying children, is your earned income less than year (a) you filed Form 8862 (or other documents) and $11,490 ($12,490 if married filing jointly)? your EIC was then allowed, and (b) your EIC has not been

Yes. Go to Step 6. No. STOP reduced or disallowed again for any reason other than a

math or clerical error. You cannot take the credit.

2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the

earlier year was because it was determined that a child Step 6 How To Figure the Credit listed on Schedule EIC was not your qualifying child.

1. Do you want the IRS to figure the credit for you?

Yes. See Credit fig- No. Go to the worksheet Also, do not file Form 8862 or take the credit for 2 years if it was

ured by the IRS on on page 42. determined that your error was due to reckless or intentional disrethis page. gard of the EIC rules (or 10 years if due to fraud).

(Continued on page 41)
Lesson 10 10-25

WAGE EARNER

 Exhibit 12 Complete Sam U. and Robin O.’s Eligibility Questions, page 4

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 40

Marr The child must have a valid social security number as defined ied child. A child who was married at the end of 2004 is a

below unless the child was born and died in 2004. If you do not qualifying child only if (a) you can claim him or her as your have a qualifying child, stop; you cannot take the EIC. Put “No” to dependent on Form 1040A, line 6c, or (b) this child’s other parent the left of the entry space for line 41. If you have a qualifying child, claims him or her as a dependent under the rules on page 20 for

Children of divorced or separated parents skip Step 4; go to Step 5 on page 40. . Example. You and your 5-year-old daughter moved in with Members of the military. If you were on extended active duty your mother in April 2004. You are not a qualifying child of your outside the United States, your home is considered to be in the mother. Your daughter meets the conditions to be a qualifying child United States during that duty period. Extended active duty is for both you and your mother. If you and your mother cannot agree military duty ordered for an indefinite period or for a period of more on who will treat your daughter as a qualifying child, the above than 90 days. Once you begin serving extended active duty, you are rules apply. Under these rules, you are entitled to treat your daugh- considered to be on extended active duty even if you serve fewer ter as a qualifying child because you are the child’s parent. Your than 90 days. mother would not be entitled to claim any EIC unless she has a

different qualifying child. Nonresident aliens. If your filing status is married filing jointly,

go to Step 2 on page 38. Otherwise, stop; you cannot take the EIC. Social security number (SSN). For purposes of taking the EIC, a

valid SSN is a number issued by the Social Security Administration Permanently and totally disabled child. A child who cannot unless “Not Valid for Employment” is printed on the social security engage in any substantial gainful activity because of a physical or card and the number was issued solely to apply for or receive a mental condition and a doctor has determined that this condition: federally funded benefit. • Has lasted or can be expected to last continuously for at To find out how to get an SSN, see page 18. If you will not have least a year, or an SSN by April 15, 2005, see What if You Cannot File on Time? • Can lead to death. on page 12.

Qualifying child of more than one person. If the child meets Student. A child who during any 5 months of 2004:

the conditions to be a qualifying child of more than one person, only • Was enrolled as a full-time student at a school, or

one person can take the EIC based on that child. The other person(s) • Took a full-time, on-farm training course given by a school cannot take the EIC for people without a qualifying child, but may or a state, county, or local government agency. take the EIC based on a different qualifying child. If you and the A school includes technical, trade, and mechanical schools. It other person(s) cannot agree who will take the EIC, then the follow- does not include on-the-job training courses, correspondence ing rules apply. schools, or night schools. • If only one of the persons is the child’s parent, the child

will be treated as the qualifying child of the parent. Welfare benefits, effect of credit on. Any refund you receive as • If both persons are the child’s parents, the child will be a result of taking the EIC will not be used to determine if you are treated as the qualifying child of the parent with whom the eligible for the following programs or how much you can receive child lived for the longer period of time during 2004. If the from them. But if the refund you receive because of the EIC is not child lived with each parent for the same amount of time, spent within a certain period of time, it may count as an asset (or the child will be treated as the qualifying child of the parent resource) and affect your eligibility. who had the higher adjusted gross income (AGI) for 2004. • Temporary Assistance for Needy Families (TANF). • If none of the persons is the child’s parent, the child will be • Medicaid and supplemental security income (SSI). treated as the qualifying child of the person who had the • Food stamps and low-income housing. highest AGI for 2004.
10-26 Lesson 10

WAGE EARNER

Exhibit 13 Complete Sam U. and Robin O.’s 1040A EIC Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Earned Income Credit (EIC) Worksheet—Line 41

1040A

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

1.

2.

3.

4.

5.

1 Enter your earned income from Step 5 on

page 40.

Look up the amount on line 1 above in the EIC Table on pages 43–47

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040A, line 22.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 43–47 to find the credit. Be sure you use the correct

column for your filing status and the number of children you

have. Enter the credit here.

Enter this amount on

Form 1040A, line 41.

3

Part 3 6

Part 1

Part 2

All Filers

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” to the left of the entry space for line 41.

● No qualifying children, is the amount on line 3 less than $6,400 ($7,400

if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than $14,050

($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach

Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 40 to find out if you must file Form 8862 to take the credit

for 2004.

  

EIC

1040A

CAUTION
Lesson 10 10-27

WAGE EARNER

SCHEDULE EIC FOR QUALIFYING CHILD(REN)

Schedule EIC contains only information about qualifying children. 

Only taxpayers who have a qualifying child must fill out the schedule and attach it to Form 1040A or Form 1040. Note: The taxpayer 

cannot use Form 1040EZ to claim the EIC with a qualifying child. 

Example 7 – Completing Schedule EIC

 Ronald Evans (SSNxxx-xx-xxxx) is single. His son, Harry (SSN 

xxx-xx-xxxx), was born in 1981. Harry lived with Ronald during all of 2004. Harry is a full-time college student. Harry is not 

married and is a qualifying child of his father. He is not a qualifying child of his mother. However, Harry ‘s mother claims him 

as a dependent on her tax return.

Exhibit 14 shows a completed Schedule EIC. 
10-28 Lesson 10

WAGE EARNER

Exhibit 14 Evans Schedule EIC, page 1

Proof as of

June 18, 2004

(subject to change)

 OMB No. 1545-0074 SCHEDULE EIC Earned Income Credit (Form 1040A or 1040)

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 43

Qualifying Child Information

For Paperwork Reduction Act Notice, see Form 1040A

or 1040 instructions.

Cat. No. 13339M Schedule EIC (Form 1040A or 1040) 2004

Before you begin: See the instructions for Form 1040A, line 41, or Form 1040, line 65, to make sure that

(a) you can take the EIC and (b) you have a qualifying child.

Qualifying Child Information

● It will take us longer to process your return and issue your refund if you do not fill in all lines that apply

for each qualifying child.

4

2

5

6

1 Child’s name

Child’s SSN

Child’s relationship to you

Number of months child lived with

you in the United States during 2004

months

Yes.

months

If the child was born before 1986—

Was the child permanently and totally

disabled during any part of 2004?

b

Yes.

First name Last name First name Last name

Name(s) shown on return Your social security number

(99)

EIC

1040A

1040

Complete and attach to Form 1040A or 1040

only if you have a qualifying child.

● Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s

social security card. Otherwise, at the time we process your return, we may reduce or disallow your EIC.

If the name or SSN on the child’s social security card is not correct, call the Social Security

Administration at 1-800-772-1213.

Child 1 Child 2

If you have more than two qualifying children, you

only have to list two to get the maximum credit.

The child must have an SSN as defined on page 43

of the Form 1040A instructions or page 47 of the

Form 1040 instructions unless the child was born and

died in 2004. If your child was born and died in 2004

and did not have an SSN, enter “Died” on this line

and attach a copy of the child’s birth certificate.

No. No.

Go to line 5. Go to line 5. Continue Continue

Yes. No. Yes. No.

Continue Continue The child is not a

qualifying child. The child is not aqualifying child.

● If the child lived with you for more than half of

2004 but less than 7 months, enter “7”.

● If the child was born or died in 2004 and your

home was the child’s home for the entire time he or

she was alive during 2004, enter “12”.

Do not enter more than 12 months. Do not enter more than 12 months.

You may also be able to take the additional child tax credit if your child (a) was under age 17 at the end of 2004, (b) is

claimed as your dependent on line 6c of Form 1040A or Form 1040, and (c) is a U.S. citizen or resident alien. For more

details, see the instructions for line 42 of Form 1040A or line 67 of Form 1040.

. . . . . . . . . .

● If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up

to 10 years. See back of schedule for details.

(for example, son, daughter, grandchild,

niece, nephew, foster child, etc.)

Was the child under age 24 at the end

of 2004 and a student?

a

Child’s year of birth

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

2004

3

CAUTION

TIP

Ronald Evans xxx xx xxxx

Harry Evans

xxx xx xxxx

1 9 8 1

✘

son

12
Lesson 10 10-29

WAGE EARNER

Exercise 3 – Schedule EIC

Complete Schedule EIC, Exhibit 15, for Sam U. and Robin O. Bell 

in Exercise 2C using the information provided. 

Exhibit 15 Complete Sam U. and Robin O.’s Schedule EIC, page 1

Proof as of

June 18, 2004

(subject to change)

 OMB No. 1545-0074 SCHEDULE EIC Earned Income Credit (Form 1040A or 1040)

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 43

Qualifying Child Information

For Paperwork Reduction Act Notice, see Form 1040A

or 1040 instructions.

Cat. No. 13339M Schedule EIC (Form 1040A or 1040) 2004

Before you begin: See the instructions for Form 1040A, line 41, or Form 1040, line 65, to make sure that

(a) you can take the EIC and (b) you have a qualifying child.

Qualifying Child Information

● It will take us longer to process your return and issue your refund if you do not fill in all lines that apply

for each qualifying child.

4

2

5

6

1 Child’s name

Child’s SSN

Child’s relationship to you

Number of months child lived with

you in the United States during 2004

months

Yes.

months

If the child was born before 1986—

Was the child permanently and totally

disabled during any part of 2004?

b

Yes.

First name Last name First name Last name

Name(s) shown on return Your social security number

(99)

EIC

1040A

1040

Complete and attach to Form 1040A or 1040

only if you have a qualifying child.

● Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s

social security card. Otherwise, at the time we process your return, we may reduce or disallow your EIC.

If the name or SSN on the child’s social security card is not correct, call the Social Security

Administration at 1-800-772-1213.

Child 1 Child 2

If you have more than two qualifying children, you

only have to list two to get the maximum credit.

The child must have an SSN as defined on page 43

of the Form 1040A instructions or page 47 of the

Form 1040 instructions unless the child was born and

died in 2004. If your child was born and died in 2004

and did not have an SSN, enter “Died” on this line

and attach a copy of the child’s birth certificate.

No. No.

Go to line 5. Go to line 5. Continue Continue

Yes. No. Yes. No.

Continue Continue The child is not a

qualifying child. The child is not aqualifying child.

● If the child lived with you for more than half of

2004 but less than 7 months, enter “7”.

● If the child was born or died in 2004 and your

home was the child’s home for the entire time he or

she was alive during 2004, enter “12”.

Do not enter more than 12 months. Do not enter more than 12 months.

You may also be able to take the additional child tax credit if your child (a) was under age 17 at the end of 2004, (b) is

claimed as your dependent on line 6c of Form 1040A or Form 1040, and (c) is a U.S. citizen or resident alien. For more

details, see the instructions for line 42 of Form 1040A or line 67 of Form 1040.

. . . . . . . . . .

● If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up

to 10 years. See back of schedule for details.

(for example, son, daughter, grandchild,

niece, nephew, foster child, etc.)

Was the child under age 24 at the end

of 2004 and a student?

a

Child’s year of birth

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

2004

3

CAUTION

TIP
10-30 Lesson 10

WAGE EARNER

EIC - ELIGIBILITY TOOLS

The EIC is not for everyone. Only those taxpayers who are eligible 

should claim the credit. It is important to understand the eligibility 

requirements and claim the EIC on the returns of only those taxpayers who qualify for it. The following resources are available to 

navigate the complexity of EIC.

■ Publication 4012, Volunteer Resource Guide 

■ EIC Eligibility Questions and Worksheet (Form 1040, 1040A, 

1040EZ Instructions) 

■ Publication 17, Your Federal Income Tax 

COMMON EIC RETURN ERRORS

1. Claiming children who are not the taxpayer’s EIC 

qualifying child. Make sure the taxpayer’s children pass the 

EIC qualifying child tests—relationship, age, and residency. 

Also review the tie-breaker rule. 

2. Selecting the incorrect filing status. Married taxpayers 

filing separately are not eligible for the EIC. Married taxpayers cannot use the Single filing status. Married taxpayers, who 

lived apart during the last 6 months of the year, may qualify 

as Head of Household. Don’t guess; use Publication 4012 and 

the tools on filing status to make sure. 

3. Submitting returns with income errors. Earned income 

for EIC purposes includes wages, salaries and tips (box 1, 

Form W-2), net earnings from self-employment, and statutory 

employee gross income (line 1 on Schedule C or Schedule C-EZ). 

A statutory employee issue is beyond the scope of VITA/TCE.

4. Submitting returns with incorrect Social Security 

numbers. Confirm the accuracy of all names and SSN’s shown 

on the return. The name(s) and number(s) must match official 

government records. Routinely ask to see the taxpayers’ and 

their children’s social security cards.

DISALLOWED EARNED INCOME CREDIT

With one exception, if a taxpayer’s earned income credit was disallowed for any year after 1996 as a result of the deficiency procedures, he or she cannot claim the credit again unless Form 8862, 

Information To Claim Earned Income Credit After Disallowance, is 

attached to the return, and the taxpayer meets all the EIC requirements. If the credit is claimed without attaching Form 8862, it will 

be automatically denied, under the math error procedures.

ALERT

Remember to ask 

the taxpayer if the 

IRS disallowed EIC in 

past years.
Lesson 10 10-31

WAGE EARNER

Form 8862 is not required if the taxpayer’s EIC was disallowed or 

reduced for any year after 2001 as a result of the deficiency procedures solely because a child listed on Schedule EIC was determined 

not to be the taxpayer’s qualifying child, and the taxpayer is claiming the credit for the current year without a qualifying child.

A deficiency procedure occurs when the IRS questions the taxpayer’s eligibility for the earned income credit for reasons other 

than a mathematical or clerical error. If the credit was disallowed 

in the earlier year because of a mathematical or clerical error, Form 

8862 should not be completed. 

A taxpayer who is determined to have claimed the EIC due to reckless or intentional disregard of rules or regulations is ineligible to 

claim the EIC for the next 2 tax years. A taxpayer who is determined to have fraudulently claimed the EIC is ineligible to claim 

the EIC for the next 10 tax years.

ADVANCE EARNED INCOME CREDIT PAYMENTS (AEIC)

Some taxpayers may choose to receive advance payments of the 

EIC. To receive advance payments, the taxpayer must be employed, 

must expect to have a least one qualifying child for the tax year, 

must expect to be eligible for the EIC, and must expect his or her 

earned income and adjusted gross income will be less than approximately $30,000. 

To receive advance payments, the taxpayer must give the employer 

a Form W-5, Earned Income Credit Advance Payment Certificate. 

The employer will include part of the credit regularly in the 

employee pay. Farm workers are excluded.

Taxpayers can receive only a portion of the credit through advance 

payments, so the eligibility questions and the EIC Worksheet must 

be completed when the tax return is prepared to determine the full 

amount of the credit the taxpayer is entitled to receive.

Employees who receive advance earned income credit payments 

must file a tax return even if they are not otherwise required to 

file. If the taxpayer received advance EIC payments in 2004, he 

or she must file a tax return to report the payments. Report the 

amount on line 60 (Form 1040) or line 37 (Form 1040A). Form 

1040EZ cannot be used to report advance payments. The taxpayer’s 

Form W-2 will show the advance EIC amount in box 9. 

ALERT

Remember to check 

box 9 of Form W-2 

for advance earned 

income.
10-32 Lesson 10

WAGE EARNER

Exercise 4 – Advance EIC

Kyle B. Evans is a single parent. His daughter Julie lives 

with him and he claims her as a dependent on his tax return. 

Kyle’s social security number is xxx-xx-xxxx. Julie was born 

in November 2001. Her social security number is xxx-xx-xxxx. 

Kyle’s earned income was $18,751, and his total income and 

adjusted gross income were $19,223. His filing status is head 

of household and he does not itemize deductions. Kyle’s child 

tax credit is $1,000 and his earned income credit is $1,776. He 

received $550 in advance earned income credit payments.

A. Compute Kyle’s refund or balance due amount based on the 

information given, using the attached page 2 of Form 1040A, 

Exhibit 16.
Lesson 10 10-33

WAGE EARNER

Exhibit 16 Complete Kyle B. Evans’ 1040A, page 2, lines 22-45a

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration

of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:
10-34 Lesson 10

WAGE EARNER

  SUMMING UP THIS LESSON  

 EIC is a tax break for qualified taxpayers. Eligible taxpayers 

must file a tax return to claim the credit.

 When the credit exceeds the amount of tax owed it can result 

in a tax refund.

 The taxpayer may be entitled to the credit even if he or she 

does not meet the income filing requirements. The taxpayer 

must have earned income of at least $1. A tax return must be 

filed to claim the credit.

 There are specific eligibility rules for all taxpayers, taxpayers 

with a qualifying child, and taxpayers without a qualifying 

child as shown below:

EIC Rules

Rules for all Taxpayers

Rules for 

Taxpayer With a 

Qualifying Child

Rules for 

Taxpayer Without 

a Qualifying Child

Must have a valid 

Social Security 

number

Investment income is limited to 

a certain amount

Child must meet the 

relationship, age, 

and residency tests

Must be at least 

age 25 but under 

age 65

Filing status cannot be “Married 

fi ling separately” 

Must have earned 

income

Qualifying child cannot be used by more 

than one person to 

claim the EIC

Cannot be the 

dependent of 

another person

Generally must be 

a U.S. citizen or 

resident alien all 

year

Cannot be a 

qualifying child of 

another person

Must have lived in 

the United States 

more than half the 

year

Cannot fi le Form 

2555 or Form 

2555-EZ (relating 

to foreign earned 

income)

 EIC is not for everyone; the taxpayer must qualify for the 

credit.

 Some of the most common reasons for disallowance are:

■ Claiming the credit with a child who is not the taxpayer’s 

qualifying child.

■ Married taxpayers filing as single or head of household.

■ Reporting income incorrectly.

■ Missing or incorrect social security numbers.

 Don’t guess, use Publication 4012, the EIC worksheets, 

Publication 596, and other tools when assisting taxpayers in 

claiming the EIC.
Lesson 10 10-35

WAGE EARNER

 EARNED INCOME CREDIT

ANSWERS TO EXERCISES Lesson 10

Exercise 1

(A) No; to be a qualifying child, the child must live with the taxpayer more than half of the year.

(B) Neither Donna nor Doug can claim the credit; in order to claim 

the earned income credit, married taxpayers living together 

must file a joint return.

(C) Jimmy and Anna are qualifying children of both Randy and 

Cara. Randy and Cara can choose which of them will claim 

the credit based on each child. One can claim the credit on 

the basis of two children, or each can claim the credit on the 

basis of one child. If both claim the credit on the basis of the 

same child or both children, Cara will be entitled to the credit 

because each child lived with her for the longer period of time 

during the year.

(D) Yes. He is between 25 and 65; his earned income is less than 

$11,490; he cannot be claimed as a dependent and he is not a 

qualifying child of another person.

(E) No; to be a qualifying child, a married child must generally be 

eligible to be claimed as a dependent by the taxpayer.

(F) Numbers 1 and 6 should be circled.

Exercise 2

(A) $3,282

(B) $2,008
10-36 Lesson 10

WAGE EARNER

 EARNED INCOME CREDIT

Lesson 10 ANSWERS TO EXERCISES

Completed

Proof as of

June 18, 2004

(subject to change)

Line 41

Step 2 Investment Income Earned Income Credit (EIC)

1. Add the amounts from 

What is the EIC? Form 1040A:

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

Line 10 + • Follow the steps below.

• Complete the worksheet that applies to you or let the IRS

figure the credit for you. Investment Income =

• If you have a qualifying child, complete and attach

Schedule EIC.

2. Is your investment income more than $2,650? If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or Yes. STOP No. Continue

CAUTION intentional disregard of the EIC rules, you will not be You cannot take the  !

allowed to take the credit for 2 years even if you are credit. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Did a child live with you in 2004?

Yes. Go to Step 3 on No. Go to Step 4 on 

page 39. page 39. Step 1 All Filers

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040A,

line 22, less than $34,458 ($35,458 if married filing

jointly)?

• 1 child lived with you, is the amount on Form 1040A, line

22, less than $30,338 ($31,338 if married filing jointly)?

• No children live with you, is the amount on Form 1040A,

line 22, less than $11,490 ($12,490 if married filing

jointly)?

Yes. Continue No.



STOP

You cannot take the credit.

2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 41)?

Yes. Continue No.



STOP

You cannot take the credit.

Put “No” to the left of the

entry space for line 41.

3. Is your filing status married filing separately?

Yes. STOP No. Continue

You cannot take the 

credit.

4. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 41.

(Continued on page 39)

Need more information or forms? See page 7. - 38 -

✘

✘

✘

✘

0.00

✘

✘

Exercise 2(C) Sam U. and Robin O.’s Eligibility Questions, page 1

$39

$39
Lesson 10 10-37

WAGE EARNER

Exercise 2(C) Sam U. and Robin O.’s Eligibility Questions, page 2

Proof as of

June 18, 2004

(subject to change)

Continued from page 38

3. Does the child meet the conditions to be a qualifying child

Step 3 Qualifying Child of any other person (other than your spouse if filing a joint

return) for 2004?

Yes. See Qualifying No. This child is your A qualifying child is a child who is your... child of more than one qualifying child. The child

person on must have a valid social sepage 41. curity number as defined Son, daughter, adopted child, stepchild, or a descendant on page 41 unless the child of any of them (for example, your grandchild) was born and died in 2004. or Skip Step 4; go to Step 5 Brother, sister, stepbrother, stepsister, or a descendant of on page 40.

any of them (for example, your niece or nephew) whom

you cared for as you would your own child

or Step 4 Filers Without a Qualifying Child

Foster child (any child placed with you by an authorized 1. Look at the qualifying child conditions in Step 3. Could placement agency whom you cared for as you would your you, or your spouse if filing a joint return, be a qualifying own child) child of another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

AND

left of the entry space was at the end of 2004... for line 41.

Under age 19 2. Can you, or your spouse if filing a joint return, be claimed

or as a dependent on someone else’s 2004 tax return?

Yes. STOP No. Continue

 Under age 24 and a student (see page 41)

You cannot take the or credit.

Any age and permanently and totally disabled (see page 41)

3. Were you, or your spouse if filing a joint return, born before

January 2, 1980, but under age 65 at the end of 2004?

Yes. Continue No.



STOP

AND

You cannot take the credit.

who...

4. Was your home, and your spouse’s if filing a joint return, in Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. If the child did not live with you for the the military stationed outside the United States, see page 41 required time, see Exception to “time lived with you” before you answer.

condition on page 40. Yes. Go to Step 5 No. STOP

on page 40. You cannot take the credit.

Put “No” to the left of the

entry space for line 41. CAUTION

!

 If the child was married, see page 41.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

left of the entry space

for line 41.

(Continued on page 40)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip question 3; go to

question 3. Step 4, question 2.

- 39 - Need more information or forms? See page 7.

✘

✘

✘

 EARNED INCOME CREDIT

ANSWERS TO EXERCISES Lesson 10
10-38 Lesson 10

WAGE EARNER

Exercise 2(C) Sam U. and Robin O.’s Eligibility Questions, page 3

Proof as of

June 18, 2004

(subject to change)

Continued from page 39

Definitions and Special Rules Step 5 Earned Income (listed in alphabetical order)

1. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an Form 1040A, line 7 authorized placement agency for legal adoption even if the adoption Subtract, if included on line 7, any: is not final. An authorized placement agency includes any person or

court authorized by state law to place children for legal adoption. • Taxable scholarship or fellowship

grant not reported on a Form W-2.

• Amount paid to an inmate in a penal Credit figured by the IRS. To have the IRS figure the credit for

institution for work (put “PRI” and the you: amount subtracted to the left of the 1. Put “EIC” to the left of the entry space for line 41 of Form entry space for line 7 of Form 1040A. 1040A). 2. If you have a qualifying child, complete and attach • Amount received as a pension or – Schedule EIC. If your EIC for a year after 1996 was annuity from a nonqualified deferred reduced or disallowed, see Form 8862, Who must file,

compensation plan or a below. nongovernmental section 457 plan

(put “DFC” and the amount subtracted

to the left of the entry space for line 7 } Exception to “time lived with you” condition. A child is con- of Form 1040A). This amount may be sidered to have lived with you for all of 2004 if the child was born

shown in box 11 of your Form W-2. or died in 2004 and your home was this child’s home for the entire

If you received such an amount but time he or she was alive in 2004. Temporary absences, such as for

box 11 is blank, contact your school, vacation, medical care, or detention in a juvenile facility,

employer for the amount received as a count as time lived at home. If your child is presumed to have been

pension or annuity. kidnapped by someone who is not a family member, see Pub. 596 to

find out if that child is a qualifying child for the EIC. To get Pub.

596, see page 7. If you were in the military stationed outside the

Earned Income = United States, see Members of the military on page 41.

2. If you have: Form 8862, Who must file. You must file Form 8862 if your EIC • 2 or more qualifying children, is your earned income less for a year after 1996 was reduced or disallowed for any reason other than $34,458 ($35,458 if married filing jointly)? than a math or clerical error. But you do not have to file Form 8862 • 1 qualifying child, is your earned income less than if either of the following applies. $30,338 ($31,338 if married filing jointly)? 1. After your EIC was reduced or disallowed in an earlier • No qualifying children, is your earned income less than year (a) you filed Form 8862 (or other documents) and $11,490 ($12,490 if married filing jointly)? your EIC was then allowed, and (b) your EIC has not been

Yes. Go to Step 6. No. STOP reduced or disallowed again for any reason other than a

math or clerical error. You cannot take the credit. 2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the

earlier year was because it was determined that a child Step 6 How To Figure the Credit listed on Schedule EIC was not your qualifying child.

1. Do you want the IRS to figure the credit for you?

Yes. See Credit fig- No. Go to the worksheet Also, do not file Form 8862 or take the credit for 2 years if it was

ured by the IRS on on page 42. determined that your error was due to reckless or intentional disrethis page. gard of the EIC rules (or 10 years if due to fraud).

(Continued on page 41)

Need more information or forms? See page 7. - 40 -

21,211.00

21,211.00

✘

✘

 EARNED INCOME CREDIT

Lesson 10 ANSWERS TO EXERCISES
Lesson 10 10-39

WAGE EARNER

Exercise 2(C) Sam U. and Robin O.’s Eligibility Questions, page 4

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 40

Married child. A ch The child must have a valid social security number as defined ild who was married at the end of 2004 is a below unless the child was born and died in 2004. If you do not qualifying child only if (a) you can claim him or her as your have a qualifying child, stop; you cannot take the EIC. Put “No” to dependent on Form 1040A, line 6c, or (b) this child’s other parent the left of the entry space for line 41. If you have a qualifying child, claims him or her as a dependent under the rules on page 20 for

Ch skip Step 4; go to Step 5 on page 40. ildren of divorced or separated parents. Example. You and your 5-year-old daughter moved in with Members of the military. If you were on extended active duty your mother in April 2004. You are not a qualifying child of your outside the United States, your home is considered to be in the mother. Your daughter meets the conditions to be a qualifying child United States during that duty period. Extended active duty is for both you and your mother. If you and your mother cannot agree military duty ordered for an indefinite period or for a period of more on who will treat your daughter as a qualifying child, the above than 90 days. Once you begin serving extended active duty, you are rules apply. Under these rules, you are entitled to treat your daugh- considered to be on extended active duty even if you serve fewer ter as a qualifying child because you are the child’s parent. Your than 90 days. mother would not be entitled to claim any EIC unless she has a

different qualifying child. Nonresident aliens. If your filing status is married filing jointly,

go to Step 2 on page 38. Otherwise, stop; you cannot take the EIC. Social security number (SSN). For purposes of taking the EIC, a

valid SSN is a number issued by the Social Security Administration Permanently and totally disabled child. A child who cannot unless “Not Valid for Employment” is printed on the social security engage in any substantial gainful activity because of a physical or card and the number was issued solely to apply for or receive a mental condition and a doctor has determined that this condition: federally funded benefit. • Has lasted or can be expected to last continuously for at To find out how to get an SSN, see page 18. If you will not have least a year, or an SSN by April 15, 2005, see What if You Cannot File on Time? • Can lead to death. on page 12.

Qualifying child of more than one person. If the child meets Student. A child who during any 5 months of 2004:

the conditions to be a qualifying child of more than one person, only • Was enrolled as a full-time student at a school, or

one person can take the EIC based on that child. The other person(s) • Took a full-time, on-farm training course given by a school cannot take the EIC for people without a qualifying child, but may or a state, county, or local government agency. take the EIC based on a different qualifying child. If you and the A school includes technical, trade, and mechanical schools. It other person(s) cannot agree who will take the EIC, then the follow- does not include on-the-job training courses, correspondence ing rules apply. schools, or night schools. • If only one of the persons is the child’s parent, the child

will be treated as the qualifying child of the parent. Welfare benefits, effect of credit on. Any refund you receive as • If both persons are the child’s parents, the child will be a result of taking the EIC will not be used to determine if you are treated as the qualifying child of the parent with whom the eligible for the following programs or how much you can receive child lived for the longer period of time during 2004. If the from them. But if the refund you receive because of the EIC is not

child lived with each parent for the same amount of time, spent within a certain period of time, it may count as an asset (or the child will be treated as the qualifying child of the parent resource) and affect your eligibility. who had the higher adjusted gross income (AGI) for 2004. • Temporary Assistance for Needy Families (TANF). • If none of the persons is the child’s parent, the child will be • Medicaid and supplemental security income (SSI). treated as the qualifying child of the person who had the • Food stamps and low-income housing. highest AGI for 2004.

- 41 - Need more information or forms? See page 7.

 EARNED INCOME CREDIT

ANSWERS TO EXERCISES Lesson 10
10-40 Lesson 10

WAGE EARNER

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Earned Income Credit (EIC) Worksheet—Line 41

1040A

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

1.

2.

3.

4.

5.

1 Enter your earned income from Step 5 on

page 40.

Look up the amount on line 1 above in the EIC Table on pages 43–47

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040A, line 22.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 43–47 to find the credit. Be sure you use the correct

column for your filing status and the number of children you

have. Enter the credit here.

Enter this amount on

Form 1040A, line 41.

3

Part 3 6

Part 1

Part 2

All Filers

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” to the left of the entry space for line 41.

● No qualifying children, is the amount on line 3 less than $6,400 ($7,400

if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than $14,050

($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach

Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 40 to find out if you must file Form 8862 to take the credit

for 2004.

  

EIC

1040A

CAUTION

Need more information or forms? See page 7. - 42 -

21,211.00

1,616.00

21,250.00

✘

✘ 1,608.00

1,608.00

 EARNED INCOME CREDIT

Lesson 10 ANSWERS TO EXERCISES

Exercise 2(C) Sam U. and Robin O.’s Completed EIC Worksheet
Lesson 10 10-41

WAGE EARNER

 EARNED INCOME CREDIT

ANSWERS TO EXERCISES Lesson 10

Exercise 3 Sam U. and Robin O.’s Schedule EIC

Proof as of

June 18, 2004

(subject to change)

 OMB No. 1545-0074 SCHEDULE EIC Earned Income Credit (Form 1040A or 1040)

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 43

Qualifying Child Information

For Paperwork Reduction Act Notice, see Form 1040A

or 1040 instructions.

Cat. No. 13339M Schedule EIC (Form 1040A or 1040) 2004

Before you begin: See the instructions for Form 1040A, line 41, or Form 1040, line 65, to make sure that

(a) you can take the EIC and (b) you have a qualifying child.

Qualifying Child Information

● It will take us longer to process your return and issue your refund if you do not fill in all lines that apply

for each qualifying child.

4

2

5

6

1 Child’s name

Child’s SSN

Child’s relationship to you

Number of months child lived with

you in the United States during 2004

months

Yes.

months

If the child was born before 1986—

Was the child permanently and totally

disabled during any part of 2004?

b

Yes.

First name Last name First name Last name

Name(s) shown on return Your social security number

(99)

EIC

1040A

1040

Complete and attach to Form 1040A or 1040

only if you have a qualifying child.

● Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s

social security card. Otherwise, at the time we process your return, we may reduce or disallow your EIC.

If the name or SSN on the child’s social security card is not correct, call the Social Security

Administration at 1-800-772-1213.

Child 1 Child 2

If you have more than two qualifying children, you

only have to list two to get the maximum credit.

The child must have an SSN as defined on page 43

of the Form 1040A instructions or page 47 of the

Form 1040 instructions unless the child was born and

died in 2004. If your child was born and died in 2004

and did not have an SSN, enter “Died” on this line

and attach a copy of the child’s birth certificate.

No. No.

Go to line 5. Go to line 5. Continue Continue

Yes. No. Yes. No.

Continue Continue The child is not a

qualifying child. The child is not aqualifying child.

● If the child lived with you for more than half of

2004 but less than 7 months, enter “7”.

● If the child was born or died in 2004 and your

home was the child’s home for the entire time he or

she was alive during 2004, enter “12”.

Do not enter more than 12 months. Do not enter more than 12 months.

You may also be able to take the additional child tax credit if your child (a) was under age 17 at the end of 2004, (b) is

claimed as your dependent on line 6c of Form 1040A or Form 1040, and (c) is a U.S. citizen or resident alien. For more

details, see the instructions for line 42 of Form 1040A or line 67 of Form 1040.

. . . . . . . . . .

● If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up

to 10 years. See back of schedule for details.

(for example, son, daughter, grandchild,

niece, nephew, foster child, etc.)

Was the child under age 24 at the end

of 2004 and a student?

a

Child’s year of birth

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

2004

3

CAUTION

TIP

Sam U. and Robin O. Bell xxx xx xxxx

Jennifer Bell

xxx xx xxxx

1 9 9 6

daughter

12
10-42 Lesson 10

WAGE EARNER

 EARNED INCOME CREDIT

Lesson 10 ANSWERS TO EXERCISES

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

19,223

7,150

12,073

6,200

5,873

588

1,000

1,000

0

550

550

Exercise 4 Kyle B. Evans’ 1040A, page 2

✘

✘
Notes to

Instructors N-11-1

LESSON OVERVIEW AND OBJECTIVES

In this lesson you will explain how to compute the child tax credit, 

additional child tax credit and complete Form 8812, Additional 

Child Tax Credit. Approximately 1 to 1 1/2 hours should be devoted 

to covering the objectives of this lesson. See the Suggested Class 

Schedules in Appendix B for additional information.

After completing this lesson student should be able to:

■ Calculate the child tax credit using the child tax credit 

worksheet.

■ Calculate the additional child tax credit by using Form 8812.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS forms, publications, and 

worksheets. If you would like to provide your students with the 

most current revision of the forms and worksheets, you can download the files from www.irs.gov.

■ Child Tax Credit Worksheet (1040 and 1040A Instructions and 

Publication 972)

■ Form 8812, Additional Child Tax Credit

■ Form W-4, Employee’s Withholding Allowance Certificate

■ Publication 4012, Volunteer Resource Guide is included in each 

student training kit. The publication is designed for both classroom and actual site usage. Direct the student to the tab entitled Child Tax Credit for this lesson and make sure the student 

is aware of the content of the tab and how it should be used 

when assisting taxpayers. For additional technical information 

about this topic see the applicable chapter of Publication 17, 

Your Federal Tax (For Individual) and actual site usage.

ADDITIONAL RESOURCES

■ Publication 972, Child Tax Credit

■ Publication 17, Your Federal Income Tax

TEACHING TIP – CHILD TAX CREDIT

1. If the taxpayer’s modified adjusted gross income exceeds 

the threshold limit, the taxpayer must use Publication 972 

to compute his or her child tax credit.

CHILD TAX CREDIT NOTES TO INSTRUCTORS Lesson 11
Notes to N-11-2 Instructors

TEACHING TIPS – ADDITIONAL CHILD TAX CREDIT

1. Taxpayers who can claim the additional child tax credit should 

file a tax return even if they are not otherwise required to file 

because additional child tax credit may give the taxpayer a 

refund, even if he or she does not owe any tax.

2. The child tax credit must be figured before the additional child 

tax credit can be figured.

TEACHING TIPS – ADJUSTING WITHHOLDINGS

1. If the taxpayer can claim the child tax credit on his or her 

income tax return, the taxpayer may want to consider having 

less tax withheld from his or her wages during the year. 

2. To check withholding allowances for 2005, the taxpayer should 

fill out a 2005 Form W-4.

3. If the taxpayer can claim more withholding allowances, he or 

she should file a new Form W-4 with his or her employer so that 

less income tax is withheld from his or her wages.

GUIDED QUESTIONS – CHILD TAX CREDIT

1. Where does a taxpayer figure the child tax credit? (Child 

Tax Credit Worksheet)

2. What 2 factors affect the amount of a taxpayer’s child tax 

credit? (The taxpayer’s modified AGI and filing status) 

INTERVIEW TIPS FOR VOLUNTEER ASSISTORS

To assist volunteers in asking the right questions, interview 

tips are included in this lesson. The use of probes and reference 

material will be stressed to arrive at a quality return. Interview 

tips have been developed as a dialogue between a volunteer and 

a taxpayer to assist the volunteer in preparing an accurate and 

quality return.
Lesson 11 11-1

WAGE EARNER

CHILD TAX CREDIT Lesson 11

INTRODUCTION AND OBJECTIVES

In this lesson you will learn about the child tax 

credit. This credit is unique because it can be both 

nonrefundable and refundable. This lesson will 

discuss who qualifies for the credit and how to 

calculate the credit.

After completing this lesson you should be able to:

■ Calculate the child tax credit using the child tax 

credit worksheet.

■ Calculate the additional child tax credit by using 

Form 8812, Additional Child Tax Credit.

 CHILD TAX CREDIT

A taxpayer can claim a child tax credit for each of the 

taxpayer’s qualifying children. The maximum child tax 

credit is $1000 per child for 2004. The credit can be 

claimed on either Form 1040 or 1040A.

Qualifying child

To qualify, the child must be:

■ Under age 17 at the end of 2004, and

■ A citizen or resident of the United States, and

■ The taxpayer’s dependent, and

■ The taxpayer’s:

 Son or daughter,

 Stepson or stepdaughter, adopted child,

 Grandchild, or

 Eligible foster child (Must be placed with the tax 

payer by an authorized placement agency and the 

tax payer care for the child as they would thier own.)

The taxpayer must provide the name and 

identification number (usually a social security 

number) of each qualifying child on his or her tax 

return.

Limits on credit

The amount of a taxpayer’s child tax credit depends 

on the taxpayer’s modified adjusted gross income 

(modified AGI) and the taxpayer’s filing status.

ALERT

The requirements for 

a “qualifying child” 

for purpose of the 

Child Tax Credit 

differ from those for 

a “qualifying child” 

for purpose of the 

Earned Income 

Credit.
11-2 Lesson 11

WAGE EARNER

Modified AGI

The credit begins to phase out if the taxpayer’s modified AGI is 

above a certain amount (Table 1). For most taxpayers, modified 

AGI is generally the same as AGI. For 2004, AGI is shown on line 

21 of Form 1040A and on line 36 of Form 1040.

Table 1: Child Tax Credit

Threshold Modified AGI Amounts for

Claiming Child Tax Credit

Filing Status Amount

Married filing jointly $110,000

Qualifying widow(er) 75,000

Head of household 75,000

Single 75,000

Married filing separately 55,000

Before you can figure a taxpayer’s credit amount for the year, you 

must have the taxpayer answer certain questions (Exhibit 1) to see 

if you must use the worksheet in Publication 972, Child Tax Credit. 

These questions are in the tax form instructions. If you do not need 

to use Publication 972, you can use the shorter Child Tax Credit 

Worksheet in the Form 1040 ort 1040A instructions.

Example 1

Bill and Mary Allen are married filing a joint return and have 

two dependent children under age 17. The children are qualifying children for purposes of claiming the child tax credit. Bill and 

Mary have modified AGI of $55,600. Their tax on line 45 for 2004 

is $4,314. Bill and Mary need to answer questions to determine if 

they must use Publication 972 (Exhibit 1). The completed Child

Tax Credit Worksheet (Exhibit 2) shows that their credit is $2,000. 

Their modified AGI is less than the phaseout amount for their 

filing status ($110,000). They do not need to use Publication 972 to 

compute their child tax credit.
Lesson 11 11-3

WAGE EARNER

Exhibit 1 Bill and Mary Allen’s Child Tax Credit

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 51

placement agency for legal adoption even if the adoption is not Line 51—Child Tax Credit final. An authorized placement agency includes any person or court

authorized by state law to place children for legal adoption.

What Is the Child Tax Credit?

Questions Who Must Use This credit is for people who have a qualifying child (defined Pub. 972 below). It is in addition to the credit for child and dependent care

Pub.

972

expenses on Form 1040, line 46, and the earned income credit on

Form 1040, line 65. 1. Are you excluding income from Puerto Rico or are you

filing any of the following forms?

Three Steps To Take the Child Tax Credit! • Form 2555 or 2555-EZ (relating to foreign earned income)

• Form 4563 (exclusion of income for residents of

Step 1. Make sure you have a qualifying child for the child American Samoa)

tax credit (defined below). No. Continue Yes.



STOP Step 2. Make sure you checked the box on Form 1040, line

6c, column (4), for each qualifying child. You must use Pub. 972 to

figure your credit. Step 3. Answer the questions on this page to see if you

may use the worksheet on page 41 to figure your

credit or if you must use Pub. 972, Child Tax 2. Is the amount on Form 1040, line 37, more than the amount

Credit. If you need Pub. 972, see page 7. shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit $75,000

A qual • Married filing separately – $55,000 ifying child for purposes of the child tax credit is a child who:

No. Continue Yes.



STOP 1. Is claimed as your dependent on line 6c, and

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

figure your credit. 3. Is your (a) son, daughter, adopted child, stepchild, or a

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 3. Are you claiming any of the following credits?

any of them (for example, your niece or nephew), whom • Retirement savings contributions credit, Form 8880 (see you cared for as you would your own child; or (c) foster the instructions for Form 1040, line 52, on page 42) child (any child placed with you by an authorized place- • Adoption credit, Form 8839 (see the instructions for Form ment agency whom you cared for as you would your own 1040, line 53, on page 42) child), and

4 No. Use the Yes. You must use . Is a U.S. citizen or resident alien. worksheet on page 38 Pub. 972 to figure your

The above requ to figure your child child tax credit. You will irements are not the same as the requirements to be a qualifying child for the earned income tax credit. also need the form(s) listed

credit. above for any credit(s) you CAUTION

!

are claiming.

An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized

- 37 - Need more information or forms? See page 7.

✘

✘

✘
11-4 Lesson 11

WAGE EARNER

Exhibit 2 Bill and Mary Allen’s Child Tax Credit Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 51

Child Tax Credit Worksheet—Line 51

1040

Yes. STOP

● To be a qualifying child for the child tax credit, the child must be under age 17 at the end

of 2004 and meet the other requirements listed on page 40.

● Do not use this worksheet if you answered “Yes” to question 1, 2, or 3 on page 40. Instead, use Pub. 972.

1.

4.

5.

Number of qualifying children: $1,000. 1

Enter the result.



Are the amounts on lines 2 and 3 the same?

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below TIP .

No. Subtract line 3 from line 2.

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040, line 51.

You may be able to take the additional child tax credit

on Form 1040, line 67, if you answered “Yes” on line 4 or

line 5 above.

● First, complete your Form 1040 through line 66.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. Enter the amount from Form 1040, line 45. 2

3. Add the amounts from Form 1040:

3

Keep for Your Records

TIP

CAUTION

Line 46

Line 47 +

Line 48 +

Line 49 +

Line 50 + Enter the total.

Need more information or forms? See page 7. - 38 -

2

2,000.00

4,314.00

0.00

✘ 4,314.00

✘

2,000.00
Lesson 11 11-5

WAGE EARNER

Checking Your Withholding

The child tax credit decreases the tax liability dollar for dollar, but 

not below zero. If the taxpayer is having too much tax withheld, 

and he or she prefers to have the money during the year, the taxpayer may be able to reduce his or her withholding. A new Form 

W-4, Employee’s Withholding Allowance Certificate, should be completed and given to his or her employer.

ADDITIONAL CHILD TAX CREDIT

The child tax credit is a nonrefundable credit that gives eligible 

taxpayers $1000 for each qualifying child. If a taxpayer’s tax liability is less than the allowable nonrefundable child tax credit, the 

taxpayer may be eligible to claim the refundable additional child 

tax credit.

Before figuring additional child tax credit, figure the taxpayer’s:

■ Unused nonrefundable child tax credit amount,

■ Total Social Security and Medicare taxes withheld (Form W-2, 

Wage and Tax Statement, boxes 4 and 6),

■ Earned income credit amount,

■ Total taxable earned income (back of Form 8812), and

■ For 1040 filers, one-half of self-employment tax paid, Form 1040, 

line 30.

The taxpayer will need to seek the assistance of a paid professional 

tax preparer if he or she has:

■ Excess social security and RRTA tax withheld (more than one 

employer and gross income in excess of $87,900) or

■ Social Security and Medicare tax on unreported tip income.

Taxpayers must use Form 8812, Additional Child Tax Credit, to 

claim the additional child tax credit. This credit is based on 10% of 

the taxpayer’s taxable earned income in excess of $10,750.

Example 2

Maureen Langston (SSN xxx-xx-xxxx) is filing Form 1040. Her 

filing status is head of household for 2004. She has five dependent children, all of whom are qualifying children for purposes of 

the child tax credit. Maureen’s earned income (and adjusted gross

income) is $26,375, her tax is $64, Social Security/Medicare taxes 

are $2,018, and the earned income credit is $1,702. Based on this 

information, Maureen’s child tax credit is $64 (Exhibit 4) and her 

additional child tax credit was $1,563. Exhibits 5 and 6 illustrate 

how Maureen’s additional child tax credit was figured.

POTENTIAL

PITFALLS

When fi guring the 

additional child tax 

credit, you must use 

the back of Form 

8812 to determine 

taxable earned 

income (line 4).
11-6 Lesson 11

WAGE EARNER

Exhibit 3 Maureen Langston’s Child Tax Credit Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 51

placement agency for legal adoption even if the adoption is not Line 51—Child Tax Credit final. An authorized placement agency includes any person or court

authorized by state law to place children for legal adoption.

What Is the Child Tax Credit?

Questions Who Must Use This credit is for people who have a qualifying child (defined Pub. 972 below). It is in addition to the credit for child and dependent care

Pub.

972

expenses on Form 1040, line 46, and the earned income credit on

Form 1040, line 65. 1. Are you excluding income from Puerto Rico or are you

filing any of the following forms?

Three Steps To Take the Child Tax Credit! • Form 2555 or 2555-EZ (relating to foreign earned income)

• Form 4563 (exclusion of income for residents of

Step 1. Make sure you have a qualifying child for the child American Samoa)

tax credit (defined below). No. Continue Yes.



STOP Step 2. Make sure you checked the box on Form 1040, line

6c, column (4), for each qualifying child. You must use Pub. 972 to

figure your credit. Step 3. Answer the questions on this page to see if you

may use the worksheet on page 41 to figure your

credit or if you must use Pub. 972, Child Tax 2. Is the amount on Form 1040, line 37, more than the amount

Credit. If you need Pub. 972, see page 7. shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit $75,000

A qual • Married filing separately – $55,000 ifying child for purposes of the child tax credit is a child who:

No. Continue Yes.



STOP 1. Is claimed as your dependent on line 6c, and

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

figure your credit. 3. Is your (a) son, daughter, adopted child, stepchild, or a

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 3. Are you claiming any of the following credits?

any of them (for example, your niece or nephew), whom • Retirement savings contributions credit, Form 8880 (see you cared for as you would your own child; or (c) foster the instructions for Form 1040, line 52, on page 42) child (any child placed with you by an authorized place- • Adoption credit, Form 8839 (see the instructions for Form ment agency whom you cared for as you would your own 1040, line 53, on page 42) child), and

4 No. Use the Yes. You must use . Is a U.S. citizen or resident alien. worksheet on page 38 Pub. 972 to figure your

The above requ to figure your child child tax credit. You will irements are not the same as the requirements to be a qualifying child for the earned income tax credit. also need the form(s) listed

credit. above for any credit(s) you CAUTION

!

are claiming.

An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized

- 37 - Need more information or forms? See page 7.

✘

✘

✘
Lesson 11 11-7

WAGE EARNER

Exhibit 4 Maureen Langston’s Child Tax Credit Worksheet

Proof as of

June 18, 2004

(subject to change)

Child Tax Credit Worksheet—Line 51

1040

Yes. STOP

● To be a qualifying child for the child tax credit, the child must be under age 17 at the end

of 2004 and meet the other requirements listed on page 40.

● Do not use this worksheet if you answered “Yes” to question 1, 2, or 3 on page 40. Instead, use Pub. 972.

1.

4.

5.

Number of qualifying children: $1,000. 1

Enter the result.



Are the amounts on lines 2 and 3 the same?

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below TIP .

No. Subtract line 3 from line 2.

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040, line 51.

You may be able to take the additional child tax credit

on Form 1040, line 67, if you answered “Yes” on line 4 or

line 5 above.

● First, complete your Form 1040 through line 66.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. Enter the amount from Form 1040, line 45. 2

3. Add the amounts from Form 1040:

3

Keep for Your Records

TIP

CAUTION

Line 46

Line 47 +

Line 48 +

Line 49 +

Line 50 + Enter the total.

Need more information or forms? See page 7. - 38 -

5

5,000.00

64.00

0.00

✘ 64.00

✘

64.00
11-8 Lesson 11

WAGE EARNER

Exhibit 5 Maureen Langston’s Form 8812, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1620 8812 Additional Child Tax Credit Form

Complete and attach to Form 1040 or Form 1040A. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 47

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 10644E Form 8812 (2004)

3

2

4

6

Enter the total of the withheld social security and Medicare taxes from Form(s)

W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts

with yours. If you worked for a railroad, see the instructions on back

Add lines 7 and 8

1

Enter the total of the amounts from Form 1040, lines

30 and 58, plus any uncollected social security and

Medicare or tier 1 RRTA taxes included on line 62.

Enter -0-.

Enter the total of the amounts from Form 1040, lines

65 and 66.

Enter the total of the amount from Form 1040A, line

41, plus any excess social security and tier 1 RRTA

taxes withheld that you entered to the left of line 43

(see the instructions on back).

Enter the amount from line 1 of your Child Tax Credit Worksheet on page 41 of the Form 1040 instructions

or page 38 of the Form 1040A instructions. If you used Pub. 972, enter the amount from line 8 of the

worksheet on page 4 of the publication

Enter the amount from Form 1040, line 51, or Form 1040A, line 32

Subtract line 2 from line 1. If zero, stop; you cannot take this credit

8

9



6

 1040A filers:

1040 filers:

1040 filers:

1040A filers:

1

2

13

1040 .

1040A . . . . . . . . . Enter this amount on

Form 1040, line 67, or

Form 1040A, line 42.





8812

1040

1040A

. . . . . . . . . .

3

Enter your total taxable earned income. See the instructions on back

5 Is the amount on line 4 more than $10,750?

No.

Yes. Subtract $10,750 from the amount on line 4. Enter the result

Leave line 5 blank and enter -0- on line 6.

4

5

Multiply the amount on line 5 by 10% (.10) and enter the result

7

Next. Do you have three or more qualifying children?

No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part II and enter the

smaller of line 3 or line 6 on line 13.

Yes.

7

8

9

10

10

11 Subtract line 10 from line 9. If zero or less, enter -0- 11

12 Enter the larger of line 6 or line 11 here 12

Next, enter the smaller of line 3 or line 12 on line 13.

13 This is your additional child tax credit

Part III

Part I

Part II

All Filers

Certain Filers Who Have Three or More Qualifying Children

Your Additional Child Tax Credit

If line 6 is equal to or more than line 3, skip Part II and enter the amount from line 3 on

line 13. Otherwise, go to line 7.

(99)

2004

Maureen Langston XXX XX XXXX

5,000

64

4,936

26,375

✘ 15,625

1,563

✘

2,018

0

2,018

1,702

316

1,563

1,563
Lesson 11 11-9

WAGE EARNER

Exhibit 6 Maureen Langston’s Form 8812, page 2

Proof as of

June 18, 2004

(subject to change)

Form 8812 (2004) Page 2

Instructions

Purpose of Form

Use Form 8812 to figure your additional child tax credit.

Taxable Earned Income

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by Internal Revenue Code section

6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average time

is: Recordkeeping, 6 min.; Learning about the law or the form,

5 min.; Preparing the form, 28 min.; Copying, assembling, and

sending the form to the IRS, 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the Instructions for Form 1040 or

Form 1040A.

The additional child tax credit may give you a refund

even if you do not owe any tax.

Railroad Employees

If you worked for a railroad, include the following taxes in the

total on Form 8812, line 7.

● Tier 1 tax withheld from your pay. This tax should be shown in

box 14 of your Form(s) W-2 and identified as “Tier 1 tax.”

● If you were an employee representative, 50% of the total tier 1

tax and tier 1 Medicare tax you paid for 2004.

Any refund you receive as a result of taking the additional child

tax credit will not be used to determine if you are eligible for the

following programs, or how much you can receive from them.

● Temporary Assistance for Needy Families (TANF).

● Medicaid and supplemental security income (SSI).

● Food stamps and low-income housing.

Effect of Credit on Welfare Benefits

First, complete the Child Tax Credit Worksheet that applies to you.

See the instructions for Form 1040, line 51, or Form 1040A, line

32. If you meet the condition given in the TIP at the end of your

Child Tax Credit Worksheet, use Form 8812 to see if you can take

the additional child tax credit.

Who Should Use Form 8812

2. Are you claiming the earned income credit (EIC) on Form

1040, line 65, or Form 1040A, line 41?

Yes. Use the following chart to find the amount to enter on

Form 8812, line 4.

IF you are

filing Form . . . AND you completed . . .

THEN enter on Form

8812, line 4, the amount

from . . .

1040A

1040

Step 5 on page 42 of your

1040A instructions

Worksheet B on page 49 of

your 1040 instructions

Step 5 on page 46 of your

1040 instructions (but not

Worksheet B)

Step 5, Earned Income

Worksheet B, line 4b.*

Step 5, Earned Income

No. 1040 filers: Go to question 3.

1040A filers: Skip question 3 and go to question 4.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

4. Does the amount on line 7 of Form 1040 or Form 1040A

include any of the following amounts?

● Taxable scholarship or fellowship grants not reported on a Form

W-2.

● Amounts paid to an inmate in a penal institution for work (enter

“PRI” and the amount paid in the space next to line 7 of Form

1040 or 1040A).

No. Enter the amount from line 7 of Form 1040 or Form

1040A on Form 8812, line 4.

Yes. Subtract the total of those amounts from the amount on

line 7 of Form 1040 or Form 1040A. (If an amount is

included in more than one of the above categories,

include it only once in figuring the total amount to

subtract.) Enter the result on Form 8812, line 4.

1040A Filers

If you, or your spouse if filing a joint return, had more than one

employer for 2004 and total wages of over $87,900, figure any

excess social security and tier 1 railroad retirement (RRTA) taxes

withheld. See the instructions for Form 1040A, line 43. Include any

excess on Form 8812, line 10.

* If you were a member of the clergy, subtract the following from the amount on line

4b: (a) the rental value of a home or the nontaxable portion of an allowance for a

home furnished to you (including payments for utilities) and (b) the value of meals

and lodging provided to you, your spouse, and your dependents for your employer’s

convenience.

● Amounts received as a pension or annuity from a nonqualified

deferred compensation plan or a nongovernmental section 457 plan

(enter “DFC” and the amount received in the space next to line 7

of Form 1040 or 1040A). This amount may be reported in box 11

of your Form W-2. If you received such an amount but box 11 is

blank, contact your employer for the amount received as a pension

or annuity.

● Amounts from Form 2555, line 41, or Form 2555-EZ,

line 18.

1. Did you, or your spouse if filing a joint return, have net

earnings from self-employment and use either optional method to

figure those net earnings?

No. Go to question 2.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

3. Were you, or your spouse if filing a joint return,

self-employed, or are you filing Schedule SE because you were a

member of the clergy or you had church employee income, or are

you filing Schedule C or C-EZ as a statutory employee?

No. Go to question 4.

TIP

✘

✘

✘

✘
11-10 Lesson 11

WAGE EARNER

The interview tips you should use when determining the Child Tax Credit are shown in 

Exhibit 7 below.

Exhibit 7 Child Tax Credit Chart

INTERVIEW TIPS

★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★

Child Tax Credit (Remember to apply the steps for each child)

Probe/Action: Ask the taxpayer: 

Step 1: Is this child claimed as a dependent on your 

tax return?

If yes, go to Step 2.

If no, you do not qualify for the child tax credit. STOP if 

you have no other children. 

Step 2: Is this child under age 17 at end of the tax year? If yes, go to Step 3.

If no, you cannot claim the child tax credit for this child. 

STOP if you have no other children.

Step 3: Is this child a citizen or resident of the United 

States?

If yes, go to Step 4.

If no, you cannot claim the child tax credit for this child. 

STOP if the taxpayer has no other children.

Step 4: Is this child a son, daughter, adopted child, 

stepchild, or a descendant of 1 any of them (for 

example, your grandchild)

If yes, go to Step 5.

If no, you cannot claim the child tax credit for this child. 

STOP if the taxpayer has no other children.

Or a brother, sister, stepbrother, stepsister, or a 

descendant of 1 any of them (for example, your 

niece or nephew) if you care for the individual 

as you would your own child, 

Or an eligible foster child? (Must be placed with 

you by an authorized placement agency and 

you cared for the child as you would your own.)

Questions Who Must Use Publication 972

Step 5: Are you excluding income from Puerto Rico or

are you fi ling Form 2555 or 2555-EZ (relating to 

foreign earned income) or Form 4563 (exclusion 

of income for residents of American Samoa? 

If no, go to Step 6.

If yes, you must use Publication 972 to fi gure the credit.

Step 6: Is the amount of AGI on line 36 of your Form 

1040, or line 21 of Form 1040A more than:

■ $110,000 if you are married fi ling jointly,

■ $75,000 if your are fi ling as single, head of 

household, or as a qualifying widow, or 

■ $55,000 if you are married fi ling separately?

If no, go to Step 7.

If yes, you must use Publication 972 to fi gure the credit. 

Step 7: Are you claiming any of the following credits?

■ Adoption credit, Form 8839

■ Mortgage interest credit, Form 8896

■ District of Columbia fi rst-time homebuyer 

credit, Form 8859 

If no, use the Child Tax Credit Worksheet to fi gure 

the credit.

If yes, you must use Publication 972 to fi gure the credit. 

1A descendant of is any generation.
Lesson 11 11-11

WAGE EARNER

Exercise 1

Victor (SSN xxx-xx-xxxx) and Emily Howard are married 

taxpayers with four children. They file married filing jointly 

for 2004 on Form 1040A. All of their children are qualifying for 

purposes of the child tax credit. They have no itemized deductions. Their adjusted gross income is $31,467, of which $18,467 

is taxable earned income and $13,000 is unemployment compensation. The Howards’ taxable income is $3,167, Social Security/

Medicare taxes are $1,413, and the earned income credit is $839. 

They have no other credits entered in lines 29–34. Based on the 

facts given for the Howards:

A. Figure the child tax credit.

B. Complete page 2 of Form 1040A, lines 22 through 35.

C. Figure the additional child tax credit. 

Exhibit 8 Victor and Emily’s Child Tax Credit Questions

Proof as of

ne 18, 2004

t to change)

Line 32—Child Tax Credit

What Is the Child Tax Credit? The above requirements are not the same as the

requirements to be a qualifying child for the earned This credit is for people who have a qualifying child (defined income credit. below). It is in addition to the credit for child and dependent care CAUTION

!

expenses on Form 1040A, line 29, and the earned income credit on

Form 1040A, line 41. An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized Three Steps To Take the Child Tax Credit! placement agency for legal adoption even if the adoption is not

final. An authorized placement agency includes any person or court

Step 1. Make sure you have a qualifying child for the child authorized by state law to place children for legal adoption.

tax credit (defined below).

Step 2. Make sure you checked the box in column (4) of

line 6c on Form 1040A for each qualifying child. Questions Who Must Use Pub. 972

Step 3. Answer the questions on this page to see if you

Pub.

972

may use the worksheet on page 36 to figure your

credit or if you must use Pub. 972, Child Tax 1. Is the amount on Form 1040A, line 22, more than the

Credit. If you need Pub. 972, see page 7. amount shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit. $75,000

A qualifying child for purposes of the child tax credit is a child who: • Married filing separately – $55,000

No. Continue Yes.



1. Is claimed as your dependent on line 6c, and STOP

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

3. Is your (a) son, daughter, adopted child, stepchild, or a figure your credit.

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 2. Are you claiming the adoption credit on Form 8839 (see the any of them (for example, your niece or nephew), whom instructions for Form 1040A, line 34, on page 37)? you cared for as you would your own child; or (c) foster No. Use the Yes. You must use child (any child placed with you by an authorized worksheet on page 36 Pub. 972 to figure your placement agency whom you cared for as you would your to figure your child child tax credit. You will own child), and tax credit. also need Form 8839. 4. Is a U.S. citizen or resident alien.
11-12 Lesson 11

WAGE EARNER

Exhibit 9 Victor and Emily’s Child Tax Credit Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 32

Child Tax Credit Worksheet—Line 33

1040A

Keep for Your Records

● To be a qualifying child for the child tax credit, the child must be under age 17 at the

end of 2004 and meet the other requirements listed on page 35.

● Do not use this worksheet if you answered “Yes” to question 1 or 2 on page 35.

Instead, use Pub. 972.

1.

5.

Number of qualifying children: $1,000. Enter the result.  1

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040A, line 32.

You may be able to take the additional child tax credit

on Form 1040A, line 42, if you answered “Yes” on line 4

or line 5 above.

● First, complete your Form 1040A through line 41.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. 2 Enter the amount from Form 1040A, line 28.

4. Are the amounts on lines 2 and 3 the same?

Yes. STOP

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below

before completing the rest of your Form 1040A.

TIP

No. Subtract line 3 from line 2.

3

CAUTION

TIP

3. Add the amounts from Form 1040A:

Line 29

Line 30 +

Line 31 + Enter the total.
Lesson 11 11-13

WAGE EARNER

Exhibit 10 Victor and Emily’s Form 1040A, page 2

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:
11-14 Lesson 11

WAGE EARNER

Exhibit 11 Victor and Emily’s Form 8812, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1620 8812 Additional Child Tax Credit Form

Complete and attach to Form 1040 or Form 1040A. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 47

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 10644E Form 8812 (2004)

3

2

4

6

Enter the total of the withheld social security and Medicare taxes from Form(s)

W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts

with yours. If you worked for a railroad, see the instructions on back

Add lines 7 and 8

1

Enter the total of the amounts from Form 1040, lines

30 and 58, plus any uncollected social security and

Medicare or tier 1 RRTA taxes included on line 62.

Enter -0-.

Enter the total of the amounts from Form 1040, lines

65 and 66.

Enter the total of the amount from Form 1040A, line

41, plus any excess social security and tier 1 RRTA

taxes withheld that you entered to the left of line 43

(see the instructions on back).

Enter the amount from line 1 of your Child Tax Credit Worksheet on page 41 of the Form 1040 instructions

or page 38 of the Form 1040A instructions. If you used Pub. 972, enter the amount from line 8 of the

worksheet on page 4 of the publication

Enter the amount from Form 1040, line 51, or Form 1040A, line 32

Subtract line 2 from line 1. If zero, stop; you cannot take this credit

8

9



6

 1040A filers:

1040 filers:

1040 filers:

1040A filers:

1

2

13

1040 .

1040A . . . . . . . . . Enter this amount on

Form 1040, line 67, or

Form 1040A, line 42.





8812

1040

1040A

. . . . . . . . . .

3

Enter your total taxable earned income. See the instructions on back

5 Is the amount on line 4 more than $10,750?

No.

Yes. Subtract $10,750 from the amount on line 4. Enter the result

Leave line 5 blank and enter -0- on line 6.

4

5

Multiply the amount on line 5 by 10% (.10) and enter the result

7

Next. Do you have three or more qualifying children?

No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part II and enter the

smaller of line 3 or line 6 on line 13.

Yes.

7

8

9

10

10

11 Subtract line 10 from line 9. If zero or less, enter -0- 11

12 Enter the larger of line 6 or line 11 here 12

Next, enter the smaller of line 3 or line 12 on line 13.

13 This is your additional child tax credit

Part III

Part I

Part II

All Filers

Certain Filers Who Have Three or More Qualifying Children

Your Additional Child Tax Credit

If line 6 is equal to or more than line 3, skip Part II and enter the amount from line 3 on

line 13. Otherwise, go to line 7.

(99)

2004
Lesson 11 11-15

WAGE EARNER

Exhibit 12 Victor and Emily’s Form 8812, page 2

Proof as of

June 18, 2004

(subject to change)

Form 8812 (2004) Page 2

Instructions

Purpose of Form

Use Form 8812 to figure your additional child tax credit.

Taxable Earned Income

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by Internal Revenue Code section

6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average time

is: Recordkeeping, 6 min.; Learning about the law or the form,

5 min.; Preparing the form, 28 min.; Copying, assembling, and

sending the form to the IRS, 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the Instructions for Form 1040 or

Form 1040A.

The additional child tax credit may give you a refund

even if you do not owe any tax.

Railroad Employees

If you worked for a railroad, include the following taxes in the

total on Form 8812, line 7.

● Tier 1 tax withheld from your pay. This tax should be shown in

box 14 of your Form(s) W-2 and identified as “Tier 1 tax.”

● If you were an employee representative, 50% of the total tier 1

tax and tier 1 Medicare tax you paid for 2004.

Any refund you receive as a result of taking the additional child

tax credit will not be used to determine if you are eligible for the

following programs, or how much you can receive from them.

● Temporary Assistance for Needy Families (TANF).

● Medicaid and supplemental security income (SSI).

● Food stamps and low-income housing.

Effect of Credit on Welfare Benefits

First, complete the Child Tax Credit Worksheet that applies to you.

See the instructions for Form 1040, line 51, or Form 1040A, line

32. If you meet the condition given in the TIP at the end of your

Child Tax Credit Worksheet, use Form 8812 to see if you can take

the additional child tax credit.

Who Should Use Form 8812

2. Are you claiming the earned income credit (EIC) on Form

1040, line 65, or Form 1040A, line 41?

Yes. Use the following chart to find the amount to enter on

Form 8812, line 4.

IF you are

filing Form . . . AND you completed . . .

THEN enter on Form

8812, line 4, the amount

from . . .

1040A

1040

Step 5 on page 42 of your

1040A instructions

Worksheet B on page 49 of

your 1040 instructions

Step 5 on page 46 of your

1040 instructions (but not

Worksheet B)

Step 5, Earned Income

Worksheet B, line 4b.*

Step 5, Earned Income

No. 1040 filers: Go to question 3.

1040A filers: Skip question 3 and go to question 4.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

4. Does the amount on line 7 of Form 1040 or Form 1040A

include any of the following amounts?

● Taxable scholarship or fellowship grants not reported on a Form

W-2.

● Amounts paid to an inmate in a penal institution for work (enter

“PRI” and the amount paid in the space next to line 7 of Form

1040 or 1040A).

No. Enter the amount from line 7 of Form 1040 or Form

1040A on Form 8812, line 4.

Yes. Subtract the total of those amounts from the amount on

line 7 of Form 1040 or Form 1040A. (If an amount is

included in more than one of the above categories,

include it only once in figuring the total amount to

subtract.) Enter the result on Form 8812, line 4.

1040A Filers

If you, or your spouse if filing a joint return, had more than one

employer for 2004 and total wages of over $87,900, figure any

excess social security and tier 1 railroad retirement (RRTA) taxes

withheld. See the instructions for Form 1040A, line 43. Include any

excess on Form 8812, line 10.

* If you were a member of the clergy, subtract the following from the amount on line

4b: (a) the rental value of a home or the nontaxable portion of an allowance for a

home furnished to you (including payments for utilities) and (b) the value of meals

and lodging provided to you, your spouse, and your dependents for your employer’s

convenience.

● Amounts received as a pension or annuity from a nonqualified

deferred compensation plan or a nongovernmental section 457 plan

(enter “DFC” and the amount received in the space next to line 7

of Form 1040 or 1040A). This amount may be reported in box 11

of your Form W-2. If you received such an amount but box 11 is

blank, contact your employer for the amount received as a pension

or annuity.

● Amounts from Form 2555, line 41, or Form 2555-EZ,

line 18.

1. Did you, or your spouse if filing a joint return, have net

earnings from self-employment and use either optional method to

figure those net earnings?

No. Go to question 2.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

3. Were you, or your spouse if filing a joint return,

self-employed, or are you filing Schedule SE because you were a

member of the clergy or you had church employee income, or are

you filing Schedule C or C-EZ as a statutory employee?

No. Go to question 4.

TIP
11-16 Lesson 11

WAGE EARNER

Exercise 1(A) The Howard’s Child Tax Questions

Proof as of

June 18, 2004

(subject to change)

Line 32—Child Tax Credit

What Is the Child Tax Credit? The above requirements are not the same as the

requirements to be a qualifying child for the earned This credit is for people who have a qualifying child (defined income credit. below). It is in addition to the credit for child and dependent care CAUTION

!

expenses on Form 1040A, line 29, and the earned income credit on

Form 1040A, line 41. An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized

Three Steps To Take the Child Tax Credit! placement agency for legal adoption even if the adoption is not

final. An authorized placement agency includes any person or court

Step 1 authorized by state law to place children for legal adoption. . Make sure you have a qualifying child for the child

tax credit (defined below).

Step 2. Make sure you checked the box in column (4) of

line 6c on Form 1040A for each qualifying child. Questions Who Must Use Pub. 972

Step 3. Answer the questions on this page to see if you

Pub.

972

may use the worksheet on page 36 to figure your

credit or if you must use Pub. 972, Child Tax 1. Is the amount on Form 1040A, line 22, more than the

Credit. If you need Pub. 972, see page 7. amount shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit. $75,000

A qualifying child for purposes of the child tax credit is a child who: • Married filing separately – $55,000

No. Continue Yes.



1. Is claimed as your dependent on line 6c, and STOP

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

3 figure your credit. . Is your (a) son, daughter, adopted child, stepchild, or a

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 2. Are you claiming the adoption credit on Form 8839 (see the any of them (for example, your niece or nephew), whom instructions for Form 1040A, line 34, on page 37)?

you cared for as you would your own child; or (c) foster No. Use the Yes. You must use child (any child placed with you by an authorized

worksheet on page 36 Pub. 972 to figure your placement agency whom you cared for as you would your to figure your child child tax credit. You will own child), and tax credit. also need Form 8839. 4. Is a U.S. citizen or resident alien.

- 35 - Need more information or forms? See page 7.

✘

✘

Lesson 11 CHILD TAX CREDIT ANSWERS TO EXERCISES
Lesson 11 11-17

WAGE EARNER

Exercise 1(A) The Howard’s Additional Child Tax, page 2

Proof as of

June 18, 2004

(subject to change)

Form 8812 (2004) Page 2

Instructions

Purpose of Form

Use Form 8812 to figure your additional child tax credit.

Taxable Earned Income

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by Internal Revenue Code section

6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average time

is: Recordkeeping, 6 min.; Learning about the law or the form,

5 min.; Preparing the form, 28 min.; Copying, assembling, and

sending the form to the IRS, 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the Instructions for Form 1040 or

Form 1040A.

The additional child tax credit may give you a refund

even if you do not owe any tax.

Railroad Employees

If you worked for a railroad, include the following taxes in the

total on Form 8812, line 7.

● Tier 1 tax withheld from your pay. This tax should be shown in

box 14 of your Form(s) W-2 and identified as “Tier 1 tax.”

● If you were an employee representative, 50% of the total tier 1

tax and tier 1 Medicare tax you paid for 2004.

Any refund you receive as a result of taking the additional child

tax credit will not be used to determine if you are eligible for the

following programs, or how much you can receive from them.

● Temporary Assistance for Needy Families (TANF).

● Medicaid and supplemental security income (SSI).

● Food stamps and low-income housing.

Effect of Credit on Welfare Benefits

First, complete the Child Tax Credit Worksheet that applies to you.

See the instructions for Form 1040, line 51, or Form 1040A, line

32. If you meet the condition given in the TIP at the end of your

Child Tax Credit Worksheet, use Form 8812 to see if you can take

the additional child tax credit.

Who Should Use Form 8812

2. Are you claiming the earned income credit (EIC) on Form

1040, line 65, or Form 1040A, line 41?

Yes. Use the following chart to find the amount to enter on

Form 8812, line 4.

IF you are

filing Form . . . AND you completed . . .

THEN enter on Form

8812, line 4, the amount

from . . .

1040A

1040

Step 5 on page 42 of your

1040A instructions

Worksheet B on page 49 of

your 1040 instructions

Step 5 on page 46 of your

1040 instructions (but not

Worksheet B)

Step 5, Earned Income

Worksheet B, line 4b.*

Step 5, Earned Income

No. 1040 filers: Go to question 3.

1040A filers: Skip question 3 and go to question 4.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

4. Does the amount on line 7 of Form 1040 or Form 1040A

include any of the following amounts?

● Taxable scholarship or fellowship grants not reported on a Form

W-2.

● Amounts paid to an inmate in a penal institution for work (enter

“PRI” and the amount paid in the space next to line 7 of Form

1040 or 1040A).

No. Enter the amount from line 7 of Form 1040 or Form

1040A on Form 8812, line 4.

Yes. Subtract the total of those amounts from the amount on

line 7 of Form 1040 or Form 1040A. (If an amount is

included in more than one of the above categories,

include it only once in figuring the total amount to

subtract.) Enter the result on Form 8812, line 4.

1040A Filers

If you, or your spouse if filing a joint return, had more than one

employer for 2004 and total wages of over $87,900, figure any

excess social security and tier 1 railroad retirement (RRTA) taxes

withheld. See the instructions for Form 1040A, line 43. Include any

excess on Form 8812, line 10.

* If you were a member of the clergy, subtract the following from the amount on line

4b: (a) the rental value of a home or the nontaxable portion of an allowance for a

home furnished to you (including payments for utilities) and (b) the value of meals

and lodging provided to you, your spouse, and your dependents for your employer’s

convenience.

● Amounts received as a pension or annuity from a nonqualified

deferred compensation plan or a nongovernmental section 457 plan

(enter “DFC” and the amount received in the space next to line 7

of Form 1040 or 1040A). This amount may be reported in box 11

of your Form W-2. If you received such an amount but box 11 is

blank, contact your employer for the amount received as a pension

or annuity.

● Amounts from Form 2555, line 41, or Form 2555-EZ,

line 18.

1. Did you, or your spouse if filing a joint return, have net

earnings from self-employment and use either optional method to

figure those net earnings?

No. Go to question 2.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

3. Were you, or your spouse if filing a joint return,

self-employed, or are you filing Schedule SE because you were a

member of the clergy or you had church employee income, or are

you filing Schedule C or C-EZ as a statutory employee?

No. Go to question 4.

TIP

✘

✘

✘

✘

 CHILD TAX CREDIT ANSWERS TO EXERCISES Lesson 11
11-18 Lesson 11

WAGE EARNER

Exercise 1(A) The Howard’s Child Tax Worksheet

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 32

Child Tax Credit Worksheet—Line 33

1040A

Keep for Your Records

● To be a qualifying child for the child tax credit, the child must be under age 17 at the

end of 2004 and meet the other requirements listed on page 35.

● Do not use this worksheet if you answered “Yes” to question 1 or 2 on page 35.

Instead, use Pub. 972.

1.

5.

Number of qualifying children:  $1,000. Enter the result. 1

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040A, line 32.

You may be able to take the additional child tax credit

on Form 1040A, line 42, if you answered “Yes” on line 4

or line 5 above.

● First, complete your Form 1040A through line 41.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. Enter the amount from Form 1040A, line 28. 2

4. Are the amounts on lines 2 and 3 the same?

Yes. STOP

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below

before completing the rest of your Form 1040A.

TIP

No. Subtract line 3 from line 2.

3

CAUTION

TIP

3. Add the amounts from Form 1040A:

Line 29

Line 30 +

Line 31 + Enter the total.

Need more information or forms? See page 7. - 36 -

4

4,000.00

318.00

0.00

✘ 318.00

✘

318.00
Lesson 11 11-19

WAGE EARNER

Exercise 1(B) The Howard’s 1040A, page 2

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

31,467

9,700

21,767

18,600

3,167

318

318

318

 CHILD TAX CREDIT ANSWERS TO EXERCISES Lesson 11
11-20 Lesson 11

WAGE EARNER

Exercise 1(C) The Howard’s Form 8812, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1620 8812 Additional Child Tax Credit Form

Complete and attach to Form 1040 or Form 1040A. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 47

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 10644E Form 8812 (2004)

3

2

4

6

Enter the total of the withheld social security and Medicare taxes from Form(s)

W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts

with yours. If you worked for a railroad, see the instructions on back

Add lines 7 and 8

1

Enter the total of the amounts from Form 1040, lines

30 and 58, plus any uncollected social security and

Medicare or tier 1 RRTA taxes included on line 62.

Enter -0-.

Enter the total of the amounts from Form 1040, lines

65 and 66.

Enter the total of the amount from Form 1040A, line

41, plus any excess social security and tier 1 RRTA

taxes withheld that you entered to the left of line 43

(see the instructions on back).

Enter the amount from line 1 of your Child Tax Credit Worksheet on page 41 of the Form 1040 instructions

or page 38 of the Form 1040A instructions. If you used Pub. 972, enter the amount from line 8 of the

worksheet on page 4 of the publication

Enter the amount from Form 1040, line 51, or Form 1040A, line 32

Subtract line 2 from line 1. If zero, stop; you cannot take this credit

8

9



6

 1040A filers:

1040 filers:

1040 filers:

1040A filers:

1

2

13

1040 .

1040A . . . . . . . . . Enter this amount on

Form 1040, line 67, or

Form 1040A, line 42.





8812

1040

1040A

. . . . . . . . . .

3

Enter your total taxable earned income. See the instructions on back

5 Is the amount on line 4 more than $10,750?

No.

Yes. Subtract $10,750 from the amount on line 4. Enter the result

Leave line 5 blank and enter -0- on line 6.

4

5

Multiply the amount on line 5 by 10% (.10) and enter the result

7

Next. Do you have three or more qualifying children?

No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part II and enter the

smaller of line 3 or line 6 on line 13.

Yes.

7

8

9

10

10

11 Subtract line 10 from line 9. If zero or less, enter -0- 11

12 Enter the larger of line 6 or line 11 here 12

Next, enter the smaller of line 3 or line 12 on line 13.

13 This is your additional child tax credit

Part III

Part I

Part II

All Filers

Certain Filers Who Have Three or More Qualifying Children

Your Additional Child Tax Credit

If line 6 is equal to or more than line 3, skip Part II and enter the amount from line 3 on

line 13. Otherwise, go to line 7.

(99)

2004

Victor and Emily Howard XXX XX XXXX

4,000

318

3,682

18,467

✘ 7,717

772

✘

1,413

0

1,413

839

574

772

772

Lesson 11 CHILD TAX CREDIT ANSWERS TO EXERCISES
Comprehensive

Problems CW-1

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

Your

xx-xxxxxxx

Norfolk Trading Company

819 Ferris St.

Your City, State, and Zip Code

xxx-xx-xxxx

John Marshall

878 Hudson Ave

Your City, State, and Zip Code

2,694.00 52.00

2,694.00 94.00

2,694.00 39.00

xx-xxxxxxx 2,694.00 25.00

✘

INTRODUCTION

In this section, you will complete tax returns for several common wage earner scenarios often encountered at volunteer assistance sites. This will be valuable practice as you prepare to help 

taxpayers. Although answers to each of the problems are shown 

at the end of this section, you should try to complete the blank 

forms for each problem before referring to its answers.

After completing this section, you will be able to:

■ accurately complete a basic tax return.

PROBLEM 1

John Marshall, a sophomore in college, wants help with preparing 

his tax return. He tells you he is 20 years old (born May 28, 1984). 

Although he lives in the dorm at college, his parents can claim him 

as a dependent on their tax return. He does not wish to contribute 

to the presidential election campaign. If he receives a refund he 

would like it direct deposited into his checking account (account 

number xxxxxx, routing number xxxxxxxxx). John does not want to 

name a third party designee. His address and SSN are correct on 

his Form W-2 and Form 1099-INT. Your site identification number 

is Sxxxxxxxx.
CW-2 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 First Bank

2940 N. Second St.

Your City, State, and Zip Code

xx-xxxxxxx xxx-xx-xxxx

John Marshall

878 Hudson 

Your City, State, and Zip Code

50.00
Comprehensive

Problems CW-3

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 1 Form 1040EZ, front

Proof as of

June 18, 2004

(subject to change)

Do you, or your spouse if a joint return, want $3 to go to this fund? 

Taxable interest. If the total is over $1,500, you cannot use Form 1040EZ.

Department of the Treasury—Internal Revenue Service

Form Income Tax Return for Single and

1040EZ Joint Filers With No Dependents 2004 OMB No. 1545-0675

Note. Checking “Yes” will not change your tax or reduce your refund.

Presidential

Election

Campaign

(page 12)

Wages, salaries, and tips. This should be shown in box 1 of your Form(s) W-2.

Attach your Form(s) W-2.

1

1

Attach

Form(s) W-2

here. Enclose, but

do not attach,

any payment.

2 2

Add lines 1, 2, and 3. This is your adjusted gross income.

5 Can your parents (or someone else) claim you on their return? Note. You

must check

Yes or No.

Yes. No.

5

Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0-.

This is your taxable income. 

6

6

Payments

and tax

Earned income credit (EIC).

7 7

Tax. Use the amount on line 6 above to find your tax in the tax table on pages

24–28 of the booklet. Then, enter the tax from the table on this line.

10

10

Refund

11a 11a

If line 10 is larger than line 9, subtract line 9 from line 10. This is

the amount you owe. For details on how to pay, see page 20. 

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 23.

Income

Cat. No. 11329W



4 4

12

12

Add lines 7 and 8. These are your total payments. 

8 8

9 9

Federal income tax withheld from box 2 of your Form(s) W-2.

Unemployment compensation and Alaska Permanent Fund dividends

(see page 14).

3

3

Amount

you owe

b Routing number

Account number

c Type: Checking

Enter amount from

worksheet on back.

If single, enter $7,950.

If married filing jointly, enter $15,900.

See back for explanation.

Have it directly

deposited! See

page 19 and fill

in 11b, 11c,

and 11d.

 d



Form 1040EZ (2004)

(99)

Yes No Yes No

You Spouse

Savings

Under penalties of perjury, I declare that I have examined this return, and to the best of my knowledge and belief, it is true, correct, and

accurately lists all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based

on all information of which the preparer has any knowledge.

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 11.

Daytime phone number

( )

Spouse’s occupation

( )

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 20)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

Your first name and initial Last name Your social security number

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Home address (number and street). If you have a P.O. box, see page 12. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 12.

Important! 



Label

(See page 12.)

Use the IRS

label.

Otherwise,

please print

or type.



If line 9 is larger than line 10, subtract line 10 from line 9. This is your refund. 
CW-4 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040EZ (2004)

● You (and your spouse if married filing jointly) were under age 65 and not blind at the end of

2004. If you were born on January 1, 1940, you are considered to be age 65 at the end of 2004.

● Your filing status is single or married filing jointly. If you are not sure about your filing status,

see page 11.

Use

this

form if

● Your taxable income (line 6) is less than $50,000.

● You do not claim any dependents. For information on dependents, use TeleTax topic 354

(see page 6).

● You had only wages, salaries, tips, taxable scholarship or fellowship grants, unemployment

compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over

$1,500. But if you earned tips, including allocated tips, that are not included in box 5 and box 7

of your W-2, you may not be able to use Form 1040EZ (see page 13). If you are planning to use

Form 1040EZ for a child who received Alaska Permanent Fund dividends, see page 14.

If you have questions about dependents, use TeleTax topic 354 (see page 6). If you cannot use this

form, use TeleTax topic 352 (see page 6).

Filling in

your

return

If you received a scholarship or fellowship grant or tax-exempt interest income, such as on

municipal bonds, see the booklet before filling in the form. Also, see the booklet if you received a

Form 1099-INT showing Federal income tax withheld or if Federal income tax was withheld from

your unemployment compensation or Alaska Permanent Fund dividends.

Remember, you must report all wages, salaries, and tips even if you do not get a Form W-2 from

your employer. You must also report all your taxable interest, including interest from banks, savings

and loans, credit unions, etc., even if you do not get a Form 1099-INT.

Use this worksheet to figure the amount to enter on line 5 if someone can claim you (or your

spouse if married filing jointly) as a dependent, even if that person chooses not to do so. To find

out if someone can claim you as a dependent, use TeleTax topic 354 (see page 6).

Worksheet

for

dependents

who

checked

“Yes” on

line 5

A .

A . Amount, if any, from line 1 on front

B . Minimum standard deduction B . 800.00

C. Enter the larger of line A or line B here C.

D.

D. Maximum standard deduction. If single, enter $4,850; if married

filing jointly, enter $9,700

E . Enter the smaller of line C or line D here. This is your standard

deduction E .

Mailing

return

Mail your return by April 15, 2005. Use the envelope that came with your booklet. If you do not

have that envelope or if you moved during the year, see the back cover for the address to use.

● You did not receive any advance earned income credit payments.

F. Exemption amount.

G . Add lines E and F. Enter the total here and on line 5 on the front

If you checked “No” on line 5 because no one can claim you (or your spouse if married filing

jointly) as a dependent, enter on line 5 the amount shown below that applies to you.

● Single, enter $7,950. This is the total of your standard deduction ($4,850) and your exemption

($3,100).

● Married filing jointly, enter $15,900. This is the total of your standard deduction ($9,700), your

exemption ($3,100), and your spouses exemption ($3,100).

F.

G .

● If single, enter -0-.

● If married filing jointly and—

—only one of you can be claimed as a dependent, enter $3,100.

For tips on how

to avoid common

mistakes, see

page 21.

—both you and your spouse can be claimed as dependents, enter -0-.

● You do not claim any adjustments to income. For information on adjustments to income, use

TeleTax topics 451-458 (see page 6).

+ 250.00 Enter total 

(keep a copy for

your records)

Form 1040EZ (2004)

Page 2

● The only tax credit you can claim is the earned income credit. For information on credits, use

TeleTax topics 601-608 and 610 (see page 6).

Problem 1 Form 1040EZ, page 2
Comprehensive

Problems CW-5

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

PROBLEM 2

Melody York is 35 years old (born August 31, 1969) and single. 

Melody was laid off from her job as a clerk in September and 

received unemployment compensation for the remainder of the 

year. She would like to contribute to the Presidential election campaign. If she receives a refund, she would like it direct deposited 

into her savings account (account number xxxxxxxxxxx; routing 

transit number xxxxxxxxx). Melody does not want to name a third 

party designee. Her address and SSN are correct as shown on her 

Form W-2 and Form 1099-G. Your site identification number is 

Sxxxxxxxx.

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

Your

xx-xxxxxxx

Miller Industries

975 Parks Blvd

Your City, State, and Zip Code

xxx-xx-xxxx

Melody York

17 North 9th Avenue 

Your City, State, and Zip Code

6,923.12 261.00

6,923.12 429.00

6,923.12 100.00

xx-xxxxxxx 6,923.12 192.36

✘
CW-6 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0120 1 Unemployment compensation

Certain

Government

Payments

$

State or local income tax

refunds, credits, or offsets

2

$

PAYER’S Federal identification number RECIPIENT’S identification number 3 Box 2 amount is for tax year 4 Federal income tax withheld

$

RECIPIENT’S name 6 Taxable grants

$

Street address (including apt. no.) 7 Agriculture payments

$

City, state, and ZIP code

Account number (optional)

Form 1099-G Department of the Treasury - Internal Revenue Service

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

For Recipient

Form 1099-G

5

8 Box 2 is trade or

business income 

2004

Department of Employment Security

4010 West Third St.

Your City, State, and Zip Code

xx-xxxxxxx xxx-xx-xxxx

Melody York

17 North 9th Avenue

Your City, State, and Zip Code

3,240.00

0.00
Comprehensive

Problems CW-7

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 2 Form 1040A, front

Proof as of

June 18, 2004

(subject to change)

Head of household (with qualifying person). (See page 20.)

If the qualifying person is a child but not your dependent,

enter this child’s name here.  Married filing separately. Enter spouse’s SSN above and

full name here. 

Form Department of the Treasury—Internal Revenue Service

1040A 2004 U.S. Individual Income Tax Return

OMB No. 1545-0085

Your social security number

Your first name and initial Last name Label L

A

B

E

L

H

E

R

E

(See page 19.)

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the

IRS label. Home address (number and street). If you have a P.O. box, see page 20. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 20.

Filing

status

Boxes

checked on

6a and 6b

Yourself. If someone can claim you as a dependent, do not check

box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 23)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 23)

If more than six

dependents,

see page 21.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2. 7

8a Taxable interest. Attach Schedule 1 if required. 8a

b Tax-exempt interest. Do not include on line 8a. 8b

Attach

Form(s) W-2

here. Also

attach

Form(s)

1099-R if tax

was withheld.

9a Ordinary dividends. Attach Schedule 1 if required. 9a

IRA

distributions.

11a Taxable amount

(see page 25).

11b

Enclose, but do

not attach, any

payment.

11a 11b

Taxable amount

(see page 26).

12a Pensions and 12b

annuities. 12a 12b

13 Unemployment compensation and Alaska Permanent Fund dividends. 13

14a Taxable amount

(see page 28).

Social security

benefits.

14b

14a 14b

15 Add lines 7 through 14b (far right column). This is your total income.  15

17 IRA deduction (see page 28). 17

Student loan interest deduction (see page 31).

Income

18

Add lines 16 through 19. These are your total adjustments. 20

Subtract line 20 from line 15. This is your adjusted gross income. 

18

21

Dependents:



Check only

one box.

If you did not

get a W-2, see

page 24.

Form 1040A (2004)

IRS Use Only—Do not write or staple in this space.

(3) Dependent’s

relationship to

(1) First name Last name you

20

21

Adjusted

gross 

income

Important! 

Cat. No. 11327A

Otherwise,

please print

or type.

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 57.

(99)

10 Capital gain distributions (see page 25). 10

Presidential

Election Campaign

(See page 20.)  Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund?  No Yes

You Spouse

19 Tuition and fees deduction (see page 31). 19

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child (see page 21)

4

5

16 Deduction for clean-fuel vehicles (see page 28). 16

b Qualified dividends (see page 25). 9b
CW-8 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration

of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

Problem 2 Form 1040A, page 2
Comprehensive

Problems CW-9

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

 Form 1040A, Earned Income Credit Worksheet, page 1

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Line 41

Step 2 Investment Income Earned Income Credit (EIC)

1. Add the amounts from 

What is the EIC? Form 1040A:

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

Line 10 + • Follow the steps below.

• Complete the worksheet that applies to you or let the IRS

figure the credit for you. Investment Income =

• If you have a qualifying child, complete and attach

Schedule EIC.

2. Is your investment income more than $2,650? If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or Yes. No. STOP Continue

CAUTION intentional disregard of the EIC rules, you will not be You cannot take the  !

allowed to take the credit for 2 years even if you are credit. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Did a child live with you in 2004?

Yes. Go to Step 3 on No. Go to Step 4 on 

page 39. page 39. Step 1 All Filers

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040A,

line 22, less than $34,458 ($35,458 if married filing

jointly)?

• 1 child lived with you, is the amount on Form 1040A, line

22, less than $30,338 ($31,338 if married filing jointly)?

• No children live with you, is the amount on Form 1040A,

line 22, less than $11,490 ($12,490 if married filing

jointly)?

Yes. Continue No.



STOP

You cannot take the credit.

2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 41)?

Yes. Continue No.



STOP

You cannot take the credit.

Put “No” to the left of the

entry space for line 41.

3. Is your filing status married filing separately?

Yes. No. STOP Continue

You cannot take the 

credit.

4. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 41.

(Continued on page 39)

Need more information or forms? See page 7. - 38 -

 Problem 2
CW-10 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 38

3. Does the child meet the conditions to be a qualifying child

Step 3 Qualifying Child of any other person (other than your spouse if filing a joint

return) for 2004?

Yes. See Qualifying No. This child is your A qualifying child is a child who is your... child of more than one qualifying child. The child

person on must have a valid social sepage 41. curity number as defined Son, daughter, adopted child, stepchild, or a descendant on page 41 unless the child of any of them (for example, your grandchild) was born and died in 2004. or Skip Step 4; go to Step 5 Brother, sister, stepbrother, stepsister, or a descendant of on page 40.

any of them (for example, your niece or nephew) whom

you cared for as you would your own child

or Step 4 Filers Without a Qualifying Child

Foster child (any child placed with you by an authorized 1. Look at the qualifying child conditions in Step 3. Could placement agency whom you cared for as you would your you, or your spouse if filing a joint return, be a qualifying own child) child of another person in 2004?

Yes. No. STOP Continue

You cannot take the 

credit. Put “No” to the

AND

left of the entry space was at the end of 2004... for line 41.

Under age 19 2. Can you, or your spouse if filing a joint return, be claimed

or as a dependent on someone else’s 2004 tax return?

Yes. No. STOP Continue

 Under age 24 and a student (see page 41)

You cannot take the or credit.

Any age and permanently and totally disabled (see page 41)

3. Were you, or your spouse if filing a joint return, born before

January 2, 1980, but under age 65 at the end of 2004?

Yes. Continue No.



STOP

AND

You cannot take the credit.

who...

4. Was your home, and your spouse’s if filing a joint return, in Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. If the child did not live with you for the the military stationed outside the United States, see page 41 required time, see Exception to “time lived with you” before you answer.

condition on page 40. Yes. Go to Step 5 No. STOP

on page 40. You cannot take the credit.

Put “No” to the left of the

entry space for line 41. CAUTION

!

 If the child was married, see page 41.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. No. STOP Continue

You cannot take the 

credit. Put “No” to the

left of the entry space

for line 41.

(Continued on page 40)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip question 3; go to

question 3. Step 4, question 2.

- 39 - Need more information or forms? See page 7.

Problem 2 Form 1040A, Earned Income Credit Worksheet, page 2
Comprehensive

Problems CW-11

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 39

Definitions and Special Rules Step 5 Earned Income (listed in alphabetical order)

1. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an Form 1040A, line 7 authorized placement agency for legal adoption even if the adoption Subtract, if included on line 7, any: is not final. An authorized placement agency includes any person or

court authorized by state law to place children for legal adoption. • Taxable scholarship or fellowship

grant not reported on a Form W-2.

• Amount paid to an inmate in a penal Credit figured by the IRS. To have the IRS figure the credit for institution for work (put “PRI” and the you:

amount subtracted to the left of the 1. Put “EIC” to the left of the entry space for line 41 of Form entry space for line 7 of Form 1040A. 1040A). 2. If you have a qualifying child, complete and attach • Amount received as a pension or – Schedule EIC. If your EIC for a year after 1996 was annuity from a nonqualified deferred reduced or disallowed, see Form 8862, Who must file,

compensation plan or a below.

nongovernmental section 457 plan

(put “DFC” and the amount subtracted

to the left of the entry space for line 7 } Exception to “time lived with you” condition. A child is conof Form 1040A). This amount may be sidered to have lived with you for all of 2004 if the child was born shown in box 11 of your Form W-2. or died in 2004 and your home was this child’s home for the entire

If you received such an amount but time he or she was alive in 2004. Temporary absences, such as for

box 11 is blank, contact your school, vacation, medical care, or detention in a juvenile facility,

employer for the amount received as a count as time lived at home. If your child is presumed to have been

pension or annuity. kidnapped by someone who is not a family member, see Pub. 596 to

find out if that child is a qualifying child for the EIC. To get Pub.

596, see page 7. If you were in the military stationed outside the

Earned Income = United States, see Members of the military on page 41.

2. If you have: Form 8862, Who must file. You must file Form 8862 if your EIC • 2 or more qualifying children, is your earned income less for a year after 1996 was reduced or disallowed for any reason other than $34,458 ($35,458 if married filing jointly)? than a math or clerical error. But you do not have to file Form 8862 • 1 qualifying child, is your earned income less than if either of the following applies.

$30,338 ($31,338 if married filing jointly)? 1. After your EIC was reduced or disallowed in an earlier • No qualifying children, is your earned income less than year (a) you filed Form 8862 (or other documents) and $11,490 ($12,490 if married filing jointly)? your EIC was then allowed, and (b) your EIC has not been

Yes. Go to Step 6. No. STOP reduced or disallowed again for any reason other than a

math or clerical error. You cannot take the credit.

2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the

earlier year was because it was determined that a child Step 6 How To Figure the Credit listed on Schedule EIC was not your qualifying child.

1. Do you want the IRS to figure the credit for you?

Yes. See Credit fig- No. Go to the worksheet Also, do not file Form 8862 or take the credit for 2 years if it was

ured by the IRS on on page 42. determined that your error was due to reckless or intentional disrethis page. gard of the EIC rules (or 10 years if due to fraud).

(Continued on page 41)

Need more information or forms? See page 7. - 40 -

Problem 2 Form 1040A, Earned Income Credit Worksheet, page 3
CW-12 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 40

Married child. A child who was married at the end of 2004 is a The child must have a valid social security number as defined

below unless the child was born and died in 2004. If you do not qualifying child only if (a) you can claim him or her as your have a qualifying child, stop; you cannot take the EIC. Put “No” to dependent on Form 1040A, line 6c, or (b) this child’s other parent the left of the entry space for line 41. If you have a qualifying child, claims him or her as a dependent under the rules on page 20 for

Children of divorced or separated parents skip Step 4; go to Step 5 on page 40. . Example. You and your 5-year-old daughter moved in with Members of the military. If you were on extended active duty your mother in April 2004. You are not a qualifying child of your outside the United States, your home is considered to be in the mother. Your daughter meets the conditions to be a qualifying child United States during that duty period. Extended active duty is for both you and your mother. If you and your mother cannot agree military duty ordered for an indefinite period or for a period of more on who will treat your daughter as a qualifying child, the above than 90 days. Once you begin serving extended active duty, you are rules apply. Under these rules, you are entitled to treat your daugh- considered to be on extended active duty even if you serve fewer ter as a qualifying child because you are the child’s parent. Your than 90 days. mother would not be entitled to claim any EIC unless she has a

different qualifying child. Nonresident aliens. If your filing status is married filing jointly,

go to Step 2 on page 38. Otherwise, stop; you cannot take the EIC. Social security number (SSN). For purposes of taking the EIC, a

valid SSN is a number issued by the Social Security Administration Permanently and totally disabled child. A child who cannot unless “Not Valid for Employment” is printed on the social security engage in any substantial gainful activity because of a physical or card and the number was issued solely to apply for or receive a mental condition and a doctor has determined that this condition: federally funded benefit. • Has lasted or can be expected to last continuously for at To find out how to get an SSN, see page 18. If you will not have least a year, or an SSN by April 15, 2005, see What if You Cannot File on Time? • Can lead to death. on page 12.

Qualifying child of more than one person. If the child meets Student. A child who during any 5 months of 2004:

the conditions to be a qualifying child of more than one person, only • Was enrolled as a full-time student at a school, or

one person can take the EIC based on that child. The other person(s) • Took a full-time, on-farm training course given by a school cannot take the EIC for people without a qualifying child, but may or a state, county, or local government agency. take the EIC based on a different qualifying child. If you and the A school includes technical, trade, and mechanical schools. It other person(s) cannot agree who will take the EIC, then the follow- does not include on-the-job training courses, correspondence ing rules apply. schools, or night schools. • If only one of the persons is the child’s parent, the child

will be treated as the qualifying child of the parent. Welfare benefits, effect of credit on. Any refund you receive as • If both persons are the child’s parents, the child will be a result of taking the EIC will not be used to determine if you are treated as the qualifying child of the parent with whom the eligible for the following programs or how much you can receive child lived for the longer period of time during 2004. If the from them. But if the refund you receive because of the EIC is not child lived with each parent for the same amount of time, spent within a certain period of time, it may count as an asset (or the child will be treated as the qualifying child of the parent resource) and affect your eligibility. who had the higher adjusted gross income (AGI) for 2004. • Temporary Assistance for Needy Families (TANF). • If none of the persons is the child’s parent, the child will be • Medicaid and supplemental security income (SSI). treated as the qualifying child of the person who had the • Food stamps and low-income housing. highest AGI for 2004.

Problem 2 Form 1040A, Earned Income Credit Worksheets, page 4
Comprehensive

Problems CW-13

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Earned Income Credit (EIC) Worksheet—Line 41

1040A

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

1.

2.

3.

4.

5.

1 Enter your earned income from Step 5 on

page 40.

Look up the amount on line 1 above in the EIC Table on pages 43–47

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040A, line 22.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 43–47 to find the credit. Be sure you use the correct

column for your filing status and the number of children you

have. Enter the credit here.

Enter this amount on

Form 1040A, line 41.

3

Part 3 6

Part 1

Part 2

All Filers

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” to the left of the entry space for line 41.

● No qualifying children, is the amount on line 3 less than $6,400 ($7,400

if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than $14,050

($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach

Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 40 to find out if you must file Form 8862 to take the credit

for 2004.

  

EIC

1040A

CAUTION

Need more information or forms? See page 7. - 42 -

Problem 2 Form 1040A, Earned Income Credit Worksheets, page 5
STUDENT NOTES
Comprehensive

Problems CW-15

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

PROBLEM 3

Marvin Simmons is 56 (born on December 4, 1948). His grandson, 

Eric Simmons (SSN xxx-xx-xxxx; born on March 10, 1993), has 

lived with him for the last two years. Marvin pays the total cost of 

keeping up a home for himself and his grandson and provides all 

the support for Eric. Eric is a qualifying child for EIC purposes.

Marvin paid $978 in child care expenses to allow him to work. The 

provider information is as follows:

Joy Day Care

9192 East Huron St.

Your City, State, Zip Code

EIN: xx-xxxxxxx

He does not want to contribute to the presidential election campaign and if he is due a refund, he would like a direct deposit to his 

checking account (account xxxxxxxxxxxxxx; routing transit number 

xxxxxxxxx). His address and SSN are correct on his Form W-2. He 

does not want to designate a third party. Marvin is a mechanic. 

Your site identification number is Sxxxxxxxx.

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

Your

xx-xxxxxxx

Endicott Motors

473 Endicott Lane

Your City, State, and Zip Code

xxx-xx-xxxx

Marvin Simmons

9701 Austin Rd.

Your City, State, and Zip Code

24,952.00 1,964.00

24,952.00 1,547.00

24,952.00 362.00

600.00

xx-xxxxxxx 24,952.00 875.00

✘
CW-16 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 3 Form 1040, front

Proof as of

June 18, 2004

(subject to change)

Department of the Treasury—Internal Revenue Service 1040 U.S. Individual Income Tax Return

For the year Jan. 1–Dec. 31, 2004, or other tax year beginning , 2004, ending , 20 OMB No. 1545-0074

Your first name and initial Last name Your social security number

(See

instructions

on page 19.)

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the IRS

label.

Otherwise,

please print

or type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

Presidential

Election Campaign

1 Single

Filing Status 2 Married filing jointly (even if only one had income)

Check only

one box.

3

Qualifying widow(er) with dependent child (see page 20)

6a Yourself. If someone can claim you as a dependent, do not check box 6a

Exemptions b Spouse

(4) if qualifying

child for child tax

credit (see page 21)

c Dependents: (2) Dependent’s

social security number

(3) Dependent’s

relationship to (1) First name Last name you

If more than four

dependents, see

page 21.

d Total number of exemptions claimed

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7

Income 8a Taxable interest. Attach Schedule B if required 8a

b Tax-exempt interest. Do not include on line 8a 8b Attach

Forms W-2 and

W-2G here.

Also attach

Form(s) 1099-R

if tax was

withheld.

9a Ordinary dividends. Attach Schedule B if required 9a

10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) 10

11 Alimony received 11

12 Business income or (loss). Attach Schedule C or C-EZ 12

Enclose, but do

not attach, any

payment. Also,

please use

Form 1040-V.

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 Other gains or (losses). Attach Form 4797 14

15a IRA distributions 15a 15b b Taxable amount (see page 25)

16a Pensions and annuities 16a b Taxable amount (see page 25) 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F 18

19 Unemployment compensation 19

20a Social security benefits 20a b Taxable amount (see page 27) 20b

21 21

22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22

IRA deduction (see page 29) 25

23

27

26

One-half of self-employment tax. Attach Schedule SE

29

Self-employed health insurance deduction (see page 33)

27

30

29

Self-employed SEP, SIMPLE, and qualified plans

31

30

Penalty on early withdrawal of savings

32

31

Alimony paid b Recipient’s SSN 

Add lines 23 through 34a 35

32

Subtract line 35 from line 22. This is your adjusted gross income 

33

Adjusted

Gross

Income

36

If you did not

get a W-2,

see page 22. Form

Married filing separately. Enter spouse’s SSN above

and full name here. 

Cat. No. 11320B





Label

Form 1040 (2004)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) If

the qualifying person is a child but not your dependent, enter

this child’s name here. 

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

25

26

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

Boxes checked

on 6a and 6b

No. of children

on 6c who:

Dependents on 6c

not entered above

Add numbers on

lines above 

● lived with you

● did not live with

you due to divorce

or separation

(see page 21)

34a 34a

Student loan interest deduction (see page 31)

33

35

Important!

Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund? 

You must enter

your SSN(s) above.

No Yes

You Spouse

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

36

4

5

Deduction for clean-fuel vehicles (see page 29) 23

b Qualified dividends (see page 23) 9b

2004

24 Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

28 Health savings account deduction. Attach Form 8889 28
Comprehensive

Problems CW-17

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 3 Form 1040, page 2

Proof as of

June 18, 2004

(subject to change)

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 63 through 69. These are your total payments 

Form 1040 (2004) Page 2

37 Amount from line 36 (adjusted gross income) 37

Check

if:

38a

Tax and

Credits

38a

Single or

Married filing

separately,

$4,850

If you are married filing separately and your spouse itemizes deductions, or

you were a dual-status alien, see page 34 and check here 

b

38b

39 39

40 Subtract line 39 from line 37 40

41

If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on

line 6d. If line 37 is over $107,025, see the worksheet on page 35

41

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 43

47

48

53

Education credits. Attach Form 8863

46

51

Other credits. Check applicable box(es):

50

55

56

Add lines 46 through 54. These are your total credits

50

Subtract line 55 from line 45. If line 55 is more than line 45, enter -0- 

55

Self-employment tax. Attach Schedule SE

56

Other

Taxes

57

71

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59

58

60

Add lines 56 through 61. This is your total tax 

61 61

63 Federal income tax withheld from Forms W-2 and 1099 63

64 2004 estimated tax payments and amount applied from 2003 return 64

Payments

65

Amount paid with request for extension to file (see page 56) 68

67

Excess social security and tier 1 RRTA tax withheld (see page 56) 66

68

70

69 Other payments from:

72a 72a

73 73

If line 70 is more than line 62, subtract line 62 from line 70. This is the amount you overpaid

74 74

Amount of line 71 you want refunded to you 

Refund

75

Amount of line 71 you want applied to your 2005 estimated tax 

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and

belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

75

You were born before January 2, 1940, Blind.

Spouse was born before January 2, 1940, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

59

Household employment taxes. Attach Schedule H

60

69

Amount

You Owe

Sign

Here Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 70 from line 62. For details on how to pay, see page 57 

b

Direct deposit?

See page 56

and fill in 72b,

72c, and 72d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

b

d





70

49

46

Retirement savings contributions credit. Attach Form 8880

57

58

Advance earned income credit payments from Form(s) W-2

71



Child tax credit (see page 40)

49 Credits from:

53

51

Additional child tax credit. Attach Form 8812

66

67

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

Joint return?

See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

44

45

47

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 43 and 44 

Credit for child and dependent care expenses. Attach Form 2441

48

If you have a

qualifying

child, attach

Schedule EIC.

44

45

65

Spouse’s occupation

( )

Form 1040 (2004)

● People who

checked any

box on line

38a or 38b or who can be

claimed as a

dependent,

see page 34.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 58)? Third Party

Designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

54

Foreign tax credit. Attach Form 1116 if required

54

a Form 8396 b Form 8859

52 52

Adoption credit. Attach Form 8839

62 62

Type:

c Form 8885

Total boxes  checked 
CW-18 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 3 Form 2441, page 1

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0068 Child and Dependent Care Expenses

Form 2441

 Attach to Form 1040.

Department of the Treasury

Internal Revenue Service

Attachment

 See separate instructions. Sequence No. 21

Name(s) shown on Form 1040 Your social security number

Persons or Organizations Who Provided the Care—You must complete this part. 

(If you need more space, use the bottom of page 2.)

(b) Address

(number, street, apt. no., city, state, and ZIP code)

(d) Amount paid

(see instructions)

(c) Identifying number

(SSN or EIN) 1 (a) Care provider’sname

Credit for Child and Dependent Care Expenses

2

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying

person or $6,000 for two or more persons. If you completed Part III, enter the amount

from line 34

Enter your earned income

3

3

If married filing jointly, enter your spouse’s earned income (if your spouse was a student

or was disabled, see the instructions); all others, enter the amount from line 4

4 4

Enter the smallest of line 3, 4, or 5

5

5

6

7 Enter the amount from Form 1040, line 37 7



Decimal

amount is

If line 7 is:

Decimal

amount is

If line 7 is:

But not

Over over But notOver over

$0—15,000 .35 $29,000—31,000 .27

15,000—17,000 .34 31,000—33,000 .26

17,000—19,000 .33 33,000—35,000 .25

19,000—21,000 .32 35,000—37,000 .24

21,000—23,000 .31 37,000—39,000 .23

23,000—25,000 .30

Multiply line 6 by the decimal amount on line 8. If you paid 2003 expenses in 2004, see

the instructions 

9

For Paperwork Reduction Act Notice, see page 3 of the instructions. Form 2441 (2004)

Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions.

Cat. No. 11862M

Part I

Part II

Enter on line 8 the decimal amount shown below that applies to the amount on line 7

Did you receive

dependent care benefits? Yes

No

8

Complete only Part II below.

Complete Part III on the back next.





Caution. If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 61.

.

(99)

Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person’s name

First Last

(b) Qualifying person’s social

security number

(c) Qualified expenses you

incurred and paid in 2004 for the

person listed in column (a)

8

6

● Dependent Care Benefits ● Qualifying Person(s) ● Qualified Expenses ● Earned Income

12 Subtract line 11 from line 10. If zero or less, stop. You cannot take the credit 

Credit for child and dependent care expenses. Enter the smaller of line 9 or line 12

here and on Form 1040, line 46

13

9

12

13

25,000—27,000

27,000—29,000

.29

.28

39,000—41,000

41,000—43,000

43,000—No limit

.22

.21

.20

10

11

10

11

Enter the amount from Form 1040, line 43

Enter the amount, if any, from Form 6251, line 31 (see

the instructions)

2004
Comprehensive

Problems CW-19

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Problem 3 Form 2441, page 2

Proof as of

June 18, 2004

(subject to change)

Form 2441 (2004) Page 2

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2004. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Do not include

amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a

partner, include amounts you received under a dependent care assistance program from

your sole proprietorship or partnership

Enter the amount forfeited, if any (see the instructions)

Subtract line 15 from line 14

Enter the total amount of qualified expenses incurred

in 2004 for the care of the qualifying person(s)

15

17

Enter the smaller of line 16 or 17 18

16

Enter your earned income

17

19

Enter the amount shown below that

applies to you.

20

Enter the smallest of line 18, 19, or 20

18

21

Enter the amount from line 14 that you received from your sole proprietorship or

partnership. If you did not receive any such amounts, enter -0-

19

22

Taxable benefits. Subtract line 28 from line 23. If zero or less, enter -0-. Also, include

this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB”

20

29

Part III

To claim the child and dependent care

credit, complete lines 30–34 below.

30

31

32

21

22

29

30 Enter $3,000 ($6,000 if two or more qualifying persons)

Subtract line 31 from line 30. If zero or less, stop. You cannot take the credit.

Exception. If you paid 2003 expenses in 2004, see the instructions for line 9

Enter the smaller of line 32 or 33. Also, enter this amount on line 3 on the front of this

form and complete lines 4–13

Add lines 25 and 28

34

31

32

34

15

16

Printed on recycled paper

14

14

Complete line 2 on the front of this form. Do not include in column (c) any benefits shown

on line 31 above. Then, add the amounts in column (c) and enter the total here

33

33

Form 2441 (2004)

● If married filing jointly, enter your

spouse’s earned income (if your spouse

was a student or was disabled, see the

instructions for line 5).

● If married filing separately, see the

instructions for the amount to enter.

● All others, enter the amount from line 19. 

23 Subtract line 22 from line 16

Enter $5,000 ($2,500 if married filing separately and you were required to enter your

spouse’s earned income on line 20)

24

Deductible benefits. Enter the smallest of line 21, 22, or 24. Also, include this amount

on the appropriate line(s) of your return (see the instructions)

25

26 Enter the smaller of line 21 or 24

27 Enter the amount from line 25

28 Excluded benefits. Subtract line 27 from line 26. If zero or less, enter -0-

26

27

23

24

25

28
CW-20 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 51

placement agency for legal adoption even if the adoption is not Line 51—Child Tax Credit final. An authorized placement agency includes any person or court

authorized by state law to place children for legal adoption.

What Is the Child Tax Credit?

Questions Who Must Use This credit is for people who have a qualifying child (defined Pub. 972 below). It is in addition to the credit for child and dependent care

Pub.

972

expenses on Form 1040, line 46, and the earned income credit on

Form 1040, line 65. 1. Are you excluding income from Puerto Rico or are you

filing any of the following forms?

Three Steps To Take the Child Tax Credit! • Form 2555 or 2555-EZ (relating to foreign earned income)

• Form 4563 (exclusion of income for residents of Step 1. Make sure you have a qualifying child for the child American Samoa)

tax credit (defined below). No. Continue Yes.



STOP Step 2. Make sure you checked the box on Form 1040, line

6c, column (4), for each qualifying child. You must use Pub. 972 to

figure your credit. Step 3. Answer the questions on this page to see if you

may use the worksheet on page 41 to figure your

credit or if you must use Pub. 972, Child Tax 2. Is the amount on Form 1040, line 37, more than the amount

Credit. If you need Pub. 972, see page 7. shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit $75,000

A qualifying child for purposes of the child tax credit is a child who: • Married filing separately – $55,000

No. Continue Yes.



STOP 1. Is claimed as your dependent on line 6c, and

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

figure your credit. 3. Is your (a) son, daughter, adopted child, stepchild, or a

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 3. Are you claiming any of the following credits?

any of them (for example, your niece or nephew), whom • Retirement savings contributions credit, Form 8880 (see you cared for as you would your own child; or (c) foster the instructions for Form 1040, line 52, on page 42) child (any child placed with you by an authorized place- • Adoption credit, Form 8839 (see the instructions for Form ment agency whom you cared for as you would your own 1040, line 53, on page 42) child), and

4. Is a U.S. citizen or resident alien. No. Use the Yes. You must use 

worksheet on page 38 Pub. 972 to figure your

The above requirements are not the same as the require- to figure your child child tax credit. You will

ments to be a qualifying child for the earned income tax credit. also need the form(s) listed

credit. above for any credit(s) you CAUTION

!

are claiming.

An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized

 Problem 3 Form 1040 Child Tax Credit Worksheet, Page 1
Comprehensive

Problems CW-21

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Child Tax Credit Worksheet—Line 51

1040

Yes. STOP

● To be a qualifying child for the child tax credit, the child must be under age 17 at the end

of 2004 and meet the other requirements listed on page 40.

● Do not use this worksheet if you answered “Yes” to question 1, 2, or 3 on page 40. Instead, use Pub. 972.

1.

4.

5.

Number of qualifying children: $1,000. 1

Enter the result.



Are the amounts on lines 2 and 3 the same?

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below. TIP

No. Subtract line 3 from line 2.

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040, line 51.

You may be able to take the additional child tax credit

on Form 1040, line 67, if you answered “Yes” on line 4 or

line 5 above.

● First, complete your Form 1040 through line 66.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. Enter the amount from Form 1040, line 45. 2

3. Add the amounts from Form 1040:

3

Keep for Your Records

TIP

CAUTION

Line 46

Line 47 +

Line 48 +

Line 49 +

Line 50 + Enter the total.

Problem 3 Form 1040 Child Tax Credit Worksheet, Page 2
CW-22 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Line 65 Step 2 Investment Income Earned Income Credit (EIC) 1. Add the amounts from 

What Is the EIC Form 1040: ?

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

• Follow the steps below. Line 13* +

• Complete the worksheet that applies to you or let the IRS

figure the credit for you.

• If you have a qualifying child, complete and attach Investment Income =

Schedule EIC.

*Do not include if line 13 is a loss. If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or 2. Is your investment income more than $2,650? intentional disregard of the EIC rules, you will not be Yes. Continue No. Skip question 3; go to



CAUTION

!

allowed to take the credit for 2 years even if you are question 4. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Are you filing Form 4797 (relating to sales of business

property)?

Yes. See Form 4797 No. STOP Step 1 All Filers filers on page 46. You cannot take the credit.

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040, 4. Do any of the following apply for 2004? line 37, less than $34,458 ($35,458 if married filing • You are filing Schedule E. jointly)? • You are reporting income or a loss from the rental of • 1 child lived with you, is the amount on Form 1040, line personal property not used in a trade or business. 37, less than $30,338 ($31,338 if married filing jointly)? • You are reporting income on Form 1040, line 21, from • No children lived with you, is the amount on Form 1040, Form 8814 (relating to election to report child’s interest line 37, less than $11,490 ($12,490 if married filing and dividends). jointly)?

Yes. You must use No. Continue

 Yes. Continue No.



STOP Worksheet 1 in Pub.

You cannot take the credit. 596 to see if you can

take the credit. To get

Pub. 596, see page 7. 2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 47)? 5. Did a child live with you in 2004?

Yes. Continue No. Yes. Go to Step 3 No. Go to Step 4 on



STOP

on page 45. page 45. You cannot take the credit.

Put “No” on the dotted line

next to line 65.

3. Is your filing status married filing separately?

Yes. No. STOP Continue

You cannot take the 

credit.

4. Are you filing Form 2555 or 2555-EZ (relating to foreign

earned income)?

Yes. No. STOP Continue

 (Continued on page 45) You cannot take the

credit.

5. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 47.

Problem 3 Form 1040 EIC Worksheet, Page 1
Comprehensive

Problems CW-23

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Continued from page 44

3. Does the child meet the conditions to be a qualifying child

of any other person (other than your spouse if filing a joint Step 3 Qualifying Child return) for 2004?

Yes. SeeQualifying No. This child is your

child of more than one qualifying child. The child

person on must have a valid social A qualifying child is a child who is your... page 47. security number as defined

on page 47 unless the child

Son, daughter, adopted child, stepchild, or a descendant of was born and died in 2004.

any of them (for example, your grandchild) Skip Step 4; go to Step 5

or on page 46.

Brother, sister, stepbrother, stepsister, or a descendant of any

of them (for example, your niece or nephew), whom you

cared for as you would your own child Step 4 Filers Without a Qualifying Child

or 1. Look at the qualifying child conditions in Step 3. Could Foster child (any child placed with you by an authorized you, or your spouse if filing a joint return, be a qualifying placement agency whom you cared for as you would your child of another person in 2004? own child) Yes. No. STOP Continue

You cannot take the 

credit. Put “No” on 

the dotted line next to 

AND

line 65.

was at the end of 2004...

2. Can you, or your spouse if filing a joint return, be claimed Under age 19 as a dependent on someone else’s 2004 tax return?

or Yes. No. STOP Continue

Under age 24 and a student (see page 47) You cannot take the 

credit. or

Any age and permanently and totally disabled (see page 47) 3. Were you, or your spouse if filing a joint return, at least age

25 but under age 65 at the end of 2004?

Yes. Continue No.



STOP

You cannot take the credit.

AND

who...

4. Was your home, and your spouse’s if filing a joint return, in

Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. the military stationed outside the United States, see page 47

before you answer. If the child did not live with you for the

required time, see Exception to “time lived with you” Yes. Go to Step 5 No. STOP

condition on page 46. on page 46. You cannot take the credit.

Put “No” on the dotted line

next to line 65.

CAUTION

! If the child was married, see page 47.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. No. STOP Continue

You cannot take the 

credit. Put “No” on 

the dotted line next to

line 65.

(Continued on page 46)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip the next two

question 3. questions; go to Step 4,

question 2.

Problem 3 Form 1040 EIC Worksheet, Page 2
CW-24 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

p g

Step 5 Earned Income Step 6 How To Figure the Credit

1. Are you filing Schedule SE because you were a member of 1. Do you want the IRS to figure the credit for you?

the clergy or you had church employee income of $108.28 Yes. See Credit No. Go to Worksheet A or more? figured by the IRS on on page 48.

Yes. See Clergy or No. Continue



this page.

Church employees,

whichever applies, on Definitions and Special Rules this page. (listed in alphabetical order)

2. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an

authorized placement agency for legal adoption even if the adoption Form 1040, line 7 is not final. An authorized placement agency includes any person or

Subtract, if included on line 7, any: court authorized by state law to place children for legal adoption.

• Taxable scholarship or fellowship grant Church employees. Determine how much of the amount on not reported on a Form W-2. Form 1040, line 7, was also reported on Schedule SE, line 5a. • Amount paid to an inmate in a penal Subtract that amount from the amount on Form 1040, line 7, and institution for work (put “PRI” and the enter the result in the first space of Step 5, line 2. Be sure to answer

amount subtracted on the dotted line next “Yes” on Step 5, line 3.

to Form 1040, line 7). Clergy. The following instructions apply to ministers, members of • Amount received as a pension or annuity religious orders who have not taken a vow of poverty, and Christian

from a nonqualified deferred – Science practitioners. If you are filing Schedule SE and the amount

compensation plan or a nongovernmental on line 2 of that schedule includes an amount that was also reported

section 457 plan (put “DFC” and the on Form 1040, line 7:

amount subtracted on the dotted line next} 1. Put “Clergy” on the dotted line next to Form 1040, line 65. to Form 1040, line 7). This amount may 2. Determine how much of the amount on Form 1040, line 7, be shown in Form W-2, box 11. If you was also reported on Schedule SE, line 2. received such an amount but box 11 is 3. Subtract that amount from the amount on Form 1040, blank, contact your employer for the line 7. Enter the result in the first space of Step 5, line 2. amount received as a pension or annuity. 4. Be sure to answer “Yes” to question 3 in Step 5.

Earned Income = Credit figured by the IRS. To have the IRS figure the credit for

you: 3. Were you self-employed, or are you filing Schedule SE be- • Put “EIC” on the dotted line next to Form 1040, line 65. cause you were a member of the clergy or you had church • If you have a qualifying child, complete and attach Sched- employee income, or are you filing Schedule C or C-EZ as a ule EIC. If your EIC for a year after 1996 was reduced or statutory employee? disallowed, see Form 8862, Who must file below.

Yes. Skip question 4 No. Continue

and Step 6; go to  Exception to “time lived with you” condition. A child is conWorksheet B on sidered to have lived with you for all of 2004 if the child was born page 49. or died in 2004 and your home was this child’s home for the entire

time he or she was alive in 2004. Temporary absences, such as for

school, vacation, medical care, or detention in a juvenile facility, 4. If you have: count as time lived at home. If your child is presumed to have been • 2 or more qualifying children, is your earned income less kidnapped by someone who is not a family member, see Pub. 596 to than $34,458 ($35,458 if married filing jointly)? find out if that child is a qualifying child for the EIC. To get Pub. • 1 qualifying child, is your earned income less than 596, see page 7. If you were in the military stationed outside the $30,338 ($31,338 if married filing jointly)? United States, see Members of the military on page 47.

• No qualifying children, is your earned income less than

$11,490 ($12,490 if married filing jointly)? Form 4797 filers. If the amount on Form 1040, line 13, includes

an amount from Form 4797, you must use Worksheet 1 in Pub. 596 Yes. Go to Step 6. No. STOP to see if you can take the EIC. To get Pub. 596, see page 7.

You cannot take the credit. Otherwise, stop; you cannot take the EIC.

Form 8862, Who must file. You must file Form 8862 if your EIC

for a year after 1996 was reduced or disallowed for any reason other

than a math or clerical error. But do not file Form 8862 if either of

the following applies.

1. After your EIC was reduced or disallowed in an earlier

year (a) you filed Form 8862 (or other documents) and

your EIC was then allowed, and (b) your EIC has not been

Problem 3 Form 1040 EIC Worksheet, Page 3
Comprehensive

Problems CW-25

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 63

reduced or disallowed again for any reason other than a • If none of the persons is the child’s parent, the child will be

math or clerical error. treated as the qualifying child of the person who had the

highest AGI for 2004. 2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the The child must have a valid social security number as defined on

earlier year was because it was determined that a child this page unless the child was born and died in 2004. If you do not

listed on Schedule EIC was not your qualifying child. have a qualifying child, stop; you cannot take the EIC. Put “No” on

the dotted line next to line 65. If you have a qualifying child, skip Also, do not file Form 8862 or take the credit for 2 years if it was Step 4; go to Step 5 on page 46. determined that your error was due to reckless or intentional disregard of the EIC rules (10 years if due to fraud). Example. You and your 5-year-old daughter moved in with

your mother in April 2004. You are not a qualifying child of your

Married child. A child who was married at the end of 2004 is a mother. Your daughter meets the conditions to be a qualifying child

qualifying child only if (a) you can claim him or her as your for both you and your mother. If you and your mother cannot agree

dependent on Form 1040, line 6c, or (b) this child’s other parent on who will treat your daughter as a qualifying child, the rules

claims him or her as a dependent under the rules in Pub. 501 for above apply. Under these rules, you are entitled to treat your daughchildren of divorced or separated parents. ter as a qualifying child because you are the child’s parent. Your

mother would not be entitled to claim any EIC unless she has a Members of the military. If you were on extended active duty different qualifying child. outside the United States, your home is considered to be in the

United States during that duty period. Extended active duty is Social security number (SSN). For purposes of taking the EIC, a military duty ordered for an indefinite period or for a period of more valid SSN is a number issued by the Social Security Administration than 90 days. Once you begin serving extended active duty, you are unless “Not Valid for Employment” is printed on the social security considered to be on extended active duty even if you serve fewer card and the number was issued solely to apply for or receive a than 90 days. federally funded benefit.

Nonresident aliens. If your filing status is married filing jointly, To find out how to get an SSN, see page 15. If you will not have

go to Step 2 on page 44. Otherwise, stop; you cannot take the EIC. an SSN by April 15, 2005, see What if You Cannot File on Time?

on page 12.

Permanently and totally disabled child. A child who cannot Student. A child who during any 5 months of 2004: engage in any substantial gainful activity because of a physical or • Was enrolled as a full-time student at a school, or mental condition and a doctor has determined that this condition: • Took a full-time, on-farm training course given by a school or • Has lasted or can be expected to last continuously for at a state, county, or local government agency. least a year, or

A school includes technical, trade, and mechanical schools. It • Can lead to death. does not include on-the-job training courses, correspondence

Qual schools, or night schools. ifying child of more than one person. If the child meets

the conditions to be a qualifying child of more than one person, only Welfare benefits, effect of credit on. Any refund you receive as one person can take the EIC based on that child. The other person(s) a result of taking the EIC will not be used to determine if you are cannot take the EIC for people without a qualifying child, but may eligible for the following programs or how much you can receive take the EIC based on a different qualifying child. If you and the from them. But if the refund you receive because of the EIC is not other person(s) cannot agree who will take the EIC, then the follow- spent within a certain period of time, it may count as an asset (or ing rules apply. resource) and affect your eligibility. • If only one of the persons is the child’s parent, the child • Temporary Assistance for Needy Families (TANF). will be treated as the qualifying child of the parent. • Medicaid and supplemental security income (SSI). • If both persons are the child’s parents, the child will be

treated as the qualifying child of the parent with whom the • Food stamps and low-income housing.

child lived for the longer period of time during 2004. If the

child lived with each parent for the same amount of time,

the child will be treated as the qualifying child of the parent

who had the higher adjusted gross income (AGI) for 2004.

Problem 3 Form 1040 EIC Worksheet
CW-26 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Worksheet —Earned Income Cred A it (EIC)—Line 65

1040

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

Before you begin: Be sure you are using the correct worksheet. Do not use this worksheet if you

were self-employed, or you are filing Schedule SE because you were a member of

the clergy or you had church employee income, or you are filing Schedule C or

C-EZ as a statutory employee. Instead, use Worksheet B that begins on page 49.

1.

2.

3.

4.

5.

Enter your earned income from Step 5 on page 46. 1

Look up the amount on line 1 above in the EIC Table on pages 51–55

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040, line 37.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 51–55 to find the credit. Be sure you use the correct

column for your filing status and the number of children

you have. Enter the credit here.

Enter this amount on

Form 1040, line 65.

3

6

Part 3

Part 1

Part 2

All Filers Using

Worksheet A

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” on the dotted line next to line 65.

● No qualifying children, is the amount on line 3 less than $6,400

($7,400 if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than

$14,050 ($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 46 to find out if you must file Form 8862 to take the credit for

2004.

  

EIC

1040



CAUTION

Problem 3 Form 1040 EIC Worksheet
Comprehensive

Problems CW-27

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

 OMB No. 1545-0074 SCHEDULE EIC Earned Income Credit (Form 1040A or 1040)

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 43

Qualifying Child Information

For Paperwork Reduction Act Notice, see Form 1040A

or 1040 instructions.

Cat. No. 13339M Schedule EIC (Form 1040A or 1040) 2004

Before you begin: See the instructions for Form 1040A, line 41, or Form 1040, line 65, to make sure that

(a) you can take the EIC and (b) you have a qualifying child.

Qualifying Child Information

● It will take us longer to process your return and issue your refund if you do not fill in all lines that apply

for each qualifying child.

4

2

5

6

1 Child’s name

Child’s SSN

Child’s relationship to you

Number of months child lived with

you in the United States during 2004

months

Yes.

months

If the child was born before 1986—

Was the child permanently and totally

disabled during any part of 2004?

b

Yes.

First name Last name First name Last name

Name(s) shown on return Your social security number

(99)

EIC

1040A

1040

Complete and attach to Form 1040A or 1040

only if you have a qualifying child.

● Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s

social security card. Otherwise, at the time we process your return, we may reduce or disallow your EIC.

If the name or SSN on the child’s social security card is not correct, call the Social Security

Administration at 1-800-772-1213.

Child 1 Child 2

If you have more than two qualifying children, you

only have to list two to get the maximum credit.

The child must have an SSN as defined on page 43

of the Form 1040A instructions or page 47 of the

Form 1040 instructions unless the child was born and

died in 2004. If your child was born and died in 2004

and did not have an SSN, enter “Died” on this line

and attach a copy of the child’s birth certificate.

No. No.

Go to line 5. Go to line 5. Continue Continue

Yes. No. Yes. No.

Continue Continue The child is not a

qualifying child.

The child is not a

qualifying child.

● If the child lived with you for more than half of

2004 but less than 7 months, enter “7”.

● If the child was born or died in 2004 and your

home was the child’s home for the entire time he or

she was alive during 2004, enter “12”.

Do not enter more than 12 months. Do not enter more than 12 months.

You may also be able to take the additional child tax credit if your child (a) was under age 17 at the end of 2004, (b) is

claimed as your dependent on line 6c of Form 1040A or Form 1040, and (c) is a U.S. citizen or resident alien. For more

details, see the instructions for line 42 of Form 1040A or line 67 of Form 1040.

. . . . . . . . . .

● If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up

to 10 years. See back of schedule for details.

(for example, son, daughter, grandchild,

niece, nephew, foster child, etc.)

Was the child under age 24 at the end

of 2004 and a student?

a

Child’s year of birth

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

2004

3

CAUTION

TIP

Problem 3 Schedule EIC, Page 1
CW-28 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Schedule EIC (Form 1040A or 1040) 2004 Page 2

Printed on recycled paper

A qualifying child is a child who is your . . .

was at the end of 2004 . . .

who . . .

Son, daughter, adopted child, stepchild, or a descendant of any of them (for

example, your grandchild)

Under age 19

or

Under age 24 and a student

or

Any age and permanently and totally disabled

Lived with you in the United States for more than half of

2004. If the child did not live with you for the required

time, see Exception to “Time Lived With You” Condition

on page 42 of the Form 1040A instructions or page 46 of

the Form 1040 instructions.

Qualifying Child

Note. If the child was married or meets the conditions to be a

qualifying child of another person (other than your spouse if filing a

joint return), special rules apply. For details, see page 43 of the Form

1040A instructions or page 47 of the Form 1040 instructions.

Purpose of Schedule

The purpose of this schedule is to give the IRS

information about your qualifying child after you have

figured your earned income credit (EIC).

To figure the amount of your credit or to have the IRS

figure it for you, see the instructions for Form 1040A,

line 41, or Form 1040, line 65.

Brother, sister, stepbrother, stepsister, or a descendant of any of them (for

example, your niece or nephew) whom you cared for as you would your own

child

Taking the EIC When Not Eligible. If you take the

EIC even though you are not eligible and it is

determined that your error is due to reckless or

intentional disregard of the EIC rules, you will not be

allowed to take the credit for 2 years even if you are

otherwise eligible to do so. If you fraudulently take the

EIC, you will not be allowed to take the credit for

10 years. You may also have to pay penalties.

AND

AND

Do you want part of the EIC added to your take-home pay in

2005? To see if you qualify, get Form W-5 from your employer,

call the IRS at 1-800-TAX-FORM (1-800-829-3676), or go to

www.irs.gov.

+$

Foster child (any child placed with you by an authorized placement agency

whom you cared for as you would your own child)

or

or

Problem 3 Schedule EIC, Page 2
Comprehensive

Problems CW-29

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1620 8812 Additional Child Tax Credit Form

Complete and attach to Form 1040 or Form 1040A. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 47

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 10644E Form 8812 (2004)

3

2

4

6

Enter the total of the withheld social security and Medicare taxes from Form(s)

W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts

with yours. If you worked for a railroad, see the instructions on back

Add lines 7 and 8

1

Enter the total of the amounts from Form 1040, lines

30 and 58, plus any uncollected social security and

Medicare or tier 1 RRTA taxes included on line 62.

Enter -0-.

Enter the total of the amounts from Form 1040, lines

65 and 66.

Enter the total of the amount from Form 1040A, line

41, plus any excess social security and tier 1 RRTA

taxes withheld that you entered to the left of line 43

(see the instructions on back).

Enter the amount from line 1 of your Child Tax Credit Worksheet on page 41 of the Form 1040 instructions

or page 38 of the Form 1040A instructions. If you used Pub. 972, enter the amount from line 8 of the

worksheet on page 4 of the publication

Enter the amount from Form 1040, line 51, or Form 1040A, line 32

Subtract line 2 from line 1. If zero, stop; you cannot take this credit

8

9



6

 1040A filers:

1040 filers:

1040 filers:

1040A filers:

1

2

13

1040 .

1040A . . . . . . . . . Enter this amount on

Form 1040, line 67, or

Form 1040A, line 42.





8812

1040

1040A

. . . . . . . . . .

3

Enter your total taxable earned income. See the instructions on back

5 Is the amount on line 4 more than $10,750?

No.

Yes. Subtract $10,750 from the amount on line 4. Enter the result

Leave line 5 blank and enter -0- on line 6.

4

5

Multiply the amount on line 5 by 10% (.10) and enter the result

7

Next. Do you have three or more qualifying children?

No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part II and enter the

smaller of line 3 or line 6 on line 13.

Yes.

7

8

9

10

10

11 Subtract line 10 from line 9. If zero or less, enter -0- 11

12 Enter the larger of line 6 or line 11 here 12

Next, enter the smaller of line 3 or line 12 on line 13.

13 This is your additional child tax credit

Part III

Part I

Part II

All Filers

Certain Filers Who Have Three or More Qualifying Children

Your Additional Child Tax Credit

If line 6 is equal to or more than line 3, skip Part II and enter the amount from line 3 on

line 13. Otherwise, go to line 7.

(99)

2004
CW-30 Comprehensive

Problems

WAGE EARNER

 WAGE EARNER COMPREHENSIVE PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 8812 (2004) Page 2

Instructions

Purpose of Form

Use Form 8812 to figure your additional child tax credit.

Taxable Earned Income

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by Internal Revenue Code section

6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average time

is: Recordkeeping, 6 min.; Learning about the law or the form,

5 min.; Preparing the form, 28 min.; Copying, assembling, and

sending the form to the IRS, 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the Instructions for Form 1040 or

Form 1040A.

The additional child tax credit may give you a refund

even if you do not owe any tax.

Railroad Employees

If you worked for a railroad, include the following taxes in the

total on Form 8812, line 7.

● Tier 1 tax withheld from your pay. This tax should be shown in

box 14 of your Form(s) W-2 and identified as “Tier 1 tax.”

● If you were an employee representative, 50% of the total tier 1

tax and tier 1 Medicare tax you paid for 2004.

Any refund you receive as a result of taking the additional child

tax credit will not be used to determine if you are eligible for the

following programs, or how much you can receive from them.

● Temporary Assistance for Needy Families (TANF).

● Medicaid and supplemental security income (SSI).

● Food stamps and low-income housing.

Effect of Credit on Welfare Benefits

First, complete the Child Tax Credit Worksheet that applies to you.

See the instructions for Form 1040, line 51, or Form 1040A, line

32. If you meet the condition given in the TIP at the end of your

Child Tax Credit Worksheet, use Form 8812 to see if you can take

the additional child tax credit.

Who Should Use Form 8812

2. Are you claiming the earned income credit (EIC) on Form

1040, line 65, or Form 1040A, line 41?

Yes. Use the following chart to find the amount to enter on

Form 8812, line 4.

IF you are

filing Form . . . AND you completed . . .

THEN enter on Form

8812, line 4, the amount

from . . .

1040A

1040

Step 5 on page 42 of your

1040A instructions

Worksheet B on page 49 of

your 1040 instructions

Step 5 on page 46 of your

1040 instructions (but not

Worksheet B)

Step 5, Earned Income

Worksheet B, line 4b.*

Step 5, Earned Income

No. 1040 filers: Go to question 3.

1040A filers: Skip question 3 and go to question 4.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

4. Does the amount on line 7 of Form 1040 or Form 1040A

include any of the following amounts?

● Taxable scholarship or fellowship grants not reported on a Form

W-2.

● Amounts paid to an inmate in a penal institution for work (enter

“PRI” and the amount paid in the space next to line 7 of Form

1040 or 1040A).

No. Enter the amount from line 7 of Form 1040 or Form

1040A on Form 8812, line 4.

Yes. Subtract the total of those amounts from the amount on

line 7 of Form 1040 or Form 1040A. (If an amount is

included in more than one of the above categories,

include it only once in figuring the total amount to

subtract.) Enter the result on Form 8812, line 4.

1040A Filers

If you, or your spouse if filing a joint return, had more than one

employer for 2004 and total wages of over $87,900, figure any

excess social security and tier 1 railroad retirement (RRTA) taxes

withheld. See the instructions for Form 1040A, line 43. Include any

excess on Form 8812, line 10.

* If you were a member of the clergy, subtract the following from the amount on line

4b: (a) the rental value of a home or the nontaxable portion of an allowance for a

home furnished to you (including payments for utilities) and (b) the value of meals

and lodging provided to you, your spouse, and your dependents for your employer’s

convenience.

● Amounts received as a pension or annuity from a nonqualified

deferred compensation plan or a nongovernmental section 457 plan

(enter “DFC” and the amount received in the space next to line 7

of Form 1040 or 1040A). This amount may be reported in box 11

of your Form W-2. If you received such an amount but box 11 is

blank, contact your employer for the amount received as a pension

or annuity.

● Amounts from Form 2555, line 41, or Form 2555-EZ,

line 18.

1. Did you, or your spouse if filing a joint return, have net

earnings from self-employment and use either optional method to

figure those net earnings?

No. Go to question 2.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

3. Were you, or your spouse if filing a joint return,

self-employed, or are you filing Schedule SE because you were a

member of the clergy or you had church employee income, or are

you filing Schedule C or C-EZ as a statutory employee?

No. Go to question 4.

TIP
Comprehensive

Problems CW-31

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Do you, or your spouse if a joint return, want $3 to go to this fund? 

Taxable interest. If the total is over $1,500, you cannot use Form 1040EZ.

Department of the Treasury—Internal Revenue Service

Form Income Tax Return for Single and

1040EZ Joint Filers With No Dependents 2004 OMB No. 1545-0675

Note. Checking “Yes” will not change your tax or reduce your refund.

Presidential

Election

Campaign

(page 12)

Wages, salaries, and tips. This should be shown in box 1 of your Form(s) W-2.

Attach your Form(s) W-2.

1

1

Attach

Form(s) W-2

here.

Enclose, but

do not attach,

any payment.

2 2

Add lines 1, 2, and 3. This is your adjusted gross income.

5 Can your parents (or someone else) claim you on their return? Note. You

must check

Yes or No.

Yes. No.

5

Subtract line 5 from line 4. If line 5 is larger than line 4, enter -0-.

This is your taxable income. 

6

6

Payments

and tax

Earned income credit (EIC).

7 7

Tax. Use the amount on line 6 above to find your tax in the tax table on pages

24–28 of the booklet. Then, enter the tax from the table on this line.

10

10

Refund

11a 11a

If line 10 is larger than line 9, subtract line 9 from line 10. This is

the amount you owe. For details on how to pay, see page 20. 

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 23.

Income

Cat. No. 11329W



4 4

12

12

Add lines 7 and 8. These are your total payments. 

8 8

9 9

Federal income tax withheld from box 2 of your Form(s) W-2.

Unemployment compensation and Alaska Permanent Fund dividends

(see page 14).

3

3

Amount

you owe

b Routing number

Account number

c Type: Checking

Enter amount from

worksheet on back.

If single, enter $7,950.

If married filing jointly, enter $15,900.

See back for explanation.

Have it directly

deposited! See

page 19 and fill

in 11b, 11c,

and 11d.

 d



Form 1040EZ (2004)

(99)

Yes No Yes No

You Spouse

Savings

Under penalties of perjury, I declare that I have examined this return, and to the best of my knowledge and belief, it is true, correct, and

accurately lists all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based

on all information of which the preparer has any knowledge.

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 11.

Daytime phone number

( )

Spouse’s occupation

( )

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 20)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

Your first name and initial Last name Your social security number

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Home address (number and street). If you have a P.O. box, see page 12. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 12.

Important! 



Label

(See page 12.)

Use the IRS

label.

Otherwise,

please print

or type.



If line 9 is larger than line 10, subtract line 10 from line 9. This is your refund. 

John Marshall xxx xx xxxx

878 Hudson Ave

Your City, State, and Zip Code

✘

2,694

50

2,744

✘ 2,944

0

52

0

52

0

52

x xxxxxxxx ✘

xxx xxx

✘

Student

Sxxxxxxxx

Problem 1 
CW-32 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Problem 1 

Proof as of

June 18, 2004

(subject to change)

Form 1040EZ (2004)

● You (and your spouse if married filing jointly) were under age 65 and not blind at the end of

2004. If you were born on January 1, 1940, you are considered to be age 65 at the end of 2004.

● Your filing status is single or married filing jointly. If you are not sure about your filing status,

see page 11.

Use

this

form if

● Your taxable income (line 6) is less than $50,000.

● You do not claim any dependents. For information on dependents, use TeleTax topic 354

(see page 6).

● You had only wages, salaries, tips, taxable scholarship or fellowship grants, unemployment

compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over

$1,500. But if you earned tips, including allocated tips, that are not included in box 5 and box 7

of your W-2, you may not be able to use Form 1040EZ (see page 13). If you are planning to use

Form 1040EZ for a child who received Alaska Permanent Fund dividends, see page 14.

If you have questions about dependents, use TeleTax topic 354 (see page 6). If you cannot use this

form, use TeleTax topic 352 (see page 6).

Filling in

your

return

If you received a scholarship or fellowship grant or tax-exempt interest income, such as on

municipal bonds, see the booklet before filling in the form. Also, see the booklet if you received a

Form 1099-INT showing Federal income tax withheld or if Federal income tax was withheld from

your unemployment compensation or Alaska Permanent Fund dividends.

Remember, you must report all wages, salaries, and tips even if you do not get a Form W-2 from

your employer. You must also report all your taxable interest, including interest from banks, savings

and loans, credit unions, etc., even if you do not get a Form 1099-INT.

Use this worksheet to figure the amount to enter on line 5 if someone can claim you (or your

spouse if married filing jointly) as a dependent, even if that person chooses not to do so. To find

out if someone can claim you as a dependent, use TeleTax topic 354 (see page 6).

Worksheet

for

dependents

who

checked

“Yes” on

line 5

A .

A . Amount, if any, from line 1 on front

B . Minimum standard deduction B . 800.00

C. Enter the larger of line A or line B here C.

D.

D. Maximum standard deduction. If single, enter $4,850; if married

filing jointly, enter $9,700

E . Enter the smaller of line C or line D here. This is your standard

deduction E .

Mailing

return

Mail your return by April 15, 2005. Use the envelope that came with your booklet. If you do not

have that envelope or if you moved during the year, see the back cover for the address to use.

● You did not receive any advance earned income credit payments.

F. Exemption amount.

G . Add lines E and F. Enter the total here and on line 5 on the front

If you checked “No” on line 5 because no one can claim you (or your spouse if married filing

jointly) as a dependent, enter on line 5 the amount shown below that applies to you.

● Single, enter $7,950. This is the total of your standard deduction ($4,850) and your exemption

($3,100).

● Married filing jointly, enter $15,900. This is the total of your standard deduction ($9,700), your

exemption ($3,100), and your spouses exemption ($3,100).

F.

G .

● If single, enter -0-.

● If married filing jointly and—

—only one of you can be claimed as a dependent, enter $3,100.

For tips on how

to avoid common

mistakes, see

page 21.

—both you and your spouse can be claimed as dependents, enter -0-.

● You do not claim any adjustments to income. For information on adjustments to income, use

TeleTax topics 451-458 (see page 6).

+ 250.00 Enter total 

(keep a copy for

your records)

Form 1040EZ (2004)

Page 2

● The only tax credit you can claim is the earned income credit. For information on credits, use

TeleTax topics 601-608 and 610 (see page 6).

2,694.00

2,944.00

2,944.00

4,850.00

2,944.00

0.00

2,944.00
Comprehensive

Problems CW-33

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Head of household (with qualifying person). (See page 20.)

If the qualifying person is a child but not your dependent,

enter this child’s name here.  Married filing separately. Enter spouse’s SSN above and

full name here. 

Form Department of the Treasury—Internal Revenue Service

1040A 2004 U.S. Individual Income Tax Return

OMB No. 1545-0085

Your social security number

Your first name and initial Last name Label L

A

B

E

L

H

E

R

E

(See page 19.)

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the

IRS label. Home address (number and street). If you have a P.O. box, see page 20. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 20.

Filing

status

Boxes

checked on

6a and 6b

Yourself. If someone can claim you as a dependent, do not check

box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 23)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 23)

If more than six

dependents,

see page 21.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2. 7

8a Taxable interest. Attach Schedule 1 if required. 8a

b Tax-exempt interest. Do not include on line 8a. 8b

Attach

Form(s) W-2

here. Also

attach

Form(s)

1099-R if tax

was withheld.

9a Ordinary dividends. Attach Schedule 1 if required. 9a

IRA

distributions.

11a Taxable amount

(see page 25).

11b

Enclose, but do

not attach, any

payment.

11a 11b

Taxable amount

(see page 26).

12a Pensions and 12b

annuities. 12a 12b

13 Unemployment compensation and Alaska Permanent Fund dividends. 13

14a Taxable amount

(see page 28).

Social security

benefits.

14b

14a 14b

15 Add lines 7 through 14b (far right column). This is your total income.  15

17 IRA deduction (see page 28). 17

Student loan interest deduction (see page 31).

Income

18

Add lines 16 through 19. These are your total adjustments. 20

Subtract line 20 from line 15. This is your adjusted gross income. 

18

21

Dependents:



Check only

one box.

If you did not

get a W-2, see

page 24.

Form 1040A (2004)

IRS Use Only—Do not write or staple in this space.

(3) Dependent’s

relationship to

(1) First name Last name you

20

21

Adjusted

gross 

income

Important! 

Cat. No. 11327A

Otherwise,

please print

or type.

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 57.

(99)

10 Capital gain distributions (see page 25). 10

Presidential

Election Campaign

(See page 20.)  Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund?  No Yes

You Spouse

19 Tuition and fees deduction (see page 31). 19

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child (see page 21)

4

5

16 Deduction for clean-fuel vehicles (see page 28). 16

b Qualified dividends (see page 25). 9b

Melody York xxx xx xxxx

17 North 9th Avenue

Your City, State, and Zip Code

✘

✘

✘

1

1

6,923

3,240

10,163

10,163

Problem 2 
CW-34 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

10,163

4,850

5,313

3,100

2,213

221

0

221

221

261

101

362

141

141

x xxxxxx x x ✘

x x x x x x x xx x x x

✘

Clerk

Problem 2 

Clerk

Sxxxxxxxx
Comprehensive

Problems CW-35

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Line 41

Step 2 Investment Income Earned Income Credit (EIC)

1. Add the amounts from 

What is the EIC? Form 1040A:

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

Line 10 + • Follow the steps below.

• Complete the worksheet that applies to you or let the IRS

figure the credit for you. Investment Income =

• If you have a qualifying child, complete and attach

Schedule EIC.

2. Is your investment income more than $2,650? If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or Yes. No. STOP Continue

CAUTION intentional disregard of the EIC rules, you will not be You cannot take the  !

allowed to take the credit for 2 years even if you are credit. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Did a child live with you in 2004?

Yes. Go to Step 3 on No. Go to Step 4 on 

page 39. page 39. Step 1 All Filers

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040A,

line 22, less than $34,458 ($35,458 if married filing

jointly)?

• 1 child lived with you, is the amount on Form 1040A, line

22, less than $30,338 ($31,338 if married filing jointly)?

• No children live with you, is the amount on Form 1040A,

line 22, less than $11,490 ($12,490 if married filing

jointly)?

Yes. Continue No.



STOP

You cannot take the credit.

2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 41)?

Yes. Continue No.



STOP

You cannot take the credit.

Put “No” to the left of the

entry space for line 41.

3. Is your filing status married filing separately?

Yes. No. STOP Continue

You cannot take the 

credit.

4. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 41.

✘

✘

✘

✘

0.00

✘

✘

Problem 2 
CW-36 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Problem 2 Form 1040A, Earned Income Credit Worksheet, line 8, page 2

Proof as of

June 18, 2004

(subject to change)

Continued from page 38

3. Does the child meet the conditions to be a qualifying child

Step 3 Qualifying Child of any other person (other than your spouse if filing a joint

return) for 2004?

Yes. See Qualifying No. This child is your A qualifying child is a child who is your... child of more than one qualifying child. The child

person on must have a valid social sepage 41. curity number as defined Son, daughter, adopted child, stepchild, or a descendant on page 41 unless the child of any of them (for example, your grandchild) was born and died in 2004. or Skip Step 4; go to Step 5 Brother, sister, stepbrother, stepsister, or a descendant of on page 40. any of them (for example, your niece or nephew) whom

you cared for as you would your own child

or Step 4 Filers Without a Qualifying Child

Foster child (any child placed with you by an authorized

1. Look at the qualifying child conditions in Step 3. Could placement agency whom you cared for as you would your you, or your spouse if filing a joint return, be a qualifying own child) child of another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

AND

left of the entry space was at the end of 2004... for line 41.

Under age 19 2. Can you, or your spouse if filing a joint return, be claimed

or as a dependent on someone else’s 2004 tax return?

Yes. STOP No. Continue

 Under age 24 and a student (see page 41)

You cannot take the or credit.

Any age and permanently and totally disabled (see page 41)

3. Were you, or your spouse if filing a joint return, born before

January 2, 1980, but under age 65 at the end of 2004?

Yes. Continue No.



STOP

AND

You cannot take the credit.

who...

4. Was your home, and your spouse’s if filing a joint return, in Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. If the child did not live with you for the the military stationed outside the United States, see page 41

required time, see Exception to “time lived with you” before you answer.

condition on page 40. Yes. Go to Step 5 No. STOP

on page 40. You cannot take the credit.

Put “No” to the left of the

entry space for line 41. CAUTION

!

 If the child was married, see page 41.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” to the

left of the entry space

for line 41. (Continued on page 40)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip question 3; go to

question 3. Step 4, question 2.

✘

✘

✘

✘
Comprehensive

Problems CW-37

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Continued from page 39

Definitions and Special Rules

Step 5 Earned Income (listed in alphabetical order)

1. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an Form 1040A, line 7 authorized placement agency for legal adoption even if the adoption Subtract, if included on line 7, any: is not final. An authorized placement agency includes any person or

court authorized by state law to place children for legal adoption. • Taxable scholarship or fellowship

grant not reported on a Form W-2.

• Amount paid to an inmate in a penal Credit figured by the IRS. To have the IRS figure the credit for

institution for work (put “PRI” and the you: amount subtracted to the left of the 1. Put “EIC” to the left of the entry space for line 41 of Form entry space for line 7 of Form 1040A. 1040A). 2. If you have a qualifying child, complete and attach • Amount received as a pension or – Schedule EIC. If your EIC for a year after 1996 was annuity from a nonqualified deferred reduced or disallowed, see Form 8862, Who must file,

compensation plan or a below. nongovernmental section 457 plan

(put “DFC” and the amount subtracted

to the left of the entry space for line 7 } Exception to “time lived with you” condition. A child is con- of Form 1040A). This amount may be sidered to have lived with you for all of 2004 if the child was born

shown in box 11 of your Form W-2. or died in 2004 and your home was this child’s home for the entire

If you received such an amount but time he or she was alive in 2004. Temporary absences, such as for

box 11 is blank, contact your school, vacation, medical care, or detention in a juvenile facility,

employer for the amount received as a count as time lived at home. If your child is presumed to have been

pension or annuity. kidnapped by someone who is not a family member, see Pub. 596 to

find out if that child is a qualifying child for the EIC. To get Pub.

596, see page 7. If you were in the military stationed outside the

Earned Income = United States, see Members of the military on page 41.

2. If you have: Form 8862, Who must file. You must file Form 8862 if your EIC • 2 or more qualifying children, is your earned income less for a year after 1996 was reduced or disallowed for any reason other than $34,458 ($35,458 if married filing jointly)? than a math or clerical error. But you do not have to file Form 8862 • 1 qualifying child, is your earned income less than if either of the following applies. $30,338 ($31,338 if married filing jointly)? 1. After your EIC was reduced or disallowed in an earlier • No qualifying children, is your earned income less than year (a) you filed Form 8862 (or other documents) and $11,490 ($12,490 if married filing jointly)? your EIC was then allowed, and (b) your EIC has not been

Yes. Go to Step 6. No. STOP reduced or disallowed again for any reason other than a

math or clerical error. You cannot take the credit. 2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the

earlier year was because it was determined that a child Step 6 How To Figure the Credit listed on Schedule EIC was not your qualifying child.

1. Do you want the IRS to figure the credit for you?

Yes. See Credit fig- No. Go to the worksheet Also, do not file Form 8862 or take the credit for 2 years if it was

ured by the IRS on on page 42. determined that your error was due to reckless or intentional disrethis page. gard of the EIC rules (or 10 years if due to fraud).

(Continued on page 41)

6,923.00

6,923.00

✘

✘

Problem 2 Form 1040A, Earned Income Credit Worksheet, line 8, page 3
CW-38 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 1040A—Line 41

Continued from page 40

Married child. A child who was married at the end of 2004 is a The child must have a valid social security number as defined

below unless the child was born and died in 2004. If you do not qualifying child only if (a) you can claim him or her as your have a qualifying child, stop; you cannot take the EIC. Put “No” to dependent on Form 1040A, line 6c, or (b) this child’s other parent the left of the entry space for line 41. If you have a qualifying child, claims him or her as a dependent under the rules on page 20 for

Children of divorced or separated parents skip Step 4; go to Step 5 on page 40. . Example. You and your 5-year-old daughter moved in with Members of the military. If you were on extended active duty your mother in April 2004. You are not a qualifying child of your outside the United States, your home is considered to be in the mother. Your daughter meets the conditions to be a qualifying child United States during that duty period. Extended active duty is for both you and your mother. If you and your mother cannot agree military duty ordered for an indefinite period or for a period of more on who will treat your daughter as a qualifying child, the above than 90 days. Once you begin serving extended active duty, you are rules apply. Under these rules, you are entitled to treat your daugh- considered to be on extended active duty even if you serve fewer ter as a qualifying child because you are the child’s parent. Your than 90 days. mother would not be entitled to claim any EIC unless she has a

different qualifying child. Nonresident aliens. If your filing status is married filing jointly,

go to Step 2 on page 38. Otherwise, stop; you cannot take the EIC. Social security number (SSN). For purposes of taking the EIC, a

valid SSN is a number issued by the Social Security Administration Permanently and totally disabled child. A child who cannot unless “Not Valid for Employment” is printed on the social security engage in any substantial gainful activity because of a physical or card and the number was issued solely to apply for or receive a mental condition and a doctor has determined that this condition: federally funded benefit. • Has lasted or can be expected to last continuously for at To find out how to get an SSN, see page 18. If you will not have least a year, or an SSN by April 15, 2005, see What if You Cannot File on Time? • Can lead to death. on page 12.

Qualifying child of more than one person. If the child meets Student. A child who during any 5 months of 2004:

the conditions to be a qualifying child of more than one person, only • Was enrolled as a full-time student at a school, or

one person can take the EIC based on that child. The other person(s) • Took a full-time, on-farm training course given by a school cannot take the EIC for people without a qualifying child, but may or a state, county, or local government agency. take the EIC based on a different qualifying child. If you and the A school includes technical, trade, and mechanical schools. It other person(s) cannot agree who will take the EIC, then the follow- does not include on-the-job training courses, correspondence ing rules apply. schools, or night schools. • If only one of the persons is the child’s parent, the child

will be treated as the qualifying child of the parent. Welfare benefits, effect of credit on. Any refund you receive as • If both persons are the child’s parents, the child will be a result of taking the EIC will not be used to determine if you are treated as the qualifying child of the parent with whom the eligible for the following programs or how much you can receive child lived for the longer period of time during 2004. If the from them. But if the refund you receive because of the EIC is not child lived with each parent for the same amount of time, spent within a certain period of time, it may count as an asset (or the child will be treated as the qualifying child of the parent resource) and affect your eligibility. who had the higher adjusted gross income (AGI) for 2004. • Temporary Assistance for Needy Families (TANF). • If none of the persons is the child’s parent, the child will be • Medicaid and supplemental security income (SSI). treated as the qualifying child of the person who had the • Food stamps and low-income housing. highest AGI for 2004.

Problem 2 Form 1040A, Earned Income Credit Worksheet, line 8, page 4
Comprehensive

Problems CW-39

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Earned Income Credit (EIC) Worksheet—Line 41

1040A

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

1.

2.

3.

4.

5.

1 Enter your earned income from Step 5 on

page 40.

Look up the amount on line 1 above in the EIC Table on pages 43–47

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040A, line 22.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 43–47 to find the credit. Be sure you use the correct

column for your filing status and the number of children you

have. Enter the credit here.

Enter this amount on

Form 1040A, line 41.

3

Part 3 6

Part 1

Part 2

All Filers

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” to the left of the entry space for line 41.

● No qualifying children, is the amount on line 3 less than $6,400 ($7,400

if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than $14,050

($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach

Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 40 to find out if you must file Form 8862 to take the credit

for 2004.

  

EIC

1040A

CAUTION

6,923.00

349.00

10,163.00

✘

✘ 101.00

101.00

Problem 2 Form 1040A, Earned Income Credit Worksheet, line 8, page 5
STUDENT NOTES
Comprehensive

Problems CW-41

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Department of the Treasury—Internal Revenue Service 1040 U.S. Individual Income Tax Return

For the year Jan. 1–Dec. 31, 2004, or other tax year beginning , 2004, ending , 20 OMB No. 1545-0074

Your first name and initial Last name Your social security number

(See

instructions

on page 19.)

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the IRS

label.

Otherwise,

please print

or type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

Presidential

Election Campaign

1 Single

Filing Status 2 Married filing jointly (even if only one had income)

Check only

one box.

3

Qualifying widow(er) with dependent child (see page 20)

6a Yourself. If someone can claim you as a dependent, do not check box 6a

Exemptions b Spouse

(4) if qualifying

child for child tax

credit (see page 21)

c Dependents: (2) Dependent’s

social security number

(3) Dependent’s

relationship to (1) First name Last name you

If more than four

dependents, see

page 21.

d Total number of exemptions claimed

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7

Income 8a Taxable interest. Attach Schedule B if required 8a

b Tax-exempt interest. Do not include on line 8a 8b Attach

Forms W-2 and

W-2G here.

Also attach

Form(s) 1099-R

if tax was

withheld.

9a Ordinary dividends. Attach Schedule B if required 9a

10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) 10

11 Alimony received 11

12 Business income or (loss). Attach Schedule C or C-EZ 12

Enclose, but do

not attach, any

payment. Also,

please use

Form 1040-V.

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 Other gains or (losses). Attach Form 4797 14

15a IRA distributions 15a 15b b Taxable amount (see page 25)

16a Pensions and annuities 16a b Taxable amount (see page 25) 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F 18

19 Unemployment compensation 19

20a Social security benefits 20a b Taxable amount (see page 27) 20b

21 21

22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22

IRA deduction (see page 29) 25

23

27

26

One-half of self-employment tax. Attach Schedule SE

29

Self-employed health insurance deduction (see page 33)

27

30

29

Self-employed SEP, SIMPLE, and qualified plans

31

30

Penalty on early withdrawal of savings

32

31

Alimony paid b Recipient’s SSN 

Add lines 23 through 34a 35

32

Subtract line 35 from line 22. This is your adjusted gross income 

33

Adjusted

Gross

Income

36

If you did not

get a W-2,

see page 22. Form

Married filing separately. Enter spouse’s SSN above

and full name here. 

Cat. No. 11320B





Label

Form 1040 (2004)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) If

the qualifying person is a child but not your dependent, enter

this child’s name here. 

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

25

26

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

Boxes checked

on 6a and 6b

No. of children

on 6c who:

Dependents on 6c

not entered above

Add numbers on

lines above 

● lived with you

● did not live with

you due to divorce or separation

(see page 21)

34a 34a

Student loan interest deduction (see page 31)

33

35

Important!

Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund? 

You must enter

your SSN(s) above.

No Yes

You Spouse

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

36

4

5

Deduction for clean-fuel vehicles (see page 29) 23

b Qualified dividends (see page 23) 9b

2004

24 Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

28 Health savings account deduction. Attach Form 8889 28

Marvin Simmons xxx xx xxxx

9701 Austin Rd.

Your City, State, and Zip Code

✘

✘

✘ 1

Eric Simmons xxx xx xxxx Grandson ✘

1

2

24,952

24,952

24,952

Problem 3
CW-42 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 63 through 69. These are your total payments 

Form 1040 (2004) Page 2

37 Amount from line 36 (adjusted gross income) 37

Check

if:

38a

Tax and

Credits

38a

Single or

Married filing

separately,

$4,850

If you are married filing separately and your spouse itemizes deductions, or

you were a dual-status alien, see page 34 and check here 

b

38b

39 39

40 Subtract line 39 from line 37 40

41

If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on

line 6d. If line 37 is over $107,025, see the worksheet on page 35

41

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 43

47

48

53

Education credits. Attach Form 8863

46

51

Other credits. Check applicable box(es):

50

55

56

Add lines 46 through 54. These are your total credits

50

Subtract line 55 from line 45. If line 55 is more than line 45, enter -0- 

55

Self-employment tax. Attach Schedule SE

56

Other

Taxes

57

71

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59

58

60

Add lines 56 through 61. This is your total tax 

61 61

63 Federal income tax withheld from Forms W-2 and 1099 63

64 2004 estimated tax payments and amount applied from 2003 return 64

Payments

65

Amount paid with request for extension to file (see page 56) 68

67

Excess social security and tier 1 RRTA tax withheld (see page 56) 66

68

70

69 Other payments from:

72a 72a

73 73

If line 70 is more than line 62, subtract line 62 from line 70. This is the amount you overpaid

74 74

Amount of line 71 you want refunded to you 

Refund

75

Amount of line 71 you want applied to your 2005 estimated tax 

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and

belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

75

You were born before January 2, 1940, Blind.

Spouse was born before January 2, 1940, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

59

Household employment taxes. Attach Schedule H

60

69

Amount

You Owe

Sign

Here Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 70 from line 62. For details on how to pay, see page 57 

b

Direct deposit?

See page 56

and fill in 72b,

72c, and 72d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

b

d





70

49

46

Retirement savings contributions credit. Attach Form 8880

57

58

Advance earned income credit payments from Form(s) W-2

71



Child tax credit (see page 40)

49 Credits from:

53

51

Additional child tax credit. Attach Form 8812

66

67

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

Joint return?

See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

44

45

47

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 43 and 44 

Credit for child and dependent care expenses. Attach Form 2441

48

If you have a

qualifying

child, attach

Schedule EIC.

44

45

65

Spouse’s occupation

( )

Form 1040 (2004)

● People who

checked any

box on line

38a or 38b or who can be

claimed as a

dependent,

see page 34.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 58)? Third Party

Designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

54

Foreign tax credit. Attach Form 1116 if required

54

a Form 8396 b Form 8859

52 52

Adoption credit. Attach Form 8839

62 62

Type:

c Form 8885

Total boxes  checked 

24,952

7,150

17,802

6,200

11,602

1,234

1,234

293

941

1,234

0

600

600

1,964

857

59

2,880

2,280

2,280

xx xx x xx xx ✘

xx x xx xx

✘

Mechanic

Sxxxxxxxx

Problem 3
Comprehensive

Problems CW-43

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0068 Child and Dependent Care Expenses Form 2441

 Attach to Form 1040.

Department of the Treasury

Internal Revenue Service

Attachment  See separate instructions. Sequence No. 21

Name(s) shown on Form 1040 Your social security number

Persons or Organizations Who Provided the Care—You must complete this part. 

(If you need more space, use the bottom of page 2.)

(b) Address

(number, street, apt. no., city, state, and ZIP code)

(d) Amount paid

(see instructions)

(c) Identifying number

(SSN or EIN) 1 (a) Care provider’sname

Credit for Child and Dependent Care Expenses

2

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying

person or $6,000 for two or more persons. If you completed Part III, enter the amount

from line 34

Enter your earned income

3

3

If married filing jointly, enter your spouse’s earned income (if your spouse was a student

or was disabled, see the instructions); all others, enter the amount from line 4

4 4

Enter the smallest of line 3, 4, or 5

5

5

6

7 Enter the amount from Form 1040, line 37 7



Decimal

amount is

If line 7 is:

Decimal

amount is

If line 7 is:

But not

Over over But notOver over

$0—15,000 .35 $29,000—31,000 .27

15,000—17,000 .34 31,000—33,000 .26

17,000—19,000 .33 33,000—35,000 .25

19,000—21,000 .32 35,000—37,000 .24

21,000—23,000 .31 37,000—39,000 .23

23,000—25,000 .30

Multiply line 6 by the decimal amount on line 8. If you paid 2003 expenses in 2004, see

the instructions 

9

For Paperwork Reduction Act Notice, see page 3 of the instructions. Form 2441 (2004)

Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions.

Cat. No. 11862M

Part I

Part II

Enter on line 8 the decimal amount shown below that applies to the amount on line 7

Did you receive

dependent care benefits? Yes

No

8

Complete only Part II below.

Complete Part III on the back next.





Caution. If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 61.

.

(99)

Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions.

(a) Qualifying person’s name

First Last

(b) Qualifying person’s social

security number

(c) Qualified expenses you

incurred and paid in 2004 for the

person listed in column (a)

8

6

● Dependent Care Benefits ● Qualifying Person(s) ● Qualified Expenses ● Earned Income

12 Subtract line 11 from line 10. If zero or less, stop. You cannot take the credit 

Credit for child and dependent care expenses. Enter the smaller of line 9 or line 12

here and on Form 1040, line 46

13

9

12

13

25,000—27,000

27,000—29,000

.29

.28

39,000—41,000

41,000—43,000

43,000—No limit

.22

.21

.20

10

11

10

11

Enter the amount from Form 1040, line 43

Enter the amount, if any, from Form 6251, line 31 (see

the instructions)

2004

Marvin Simmons xxx xx xxxx

Joy Day Care 9192 East Huron

Your City, State, and Zip Code xx-xxxxxxx 978

Eric Simmons xxx xx xxxx 978

978

24,952

24,952

978

24,952

30

293

1,234

0

1,234

293

Problem 3
CW-44 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Form 2441 (2004) Page 2

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2004. Amounts you

received as an employee should be shown in box 10 of your Form(s) W-2. Do not include

amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a

partner, include amounts you received under a dependent care assistance program from

your sole proprietorship or partnership

Enter the amount forfeited, if any (see the instructions)

Subtract line 15 from line 14

Enter the total amount of qualified expenses incurred

in 2004 for the care of the qualifying person(s)

15

17

Enter the smaller of line 16 or 17 18

16

Enter your earned income

17

19

Enter the amount shown below that

applies to you.

20

Enter the smallest of line 18, 19, or 20

18

21

Enter the amount from line 14 that you received from your sole proprietorship or

partnership. If you did not receive any such amounts, enter -0-

19

22

Taxable benefits. Subtract line 28 from line 23. If zero or less, enter -0-. Also, include

this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB”

20

29

Part III

To claim the child and dependent care

credit, complete lines 30–34 below.

30

31

32

21

22

29

30 Enter $3,000 ($6,000 if two or more qualifying persons)

Subtract line 31 from line 30. If zero or less, stop. You cannot take the credit.

Exception. If you paid 2003 expenses in 2004, see the instructions for line 9

Enter the smaller of line 32 or 33. Also, enter this amount on line 3 on the front of this

form and complete lines 4–13

Add lines 25 and 28

34

31

32

34

15

16

Printed on recycled paper

14

14

Complete line 2 on the front of this form. Do not include in column (c) any benefits shown

on line 31 above. Then, add the amounts in column (c) and enter the total here

33

33

Form 2441 (2004)

● If married filing jointly, enter your

spouse’s earned income (if your spouse

was a student or was disabled, see the

instructions for line 5).

● If married filing separately, see the

instructions for the amount to enter.

● All others, enter the amount from line 19. 

23 Subtract line 22 from line 16

Enter $5,000 ($2,500 if married filing separately and you were required to enter your

spouse’s earned income on line 20)

24

Deductible benefits. Enter the smallest of line 21, 22, or 24. Also, include this amount

on the appropriate line(s) of your return (see the instructions)

25

26 Enter the smaller of line 21 or 24

27 Enter the amount from line 25

28 Excluded benefits. Subtract line 27 from line 26. If zero or less, enter -0-

26

27

23

24

25

28

Problem 3
Comprehensive

Problems CW-45

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

placement agency for legal adoption even if the adoption is not Line 51—Child Tax Credit final. An authorized placement agency includes any person or court

authorized by state law to place children for legal adoption.

What Is the Child Tax Credit?

Questions Who Must Use This credit is for people who have a qualifying child (defined Pub. 972 below). It is in addition to the credit for child and dependent care

Pub.

972

expenses on Form 1040, line 46, and the earned income credit on

Form 1040, line 65. 1. Are you excluding income from Puerto Rico or are you

filing any of the following forms?

Three Steps To Take the Child Tax Credit! • Form 2555 or 2555-EZ (relating to foreign earned income)

• Form 4563 (exclusion of income for residents of Step 1. Make sure you have a qualifying child for the child American Samoa)

tax credit (defined below). No. Continue Yes.



STOP Step 2. Make sure you checked the box on Form 1040, line

6c, column (4), for each qualifying child. You must use Pub. 972 to

figure your credit. Step 3. Answer the questions on this page to see if you

may use the worksheet on page 41 to figure your

credit or if you must use Pub. 972, Child Tax 2. Is the amount on Form 1040, line 37, more than the amount

Credit. If you need Pub. 972, see page 7. shown below for your filing status?

• Married filing jointly – $110,000

• Single, head of household, or qualifying widow(er) –

Qualifying Child for Child Tax Credit $75,000

A qualifying child for purposes of the child tax credit is a child who: • Married filing separately – $55,000

No. Continue Yes.



STOP 1. Is claimed as your dependent on line 6c, and

2. Was under age 17 at the end of 2004, and You must use Pub. 972 to

figure your credit. 3. Is your (a) son, daughter, adopted child, stepchild, or a

descendant of any of them (for example, your grandchild);

(b) brother, sister, stepbrother, stepsister, or a descendant of 3. Are you claiming any of the following credits?

any of them (for example, your niece or nephew), whom • Retirement savings contributions credit, Form 8880 (see you cared for as you would your own child; or (c) foster the instructions for Form 1040, line 52, on page 42) child (any child placed with you by an authorized place- • Adoption credit, Form 8839 (see the instructions for Form ment agency whom you cared for as you would your own 1040, line 53, on page 42) child), and

4. Is a U.S. citizen or resident alien. No. Use the Yes. You must use 

worksheet on page 38 Pub. 972 to figure your

The above requirements are not the same as the require- to figure your child child tax credit. You will

ments to be a qualifying child for the earned income tax credit. also need the form(s) listed

credit. above for any credit(s) you CAUTION

!

are claiming.

An adopted child is always treated as your own child. An

adopted child includes a child placed with you by an authorized

✘

✘

✘

Problem 3 Form 1040, Child Tax Credit Worksheet, line 51
CW-46 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Child Tax Credit Worksheet—Line 51

1040

Yes. STOP

● To be a qualifying child for the child tax credit, the child must be under age 17 at the end

of 2004 and meet the other requirements listed on page 40.

● Do not use this worksheet if you answered “Yes” to question 1, 2, or 3 on page 40. Instead, use Pub. 972.

1.

4.

5.

Number of qualifying children: $1,000. 1

Enter the result.



Are the amounts on lines 2 and 3 the same?

You cannot take this credit because there is no tax

to reduce. However, you may be able to take the

additional child tax credit. See the below. TIP

No. Subtract line 3 from line 2.

Is the amount on line 1 more than the amount on line 4?

Yes. Enter the amount from line 4.

Also, you may be able to take the

additional child tax credit. See the

TIP below.

No. Enter the amount from line 1.

This is your child tax

credit.

Enter this amount on

Form 1040, line 51.

You may be able to take the additional child tax credit

on Form 1040, line 67, if you answered “Yes” on line 4 or

line 5 above.

● First, complete your Form 1040 through line 66.

● Then, use Form 8812 to figure any additional child tax

credit.

4

 5



2. Enter the amount from Form 1040, line 45. 2

3. Add the amounts from Form 1040:

3

Keep for Your Records

TIP

CAUTION

Line 46

Line 47 +

Line 48 +

Line 49 +

Line 50 + Enter the total.

1

1,000.00

1,234.00

293.00

293.00

✘ 941.00

✘

941.00

Problem 3 Form 1040, Child Tax Credit Worksheet, line 51
Comprehensive

Problems CW-47

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Line 65 Step 2 Investment Income Earned Income Credit (EIC) 1. Add the amounts from 

What Is the EIC Form 1040: ?

The EIC is a credit for certain people who work. The credit may Line 8a

give you a refund even if you do not owe any tax. Line 8b +

To Take the EIC: Line 9a +

• Follow the steps below. Line 13* +

• Complete the worksheet that applies to you or let the IRS

figure the credit for you.

• If you have a qualifying child, complete and attach Investment Income =

Schedule EIC.

*Do not include if line 13 is a loss. If you take the EIC even though you are not eligible and

it is determined that your error is due to reckless or 2. Is your investment income more than $2,650? intentional disregard of the EIC rules, you will not be Yes. Continue No. Skip question 3; go to



CAUTION

!

allowed to take the credit for 2 years even if you are question 4. otherwise eligible to do so. If you fraudulently take the EIC, you

will not be allowed to take the credit for 10 years. You may also

have to pay penalties. 3. Are you filing Form 4797 (relating to sales of business

property)?

Yes. See Form 4797 No. STOP Step 1 All Filers filers on page 46. You cannot take the credit.

1. If, in 2004:

• 2 children lived with you, is the amount on Form 1040, 4. Do any of the following apply for 2004? line 37, less than $34,458 ($35,458 if married filing • You are filing Schedule E. jointly)? • You are reporting income or a loss from the rental of • 1 child lived with you, is the amount on Form 1040, line personal property not used in a trade or business. 37, less than $30,338 ($31,338 if married filing jointly)? • You are reporting income on Form 1040, line 21, from • No children lived with you, is the amount on Form 1040, Form 8814 (relating to election to report child’s interest line 37, less than $11,490 ($12,490 if married filing and dividends). jointly)?

Yes. You must use No. Continue

 Yes. Continue No.



STOP Worksheet 1 in Pub.

You cannot take the credit. 596 to see if you can

take the credit. To get

Pub. 596, see page 7. 2. Do you, and your spouse if filing a joint return, have a

social security number that allows you to work or is valid

for EIC purposes (see page 47)? 5. Did a child live with you in 2004?

Yes. Continue No. Yes. Go to Step 3 No. Go to Step 4 on



STOP

on page 45. page 45. You cannot take the credit.

Put “No” on the dotted line

next to line 65.

3. Is your filing status married filing separately?

Yes. No. STOP Continue

You cannot take the 

credit.

4. Are you filing Form 2555 or 2555-EZ (relating to foreign

earned income)?

Yes. No. STOP Continue

 (Continued on page 45) You cannot take the

credit.

5. Were you a nonresident alien for any part of 2004?

Yes. See Nonresident No. Go to Step 2.

aliens on page 47.

✘

✘

✘

✘

✘

0.00

0.00

✘

✘

✘

Problem 3 Form 1040, Earned Income Credit Worksheet, line 65, page 1
CW-48 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

3. Does the child meet the conditions to be a qualifying child

of any other person (other than your spouse if filing a joint Step 3 Qualifying Child return) for 2004?

Yes. SeeQualifying No. This child is your

child of more than one qualifying child. The child

person on must have a valid social A qualifying child is a child who is your... page 47. security number as defined

on page 47 unless the child

Son, daughter, adopted child, stepchild, or a descendant of was born and died in 2004.

any of them (for example, your grandchild) Skip Step 4; go to Step 5

or on page 46.

Brother, sister, stepbrother, stepsister, or a descendant of any

of them (for example, your niece or nephew), whom you

cared for as you would your own child Step 4 Filers Without a Qualifying Child

or 1. Look at the qualifying child conditions in Step 3. Could Foster child (any child placed with you by an authorized

you, or your spouse if filing a joint return, be a qualifying placement agency whom you cared for as you would your child of another person in 2004?

own child) Yes. STOP No. Continue

You cannot take the 

credit. Put “No” on 

the dotted line next to 

AND

line 65.

was at the end of 2004...

2. Can you, or your spouse if filing a joint return, be claimed Under age 19 as a dependent on someone else’s 2004 tax return?

or Yes. STOP No. Continue

Under age 24 and a student (see page 47) You cannot take the 

credit. or

Any age and permanently and totally disabled (see page 47) 3. Were you, or your spouse if filing a joint return, at least age

25 but under age 65 at the end of 2004?

Yes. Continue No.



STOP

You cannot take the credit.

AND

who... 4. Was your home, and your spouse’s if filing a joint return, in

Lived with you in the United States for more than half the United States for more than half of 2004? Members of

of 2004. the military stationed outside the United States, see page 47

before you answer. If the child did not live with you for the

required time, see Exception to “time lived with you” Yes. Go to Step 5 No. STOP

condition on page 46. on page 46. You cannot take the credit.

Put “No” on the dotted line

next to line 65.

CAUTION

! If the child was married, see page 47.

1. Look at the qualifying child conditions above. Could you, or

your spouse if filing a joint return, be a qualifying child of

another person in 2004?

Yes. STOP No. Continue

You cannot take the 

credit. Put “No” on 

the dotted line next to

line 65. (Continued on page 46)

2. Do you have at least one child who meets the above conditions to be your qualifying child?

Yes. Go to No. Skip the next two

question 3. questions; go to Step 4,

question 2.

✘

✘

✘

Problem 3 Form 1040, Earned Income Credit Worksheet, line 65, page 2
Comprehensive

Problems CW-49

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Step 5 Earned Income Step 6 How To Figure the Credit

1. Are you filing Schedule SE because you were a member of 1. Do you want the IRS to figure the credit for you?

the clergy or you had church employee income of $108.28 Yes. See Credit No. Go to Worksheet A or more? figured by the IRS on on page 48.

Yes. See Clergy or No. Continue



this page.

Church employees,

whichever applies, on Definitions and Special Rules this page. (listed in alphabetical order)

2. Figure earned income: Adopted child. An adopted child is always treated as your own

child. An adopted child includes a child placed with you by an

authorized placement agency for legal adoption even if the adoption Form 1040, line 7

is not final. An authorized placement agency includes any person or

Subtract, if included on line 7, any: court authorized by state law to place children for legal adoption.

• Taxable scholarship or fellowship grant Church employees. Determine how much of the amount on not reported on a Form W-2. Form 1040, line 7, was also reported on Schedule SE, line 5a. • Amount paid to an inmate in a penal Subtract that amount from the amount on Form 1040, line 7, and institution for work (put “PRI” and the enter the result in the first space of Step 5, line 2. Be sure to answer

amount subtracted on the dotted line next “Yes” on Step 5, line 3.

to Form 1040, line 7). Clergy. The following instructions apply to ministers, members of • Amount received as a pension or annuity religious orders who have not taken a vow of poverty, and Christian from a nonqualified deferred – Science practitioners. If you are filing Schedule SE and the amount

compensation plan or a nongovernmental on line 2 of that schedule includes an amount that was also reported

section 457 plan (put “DFC” and the on Form 1040, line 7:

amount subtracted on the dotted line next} 1. Put “Clergy” on the dotted line next to Form 1040, line 65. to Form 1040, line 7). This amount may 2. Determine how much of the amount on Form 1040, line 7, be shown in Form W-2, box 11. If you was also reported on Schedule SE, line 2. received such an amount but box 11 is 3. Subtract that amount from the amount on Form 1040, blank, contact your employer for the line 7. Enter the result in the first space of Step 5, line 2. amount received as a pension or annuity. 4. Be sure to answer “Yes” to question 3 in Step 5.

Earned Income = Credit figured by the IRS. To have the IRS figure the credit for

you: 3. Were you self-employed, or are you filing Schedule SE be- • Put “EIC” on the dotted line next to Form 1040, line 65. cause you were a member of the clergy or you had church • If you have a qualifying child, complete and attach Sched- employee income, or are you filing Schedule C or C-EZ as a ule EIC. If your EIC for a year after 1996 was reduced or statutory employee? disallowed, see Form 8862, Who must file below. Yes. Skip question 4 No. Continue

and Step 6; go to  Exception to “time lived with you” condition. A child is con- Worksheet B on sidered to have lived with you for all of 2004 if the child was born

page 49. or died in 2004 and your home was this child’s home for the entire

time he or she was alive in 2004. Temporary absences, such as for

school, vacation, medical care, or detention in a juvenile facility, 4. If you have: count as time lived at home. If your child is presumed to have been • 2 or more qualifying children, is your earned income less kidnapped by someone who is not a family member, see Pub. 596 to than $34,458 ($35,458 if married filing jointly)? find out if that child is a qualifying child for the EIC. To get Pub. • 1 qualifying child, is your earned income less than 596, see page 7. If you were in the military stationed outside the

$30,338 ($31,338 if married filing jointly)? United States, see Members of the military on page 47.

• No qualifying children, is your earned income less than

$11,490 ($12,490 if married filing jointly)? Form 4797 filers. If the amount on Form 1040, line 13, includes

an amount from Form 4797, you must use Worksheet 1 in Pub. 596 Yes. Go to Step 6. No. STOP to see if you can take the EIC. To get Pub. 596, see page 7. You cannot take the credit. Otherwise, stop; you cannot take the EIC.

Form 8862, Who must file. You must file Form 8862 if your EIC

for a year after 1996 was reduced or disallowed for any reason other

than a math or clerical error. But do not file Form 8862 if either of

the following applies.

1. After your EIC was reduced or disallowed in an earlier

year (a) you filed Form 8862 (or other documents) and

your EIC was then allowed, and (b) your EIC has not been

✘

24,952.00

24,952.00

✘

✘

✘

Problem 3 Form 1040, Earned Income Credit Worksheet, line 65, page 3
CW-50 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

reduced or disallowed again for any reason other than a • If none of the persons is the child’s parent, the child will be

math or clerical error. treated as the qualifying child of the person who had the

highest AGI for 2004. 2. You are taking the EIC without a qualifying child and the

only reason your EIC was reduced or disallowed in the The child must have a valid social security number as defined on

earlier year was because it was determined that a child this page unless the child was born and died in 2004. If you do not

listed on Schedule EIC was not your qualifying child. have a qualifying child, stop; you cannot take the EIC. Put “No” on

the dotted line next to line 65. If you have a qualifying child, skip Also, do not file Form 8862 or take the credit for 2 years if it was Step 4; go to Step 5 on page 46. determined that your error was due to reckless or intentional disregard of the EIC rules (10 years if due to fraud). Example. You and your 5-year-old daughter moved in with

your mother in April 2004. You are not a qualifying child of your

Married child. A child who was married at the end of 2004 is a mother. Your daughter meets the conditions to be a qualifying child

qualifying child only if (a) you can claim him or her as your for both you and your mother. If you and your mother cannot agree

dependent on Form 1040, line 6c, or (b) this child’s other parent on who will treat your daughter as a qualifying child, the rules

claims him or her as a dependent under the rules in Pub. 501 for above apply. Under these rules, you are entitled to treat your daughchildren of divorced or separated parents. ter as a qualifying child because you are the child’s parent. Your

mother would not be entitled to claim any EIC unless she has a Members of the military. If you were on extended active duty different qualifying child. outside the United States, your home is considered to be in the

United States during that duty period. Extended active duty is Social security number (SSN). For purposes of taking the EIC, a military duty ordered for an indefinite period or for a period of more valid SSN is a number issued by the Social Security Administration than 90 days. Once you begin serving extended active duty, you are unless “Not Valid for Employment” is printed on the social security considered to be on extended active duty even if you serve fewer card and the number was issued solely to apply for or receive a than 90 days. federally funded benefit.

Nonresident aliens. If your filing status is married filing jointly, To find out how to get an SSN, see page 15. If you will not have

go to Step 2 on page 44. Otherwise, stop; you cannot take the EIC. an SSN by April 15, 2005, see What if You Cannot File on Time?

on page 12.

Permanently and totally disabled child. A child who cannot Student. A child who during any 5 months of 2004: engage in any substantial gainful activity because of a physical or • Was enrolled as a full-time student at a school, or mental condition and a doctor has determined that this condition: • Took a full-time, on-farm training course given by a school or • Has lasted or can be expected to last continuously for at a state, county, or local government agency. least a year, or

A school includes technical, trade, and mechanical schools. It • Can lead to death. does not include on-the-job training courses, correspondence

Qual schools, or night schools. ifying child of more than one person. If the child meets

the conditions to be a qualifying child of more than one person, only Welfare benefits, effect of credit on. Any refund you receive as one person can take the EIC based on that child. The other person(s) a result of taking the EIC will not be used to determine if you are cannot take the EIC for people without a qualifying child, but may eligible for the following programs or how much you can receive take the EIC based on a different qualifying child. If you and the from them. But if the refund you receive because of the EIC is not other person(s) cannot agree who will take the EIC, then the follow- spent within a certain period of time, it may count as an asset (or ing rules apply. resource) and affect your eligibility. • If only one of the persons is the child’s parent, the child • Temporary Assistance for Needy Families (TANF). will be treated as the qualifying child of the parent. • Medicaid and supplemental security income (SSI). • If both persons are the child’s parents, the child will be

treated as the qualifying child of the parent with whom the • Food stamps and low-income housing.

child lived for the longer period of time during 2004. If the

child lived with each parent for the same amount of time,

the child will be treated as the qualifying child of the parent

who had the higher adjusted gross income (AGI) for 2004.

Problem 3 Form 1040, Earned Income Credit Worksheet, line 65, page 4 
Comprehensive

Problems CW-51

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Worksheet —Earned Income Cred A it (EIC)—Line 65

1040

Yes. Skip line 5; enter the amount from line 2 on line 6.

STOP

Keep for Your Records

Before you begin: Be sure you are using the correct worksheet. Do not use this worksheet if you

were self-employed, or you are filing Schedule SE because you were a member of

the clergy or you had church employee income, or you are filing Schedule C or

C-EZ as a statutory employee. Instead, use Worksheet B that begins on page 49.

1.

2.

3.

4.

5.

Enter your earned income from Step 5 on page 46. 1

Look up the amount on line 1 above in the EIC Table on pages 51–55

to find the credit. Be sure you use the correct column for your filing

status and the number of children you have. Enter the credit here.

Enter the amount from Form 1040, line 37.

Are the amounts on lines 3 and 1 the same?

No. Go to line 5.

If you have:

Yes. Leave line 5 blank; enter the amount from line 2 on line 6.

No. Look up the amount on line 3 in the EIC Table on

pages 51–55 to find the credit. Be sure you use the correct

column for your filing status and the number of children

you have. Enter the credit here.

Enter this amount on

Form 1040, line 65.

3

6

Part 3

Part 1

Part 2

All Filers Using

Worksheet A

Filers Who

Answered

“No” on

Line 4

Your Earned

Income Credit

2

If line 2 is zero, You cannot take the credit.

Put “No” on the dotted line next to line 65.

● No qualifying children, is the amount on line 3 less than $6,400

($7,400 if married filing jointly)?

● 1 or more qualifying children, is the amount on line 3 less than

$14,050 ($15,050 if married filing jointly)?

Look at the amounts on lines 5 and 2.

Then, enter the smaller amount on line 6.

5

6. This is your earned income credit.

Reminder—

If you have a qualifying child, complete and attach Schedule EIC.

If your EIC for a year after 1996 was reduced or disallowed, see

page 46 to find out if you must file Form 8862 to take the credit for

2004.

  

EIC

1040



CAUTION

24,952.00

857.00

24,952.00

✘

857.00

Problem 3 Form 1040, Earned Income Credit Worksheet, line 65, page 5
CW-52 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

 OMB No. 1545-0074 SCHEDULE EIC Earned Income Credit (Form 1040A or 1040)

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 43

Qualifying Child Information

For Paperwork Reduction Act Notice, see Form 1040A

or 1040 instructions.

Cat. No. 13339M Schedule EIC (Form 1040A or 1040) 2004

Before you begin: See the instructions for Form 1040A, line 41, or Form 1040, line 65, to make sure that

(a) you can take the EIC and (b) you have a qualifying child.

Qualifying Child Information

● It will take us longer to process your return and issue your refund if you do not fill in all lines that apply

for each qualifying child.

4

2

5

6

1 Child’s name

Child’s SSN

Child’s relationship to you

Number of months child lived with

you in the United States during 2004

months

Yes.

months

If the child was born before 1986—

Was the child permanently and totally

disabled during any part of 2004?

b

Yes.

First name Last name First name Last name

Name(s) shown on return Your social security number

(99)

EIC

1040A

1040

Complete and attach to Form 1040A or 1040

only if you have a qualifying child.

● Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s

social security card. Otherwise, at the time we process your return, we may reduce or disallow your EIC.

If the name or SSN on the child’s social security card is not correct, call the Social Security

Administration at 1-800-772-1213.

Child 1 Child 2

If you have more than two qualifying children, you

only have to list two to get the maximum credit.

The child must have an SSN as defined on page 43

of the Form 1040A instructions or page 47 of the

Form 1040 instructions unless the child was born and

died in 2004. If your child was born and died in 2004

and did not have an SSN, enter “Died” on this line

and attach a copy of the child’s birth certificate.

No. No.

Go to line 5. Go to line 5. Continue Continue

Yes. No. Yes. No.

Continue Continue The child is not a

qualifying child.

The child is not a

qualifying child.

● If the child lived with you for more than half of

2004 but less than 7 months, enter “7”.

● If the child was born or died in 2004 and your

home was the child’s home for the entire time he or

she was alive during 2004, enter “12”.

Do not enter more than 12 months. Do not enter more than 12 months.

You may also be able to take the additional child tax credit if your child (a) was under age 17 at the end of 2004, (b) is

claimed as your dependent on line 6c of Form 1040A or Form 1040, and (c) is a U.S. citizen or resident alien. For more

details, see the instructions for line 42 of Form 1040A or line 67 of Form 1040.

. . . . . . . . . .

● If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up

to 10 years. See back of schedule for details.

(for example, son, daughter, grandchild,

niece, nephew, foster child, etc.)

Was the child under age 24 at the end

of 2004 and a student?

a

Child’s year of birth

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

If born after 1985, skip lines 4a

and 4b; go to line 5.

Year

2004

3

CAUTION

TIP

Marvin Simmons xxx xx xxxx

Eric Simmons

xxx xx xxxx

1 9 9 3

Grandchild

12

Problem 3 Schedule EIC
Comprehensive

Problems CW-53

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1620 8812 Additional Child Tax Credit Form

Complete and attach to Form 1040 or Form 1040A. Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 47

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 10644E Form 8812 (2004)

3

2

4

6

Enter the total of the withheld social security and Medicare taxes from Form(s)

W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts

with yours. If you worked for a railroad, see the instructions on back

Add lines 7 and 8

1

Enter the total of the amounts from Form 1040, lines

30 and 58, plus any uncollected social security and

Medicare or tier 1 RRTA taxes included on line 62.

Enter -0-.

Enter the total of the amounts from Form 1040, lines

65 and 66.

Enter the total of the amount from Form 1040A, line

41, plus any excess social security and tier 1 RRTA

taxes withheld that you entered to the left of line 43

(see the instructions on back).

Enter the amount from line 1 of your Child Tax Credit Worksheet on page 41 of the Form 1040 instructions

or page 38 of the Form 1040A instructions. If you used Pub. 972, enter the amount from line 8 of the

worksheet on page 4 of the publication

Enter the amount from Form 1040, line 51, or Form 1040A, line 32

Subtract line 2 from line 1. If zero, stop; you cannot take this credit

8

9



6

 1040A filers:

1040 filers:

1040 filers:

1040A filers:

1

2

13

1040 .

1040A . . . . . . . . . Enter this amount on

Form 1040, line 67, or

Form 1040A, line 42.





8812

1040

1040A

. . . . . . . . . .

3

Enter your total taxable earned income. See the instructions on back

5 Is the amount on line 4 more than $10,750?

No.

Yes. Subtract $10,750 from the amount on line 4. Enter the result

Leave line 5 blank and enter -0- on line 6.

4

5

Multiply the amount on line 5 by 10% (.10) and enter the result

7

Next. Do you have three or more qualifying children?

No. If line 6 is zero, stop; you cannot take this credit. Otherwise, skip Part II and enter the

smaller of line 3 or line 6 on line 13.

Yes.

7

8

9

10

10

11 Subtract line 10 from line 9. If zero or less, enter -0- 11

12 Enter the larger of line 6 or line 11 here 12

Next, enter the smaller of line 3 or line 12 on line 13.

13 This is your additional child tax credit

Part III

Part I

Part II

All Filers

Certain Filers Who Have Three or More Qualifying Children

Your Additional Child Tax Credit

If line 6 is equal to or more than line 3, skip Part II and enter the amount from line 3 on

line 13. Otherwise, go to line 7.

(99)

2004

Marvin Simmons xxx xx xxxx

1,000

941

59

24,952

✘ 14,202

1,420

✘

59

Problem 3 Form 8812
CW-54 Comprehensive

Problems

WAGE EARNER

WAGE EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Problem 3 

Proof as of

June 18, 2004

(subject to change)

Form 8812 (2004) Page 2

Instructions

Purpose of Form

Use Form 8812 to figure your additional child tax credit.

Taxable Earned Income

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by Internal Revenue Code section

6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated average time

is: Recordkeeping, 6 min.; Learning about the law or the form,

5 min.; Preparing the form, 28 min.; Copying, assembling, and

sending the form to the IRS, 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the Instructions for Form 1040 or

Form 1040A.

The additional child tax credit may give you a refund

even if you do not owe any tax.

Railroad Employees

If you worked for a railroad, include the following taxes in the

total on Form 8812, line 7.

● Tier 1 tax withheld from your pay. This tax should be shown in

box 14 of your Form(s) W-2 and identified as “Tier 1 tax.”

● If you were an employee representative, 50% of the total tier 1

tax and tier 1 Medicare tax you paid for 2004.

Any refund you receive as a result of taking the additional child

tax credit will not be used to determine if you are eligible for the

following programs, or how much you can receive from them.

● Temporary Assistance for Needy Families (TANF).

● Medicaid and supplemental security income (SSI).

● Food stamps and low-income housing.

Effect of Credit on Welfare Benefits

First, complete the Child Tax Credit Worksheet that applies to you.

See the instructions for Form 1040, line 51, or Form 1040A, line

32. If you meet the condition given in the TIP at the end of your

Child Tax Credit Worksheet, use Form 8812 to see if you can take

the additional child tax credit.

Who Should Use Form 8812

2. Are you claiming the earned income credit (EIC) on Form

1040, line 65, or Form 1040A, line 41?

Yes. Use the following chart to find the amount to enter on

Form 8812, line 4.

IF you are

filing Form . . . AND you completed . . .

THEN enter on Form

8812, line 4, the amount

from . . .

1040A

1040

Step 5 on page 42 of your

1040A instructions

Worksheet B on page 49 of

your 1040 instructions

Step 5 on page 46 of your

1040 instructions (but not

Worksheet B)

Step 5, Earned Income

Worksheet B, line 4b.*

Step 5, Earned Income

No. 1040 filers: Go to question 3.

1040A filers: Skip question 3 and go to question 4.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

4. Does the amount on line 7 of Form 1040 or Form 1040A

include any of the following amounts?

● Taxable scholarship or fellowship grants not reported on a Form

W-2.

● Amounts paid to an inmate in a penal institution for work (enter

“PRI” and the amount paid in the space next to line 7 of Form

1040 or 1040A).

No. Enter the amount from line 7 of Form 1040 or Form

1040A on Form 8812, line 4.

Yes. Subtract the total of those amounts from the amount on

line 7 of Form 1040 or Form 1040A. (If an amount is

included in more than one of the above categories,

include it only once in figuring the total amount to

subtract.) Enter the result on Form 8812, line 4.

1040A Filers

If you, or your spouse if filing a joint return, had more than one

employer for 2004 and total wages of over $87,900, figure any

excess social security and tier 1 railroad retirement (RRTA) taxes

withheld. See the instructions for Form 1040A, line 43. Include any

excess on Form 8812, line 10.

* If you were a member of the clergy, subtract the following from the amount on line

4b: (a) the rental value of a home or the nontaxable portion of an allowance for a

home furnished to you (including payments for utilities) and (b) the value of meals

and lodging provided to you, your spouse, and your dependents for your employer’s

convenience.

● Amounts received as a pension or annuity from a nonqualified

deferred compensation plan or a nongovernmental section 457 plan

(enter “DFC” and the amount received in the space next to line 7

of Form 1040 or 1040A). This amount may be reported in box 11

of your Form W-2. If you received such an amount but box 11 is

blank, contact your employer for the amount received as a pension

or annuity.

● Amounts from Form 2555, line 41, or Form 2555-EZ,

line 18.

1. Did you, or your spouse if filing a joint return, have net

earnings from self-employment and use either optional method to

figure those net earnings?

No. Go to question 2.

Yes. Use Pub. 972 to figure the amount to enter on

Form 8812, line 4.

3. Were you, or your spouse if filing a joint return,

self-employed, or are you filing Schedule SE because you were a

member of the clergy or you had church employee income, or are

you filing Schedule C or C-EZ as a statutory employee?

No. Go to question 4.

TIP

✘

✘
Notes to

Instructors N-12-1

OVERVIEW AND OBJECTIVES

This lesson will cover how to:

■ Determine capital gain and loss on the sale of corporate stock,

■ Report capital gain distributions on Schedule D, when required,

■ Figure tax on Schedule D, and

■ Compute capital loss carryover. 

Tax terms in the student text are presented in bold-faced type. 

Emphasize these as they are introduced:

■ capital asset

■ capital gain distributions

■ adjusted basis

■ holding period

■ gross sale proceeds

■ net sale proceeds (gross proceeds less commissions)

■ capital gain

■ capital loss

See Appendix B for suggested class schedules and approximate 

teaching times.

MATERIALS

This lesson will refer to the following IRS publications and forms. 

If you would like to provide your students with the most current revieison of the material, you can download the files from 

www.irs.gov.

■ Form 1099-B, Proceeds From Broker and Barter Exchange 

Transactions

■ Form 1099-DIV, Dividends and Distributions

■ Schedule D (Form 1040), Capital Gains and Losses

■ Schedule D-1 (Form 1040), Continuation Sheet for Schedule D 

(Form 1040)

■ Form 1040

■ Capital Loss Carryover Worksheet

SALE OF STOCK NOTES TO INSTRUCTORS Lesson 12
Notes to N-12-2 Instructors

GROUP ACTIVITY

(5–7 min.)

Ask the entire class to turn to Exhibit 1, which shows a blank 

Form 1099-B. Explain that IRS uses Form 1099-B as a check 

against taxpayer-reported information. Walk students through the 

parts of this form and explain how they will use each part to help 

taxpayers.

■ Remind students to check the taxpayer-identification 

information against the taxpayer’s Form 1040.

■ Point out that box 1a contains the sale date to use in computing

the holding period.

■ Refer students to box 2 and make sure they see where the 

broker indicates whether gross or net proceeds (gross proceeds

less commissions) were reported.

TEACHING TIPS

Volunteers who study advanced topics often have extensive 

tax knowledge. Acknowledge their expertise; but explain that, 

throughout these lessons, situations are identified in which 

volunteers should refer taxpayers to paid professional tax 

preparers. Explain also that the reason is not because IRS doubts 

the volunteer’s competence, but because these are complex and 

sometimes risky areas that are beyond the scope of the VITA/TCE 

program. IRS wants neither to put the program or the volunteer at 

risk, nor to misinform taxpayers.

Point out to students that if the shares acquired first by the 

taxpayer are considered sold first, this method used to figure the 

cost basis is called “first-in first-out” (FIFO).

Make sure that volunteers understand that the dates used to 

determine holding period do not include the purchase date, but do 

include the sale date (from box 1a, Form 1099-B).

Exercise 1

Go over these questions with the students. The discussion will tell 

you how well they are following the course material. 

A. Students should be able to figure the basis (cost) without being 

distracted by the commission on the sale. 

B. The change means that the holding period goes from long to 

short-term. Ask students whether they can tell yet how this 

change in basis will affect the profitability of the sale. (They are 

not expected to know, because they haven’t yet studied how to 

determine gain or loss. That topic is discussed next. The longterm capital gain on the sale of stock acquired in May 2000 is 

$705 ($3,255 – $2,550). However, Morris has a capital loss of $295 

($3,255 – $3,550) on the sale of stock bought in October 2001.
Notes to

Instructors N-12-3

C. Students should be able to figure the basis after the tax-free 

stock split.

Remind students that a stockbroker can report either the gross 

proceeds or the net proceeds as the sales price.

1. Have the students look at Parts I through III of Schedule D so 

they understand the purpose of each part.

2. Show them a Schedule D-1, the continuation sheet for Schedule 

D. They will not use it often, if at all, but they should know what 

it looks like.

Examples 6 and 7

Examples 6 and 7 compare and contrast features about completing 

Parts I and II of Schedule D.

Similarities:

In both Parts I and II the taxpayer:

■ Adds sales price in column (d) and reports the total.

■ Reports net proceeds if the broker reported net proceeds on 

Form 1099-B, or adds selling expenses (such as broker’s fees and 

commissions) to basis (cost) if the broker reported gross sales 

price (gross proceeds).

Contrasts:

Example 6 shows:

■ A short-term transaction (Part I) and

■ A net loss. 

Example 7 shows:

■ A long-term transaction (Part II) and

■ A net gain.

Example 7

Tell the students to trace what happened to each stock, one by one. 

They should start by looking at the holding period, so they will 

know whether to report the sale in Part I or Part II of Schedule D. 

Next, they should figure adjusted basis; and then capital gain or 

loss on the sale.

Let the students know they must follow this procedure with the 

pieces of information taxpayers show them. There are no shortcuts.
Notes to N-12-4 Instructors

Exercise 2

Go over these questions with the students. Students should be 

able to:

■ Compute capital gain or loss and

■ Distinguish between long-term and short-term gain or loss on 

sale of stock.

Remind the students that they already read a brief description 

of capital gain distributions in Income Lesson, under “Dividend 

Income and Other Corporate Distributions.”

Exercise 3

In exercise 3 students need to:

■ Combine gains and losses from different transactions;

■ Remember not to overlook making entries on lines 3 and 10;

■ Take capital gain distributions into consideration (line 13); and

■ Avoid letting the bar across the page at line 10 distract them 

from including the line 8 and 9 amounts when they compute the 

entries for lines 15 and 16.

Part III

Point out to the students that when they complete Part III, it is 

time to transfer the first entry to Form 1040. The entry, either a 

gain or a loss, goes on line 13 of Form 1040.

Emphasize how important it is to stop and make the entry on Form 

1040 at this point. If they wait, they may overlook making it at all.

Common Queries

Students may ask what happens to a capital loss carryover if 

a taxpayer dies. Capital losses cannot be carried over after a 

taxpayer’s death. Losses are deductible on the final income tax 

return filed for the decedent, but the capital loss limits still apply. 

See Publication 559, Survivors, Executors, and Administrators.

Make sure the students notice how:

The Capital Loss Carryover Worksheet ensures that a capital loss 

carryover keeps its short-term or long-term nature from one year to 

the next.

Exercises 5 and 6

Exercises 5 and 6 summarize what the students have learned in 

Lesson 9. In both exercises they complete Schedule D, once for a 

net capital loss, and once for a net capital gain. The information 

they use to complete Schedule D is presented to them in a format 

reasonably close to the way taxpayers will present it. In both 

exercises the students transfer their results to Form 1040.
Notes to

Instructors N-12-5

Exercise 5 requires that students use Parts I, II, and III of 

Schedule D.

Exercise 6 requires that students use Parts I through III of 

Schedule D. Students also get more practice at computing adjusted 

basis.

It is advisable to divide Exercise 5 in parts and have the class go 

over each part together before moving on to the next one. Doing 

that will give students a better chance to keep up. A good division 

would be:

1. Report the stocks in Parts I and II according to whether they 

are long-term or short-term.

2. Figure their basis.

3. Finish Parts I and II.

4. Complete Part III and Form 1040, line 13.

Exercise 6 is complicated enough that teaching it in parts is 

probably wise. A good way to divide it would be:

1. Report the stocks in Parts I and II according to whether they 

are long-term or short-term.

2. Figure their basis.

3. Finish Parts I and II.

4. Complete Part III and Form 1040, line 13.
Notes to N-12-6 Instructors

STUDENT NOTES
Lesson 12 12-1

PENSION EARNER

 SALE OF STOCK Lesson 12

OBJECTIVES

After completing this lesson you should be able to:

■ Identify the items that affect the basis of a stock.

■ Determine if a stock’s holding period is long term 

or short term.

■ Determine when and how to report commissions 

from sale of stock on Schedule D.

■ Calculate the taxable gain or deductible loss using 

Schedule D.

■ Calculate the tax liability using the Schedule D 

Tax Worksheet.

What You Will Need

In order to complete Schedule D, the taxpayer 

will need to show you his or her records, including 

information returns.

■ Form 1099-B, Proceeds From Broker and Barter 

Exchange Transactions, which the broker gives the 

taxpayer to report the sale price of stock.

■ The taxpayer’s records of basis in the stock sold. 

Basis is explained in this lesson.

■ The taxpayer’s records of the date the stock was 

originally acquired.

■ Form 1099-DIV, Dividends and Distributions, if 

the taxpayer received capital gain distributions 

(for example, from a mutual fund).

■ The taxpayer’s Capital Loss Carryover Worksheet

from last year’s Schedule D instructions if the 

taxpayer is carrying over a loss to 2004.

The Internal Revenue Service (IRS) receives copies 

of Form 1099-B from the broker and copies of Form 

1099-DIV from the payer. The taxpayer should not file 

these items with their return, but keep them with his 

or her records.
12-2 Lesson 12

PENSION EARNER

Capital Asset

A capital asset is any asset held either for personal use or for 

investment. Thus, all your items of personal property, such as your 

home and car, are capital assets. Property held for investment 

includes stocks and bonds. Property used in a trade or business, 

such as inventory or machinery, is not a capital asset.

In this lesson, corporate stock is the only capital asset discussed. 

Capital gain distributions are also discussed. They are recognized when the entity (such as a mutual fund) that owned a capital

asset disposes of it and passes gain through to its shareholders. 

The discussion of capital gain distributions in this lesson supplements what you previously learned in Lesson 3.

 Capital Gains Distribution (Only)

The Schedule D generally is not needed for taxpayers who received 

capital gain distributions from mutual funds but did not sell any 

shares of stock and do not have any Forms 1099-B as explained in 

Lesson 3, Income. Instead, report the total capital gain distribution 

on Form 1040, line 13, or on Form 1040A, line 10. If the taxpayer 

must file Form 1040, remember to check the box next to line 13 of 

Form 1040 to indicate that Schedule D is not required. If the taxpayer sold stocks, he or she must file Form 1040 and cannot report 

capital gain distributions on Form 1040A.

Basis

The basis of property is usually its cost. Certain additional costs 

relating to its purchase are included in the basis of a capital asset. 

An example of an expense to include in the basis of stock is the 

commission or fee paid to a broker when stock is purchased.

If the taxpayer is not able to provide his or her basis in the property, the IRS will deem it to be zero. The taxpayer should make 

every effort to determine the basis. Refer taxpayers to their stockbroker or financial planner for assistance in determining basis. 

Once the taxpayer has the basis, volunteers may assist in preparing the tax return.
Lesson 12 12-3

PENSION EARNER

Adjusted Basis

Events after purchase can require adjustments to the basis of 

stock. The term adjusted basis refers to the basis after changes 

are made. For example, when a stock dividend or stock split is 

declared, the stockholder receives additional shares of stock. 

Some of the basis from the original stock is then allocated to the 

new stock. This change reduces the basis per share of the original 

shares.

Example 1

Fran paid $1,100 for 100 shares of ABC, Inc. stock (including the 

broker’s commission of $25). Fran received 10 additional shares of 

ABC stock as a tax-free stock dividend. Her $1,100 basis must be 

spread over 110 shares (100 original shares plus the 10-share stock 

dividend). Her basis per share decreases from $11 to $10 per share.

Holding Period

Long-term or short-term. Capital gains and losses are classified 

as either “long-term” or “short-term,” depending on how long the 

taxpayer owned the stock. Stock held for more than one year (12 

months) has a long-term holding period. Stock held for one year or 

less has a short-term holding period.

Example 2

Loretta bought stock on January 11, 2003 (trade date). Her holding period began the next day, January 12. If she sells that stock 

on January 11, 2004, she will not have owned them for more than 

a year. The holding period will be short-term. However, if she sells 

the stock on January 12, 2004, or later, the holding period will be 

long-term.

Blocks. Frequently, a taxpayer owns shares of stock that were 

bought on different dates or for different prices. That is, the individual owns more than one block of stock. Each block may differ 

from the others in its holding period (long-term or short-term), its 

basis (amount paid for the stock), or both.

In directing a broker to sell stock, the taxpayer may specify which 

block, or part of a block, to sell. Specification can make a difference 

in determining the holding period or basis of the stock sold, giving 

the taxpayer an element of control and versatility in handling an 

investment. To be valid, any such specification must be made before 

or at the time of sale. It cannot be made after the sale. If the taxpayer does not identify the specific block at the time of sale, shares 

sold are treated as coming from the earliest block purchased.

TAX TIPS

★★★★★★★★

To fi nd out how long the 

taxpayer has held the 

stocks, begin counting 

on the day after the 

day he or she bought 

the shares of stock and 

include the day the 

shares were sold. This 

sale trade date is part of 

the holding period.

POTENTIAL

PITFALLS

Stock splits and stock 

dividends do not occur 

often. However, do not 

assume that they never 

happen. Ask taxpayers 

if they received any 

additional shares from 

a stock split or stock 

dividend.
12-4 Lesson 12

PENSION EARNER

Example 3

In 1996, Tina bought 100 shares of Acme Corporation stock for 

$2,000. In 1997 she bought another 100 shares of Acme for $2,300. 

In 2004, Tina sold 100 shares of Acme for $3,000.

The adjusted basis of the shares sold is $2,000. However, if Tina 

had told her broker to sell the 100 shares bought in 1997, the 

adjusted basis of the shares sold would have been $2,300, reducing 

her profit (and any taxable amount) on the sale.

Tax-free stock dividends and stock splits. Stock acquired in a 

tax-free stock dividend or stock split has the same holding period 

as the original stock owned. Thus, if the original stock has a longterm holding period, stock received in a tax-free stock dividend also 

has a long-term holding period. Similarly, if the original stock has 

a holding period of three months, the new stock immediately has a 

three-month holding period.

Example 4

On February 18, 1999, Wallace bought 500 shares of XYZ 

Corporation stock for $1,500, including his broker’s commission. 

XYZ distributed a two-percent stock dividend on April 6, 2004. On 

April 9, 2004, Wallace sold all his XYZ stock for $2,030. He has a 

long-term capital gain of $530 on the sale of his stock. Although he 

owned the 10 shares he received as a tax-free stock dividend for 

only three days, all the stock has a long-term holding period.

Taxable dividends. There are several types of taxable dividends, 

as discussed in Lesson 3. A taxpayer who participates in a dividend 

reinvestment plan (one type of taxable dividend) will use the dividends to purchase more shares of the stock. The stocks acquired 

(including fractional shares) through the dividend reinvestment 

plan are added to the taxpayer’s basis at fair market value on the 

date of distribution. Thus, the new shares of stock do not always 

have the same holding period as the original stock. If the taxpayer 

does not know their basis refer them to their stockbroker or financial planner.

Demutualization

Some taxpayers have been informed by their insurance company 

that the company has been demutualized. When this happens the 

policy holder receives either a block of stock or the cash equivalent 

of company stock. The holding period for such stock is the length of 

time the policy has been in effect, usually many years. The basis for 

this stock is zero. The taxpayer must report all of the proceeds as a 

capital gain, usually long term, when the stock is sold. 
Lesson 12 12-5

PENSION EARNER

Wash Sales

Generally, a wash sale occurs when stock is sold and, within 30 

days before or after the sale, substantially identical stock is bought. 

A loss on a wash sale is not deductible, and special rules relate 

to the basis of the replacement stock. However, a gain on a wash 

sale must be reported. Any taxpayer with a wash sale should be 

referred to a paid professional tax preparer.

Sales Price, Form 1099-B, and Adjusted Basis

The stockbroker reports sales price to the Internal Revenue 

Service in box 2 of Form 1099-B, Proceeds From Broker and Barter 

Exchange Transactions (see Exhibit 1). Some brokers do not subtract commissions and fees; they report the gross proceeds as 

the sales price. Other brokers do subtract commissions and fees, 

reporting the gross proceeds less commissions (referred to as 

net proceeds in this lesson) as the sales price. The broker checks 

the appropriate square at the right of box 2 to indicate whether the 

gross or net proceeds were reported to IRS.

If Form 1099-B reports gross proceeds, add the sales broker’s commissions and fees to the basis. If Form 1099-B reports net proceeds, 

the broker already subtracted the commissions and fees the seller 

paid. Do not adjust the basis further.

Exhibit 1 Form 1099-B

Proof as of

June 18, 2004

(subject to change)

PAYER’S name, street address, city, state, ZIP code, and telephone no. Date of sale or exchange 1a OMB No. 1545-0715 Proceeds From

Broker and

Barter Exchange

1b CUSIP no. Transactions

2 Stocks, bonds, etc. Reported

to IRS

Gross proceeds

$ Gross proceeds less commissions and option premiums

PAYER’S Federal identification number RECIPIENT’S identification number 3 Bartering 4 Federal income tax withheld

$ $

RECIPIENT’S name No. of shares exchanged 5

Street address (including apt. no.) Description 7

City, state, and ZIP code

Account number (optional) 2nd TIN not.

Form 1099-B Department of the Treasury - Internal Revenue Service



Cat. No. 14411V

7979 VOID CORRECTED

Form 1099-B

Do Not Cut or Separate Forms on This Page — Do Not Cut or Separate Forms on This Page

Copy A

For

Internal Revenue

Service Center

File with Form 1096.

For Privacy Act

and Paperwork

Reduction Act

Notice, see the

2004 General

Instructions for

Forms 1099, 1098,

5498, and W-2G.

8

$

Profit or (loss) realized in

2004

9 Unrealized profit or (loss) on

open contracts—12/31/2003

10 Unrealized profit or (loss) on

open contracts–12/31/2004

11 Aggregate profit or (loss)

$

$ $

Classes of stock

exchanged

6

CORPORATION’S name, street address, city, state, and ZIP code

12 Check the box if recipient cannot take a loss on their tax

return based on the amount in box 2

2004
12-6 Lesson 12

PENSION EARNER

Example 5

George sold stock for $2,300. He paid his broker a commission of 

$35 on the sale and received net proceeds of $2,265. If his broker 

reported the gross proceeds, box 2 of Form 1099-B would show 

$2,300, and the box next to gross proceeds would be checked. If his 

broker reported the net proceeds, box 2 of Form 1099-B would show 

$2,265, and the box next to gross proceeds less commissions would 

be checked.

As a general rule, you will need the following information from 

Form 1099-B:

Information You Will Need From Form 1099-B

IF Form 1099-B shows 

information in:

THEN report it on: 

Box 1a, Date of sale Schedule D, column (c), of 

either Part I, line 1, or Part II, 

line 8

Box 2, Sales price reported 

to Internal Revenue Service 

whether gross or net proceeds 

were reported

Schedule D, column (d), of 

either Part I, line 1, or Part II, 

line 8 

Box 4, Federal income tax 

withheld

Form 1040, line 63

Box 7, Description of the

property sold

Schedule D, column (a) in 

either Part I, line 1, or Part II, 

line 8

If there are entries in box 3 or in boxes 8 through 12 of Form 

1099-B, refer the taxpayer to a paid professional tax preparer.

Form 1099-B does not include the date the taxpayer bought the 

stock or what he or she paid for it. The taxpayer will need to provide you with this information.
Lesson 12 12-7

PENSION EARNER

Some brokers do not issue standard Forms 1099-B. Instead 

they issue a statement, sometimes titled “A 1099 Consolidated 

Statement,” which shows stock sales and other types of distributions such as dividends and interest. Exhibit 2 is an example of 

such a statement

Exhibit 2 A 1099 Consolidated Statement New York, NY 10022 555 Center Street King Investments Payer Claremont, VA 91711 123 Green Street Paul J. Birch or Susan L. Birch Account Number 7764366 SS# 000-00-7026 included in Box 3 Interest Income not 1099-INT Interest Income 2004 penalty Early Withdrawal Interest other US Treasury US Savings Bonds & Tax Withheld Federal Income Foreign Tax Paid Foreign Country or US Possession Box 1 $378.00 Box 2 Box 3 $100.00 Box 4 Box 5 Box 6 Dividends Ordinary 1099-DIV Dividends & Distributions 2004 Distributions Capital Gain Gain 28% Rate Sec 1250 Gain Unrecaptured 1202 Gain Section Distributions Nontaxable Tax Withheld Federal Income Box 1 $559.00 Box 2a $179.00 Box 2b Box 2c Box 2d Box 3 Box 4 Investment Expenses Foreign Tax Paid Foreign Country or US Possession Cash Liquid Distrib. Non-cash Liquid Distrib Box 5 Box 6 $25.00 Box 7 Box 8 Box 9 Reference Number Trade Date 1099-B Proceeds from Broker or Barter Exchange Transactions 2004 Box 1a Box 1b CUSIP Number Box 5 Description Quanity Price Gross Proceeds Box 2 Less Commissions Box 4 Tax Withheld Federal Income 239863 145367 10/23/04 7/17/04 927651 765298 Markets Inc 300 Shs XYZ 200 Shs ABC Corp $83.65 $16.75 $25,000.20 $3,299.90 TOTALS $28,300.10 Box 1 Distribution Gross 1099-R Distributions from IRAs 2004 Box 2a Amount Taxable Not Determined Amount Taxable Box 2b Distribution Total Box 4 Tax Withheld Federal Income Box 7 Code Distribution SIMPLE IRA/SEP $2,000.00 $2,000.00 7 - Normal Yes
12-8 Lesson 12

PENSION EARNER

Exercise 1

For the following situations, determine the adjusted basis of the 

stock sold, whether the holding period is long-term or short-term, 

and how the sales price is reported.

A. On May 11, 2001, Morris bought 1,000 shares of ZZZ 

Corporation stock for $5,000, plus a $100 commission. On 

February 14, 2004, he sold 500 shares for $3,300 and paid a 

$45 commission. The broker reported net proceeds on the sale.

1. What is the adjusted basis of the stock sold? 

 

2. Is the holding period long term or short term?

 

3. What amount is reported to the Internal Revenue Service in 

box 2 of Form 1099-B? 

B. In the case of Morris, above, assume that he bought 500 more 

shares of ZZZ stock on October 6, 2003, for $3,500, plus a $50 

commission. At the time of the 2004 sale, he told the broker to 

sell the stock he had bought in 2003. 

1. What is the adjusted basis of the stock sold? 

2. Is the holding period long term or short term?

C. On November 30, 2001, Janice bought 100 shares of ABC 

Corporation stock for $9,965, plus a $35 commission. On 

January 5, 2004, the stock split two-for-one, and she then held 

a total of 200 shares. On March 6, 2004, she sold 100 shares 

for $6,470 and paid a $30 commission. Her broker reported net 

proceeds.

1. What is the adjusted basis of the stock sold? 

2. Is the holding period long term or short term?

3. What amount is reported to the Internal Revenue Service in 

box 2 of Form 1099-B? 

REPORTING GAIN OR LOSS ON SCHEDULE D

Use Schedule D ( Form 1040), Capital Gains and Losses, to report 

gain or loss on the sale of stock. Figure gain or loss by subtracting the adjusted basis of stock sold from its sales price. If the sales 

price is greater, the taxpayer has gain on the sale. By contrast, if 

the adjusted basis is greater than the sales price, the taxpayer has 

a loss on the sale. To denote a loss, place the number in parentheses. The taxpayer should receive Form 1099-B, reporting each sale 

of stock.
Lesson 12 12-9

PENSION EARNER

Also use Schedule D to report capital gain distributions that the 

taxpayer has in addition to any sales of stock. Enter the capital

gain distributions on Schedule D, Part II, line 13. They are reported 

to the taxpayer on Form 1099-DIV, Dividends and Distributions, 

box 2a.

If the taxpayer had capital gain distributions, but did not sell stock, 

he or she may not have to use Schedule D. Instead, report the capital gain distributions as explained in Lesson 3, Income. 

Schedule D is divided into three parts with a tax calculation 

worksheet.

■ Part I, Short-Term Capital Gains and Losses. For assets held 

one year or less.

■ Part II, Long-Term Capital Gains and Losses. For assets held 

more than one year. Part II shows all long-term gains and losses 

and identifies the part subject to the 28% tax rate. The 28% rate 

applies to section 1202 gain from the sale or exchange of qualified small business stock and to collectibles.

■ Part III, Taxable Gain or Deductible Loss.

■ Qualified Dividends and Capital Gain Tax Worksheet or 

Schedule D Tax Worksheet, as required.

Parts I and II: Short-Term and Long-Term Capital Gains and Losses

Report transactions in Parts I and II as follows:

To Report Capital Gain or Loss in Part I or II, Schedule D

Short-Term Long-Term

Show the first four 

sales on: 

Part I, Line 1, 

Schedule D

Part II, line 8, 

Schedule D

For additional sales, 

use:

Part I, line 1, 

Schedule D-1

Part II, line 8, 

Schedule D-1

And transfer the 

total sales amount:

From Part I, line 2, 

Schedule D-1

Onto Part I, line 2, 

Schedule D

From Part II, line 9, 

Schedule D-1

Onto Part II, line 9, 

Schedule D

Add the sales price amounts in column (d), lines 1 and 2 of Part 

I. Enter the result on line 3. Then add the amounts in column (d), 

lines 8 and 9 of Part II. Enter the result on line 10. The total of line 

3 plus line 10 must equal the total from box 2 of all the taxpayer’s 

Forms 1099-B. If they do not agree, the taxpayer should attach a 

statement to the return to explain the difference.
12-10 Lesson 12

PENSION EARNER

The Internal Revenue Service will compare the amounts reported 

on all of a taxpayer’s Forms 1099-B with the sum of the amounts 

reported on lines 3 and 10 of Schedule D. If the numbers do not 

agree and the taxpayer did not explain the difference, IRS will contact the taxpayer.

Example 6

On November 13, 2003, Mary Lou bought 500 shares of XEN, Inc. 

stock for $20 a share ($10,000 total), plus a $50 commission. On 

February 26, 2004, she sold the stock for $8,090 and paid selling

expenses of $40. The Form 1099-B from her broker reported a sales 

price of $8,090 ( gross proceeds). Part I of Mary Lou’s completed 

Schedule D appears in Exhibit 3.

Mary Lou has a short-term capital loss. Notice that Mary Lou 

shows the loss in column (f) of line 1. She completes Part I by entering the net short-term loss on line 7. This example shows that:

■ Her broker reported gross proceeds on Form 1099-B. The 

amount shown in column (d) is $8,090 (because selling expenses 

have not been subtracted), and

■ She works those expenses into the computation as an adjustment to basis, column (e)—and the result in column (f) reflects 

her true gain or loss.

Exhibit 3 Mary Lou’s Schedule D, Part I

Proof as of

e 18, 2004

change)

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

( )

4 4

Part I

(b) Date

acquired

(Mo., day, yr.)

2

7

500 sh. XEN 11/13/03 2/26/04 8,090 00 10,090 00 (2,000 00)

8,090 00

(2000 00)
Lesson 12 12-11

PENSION EARNER

Example 7

Exhibit 4 shows the three long-term transactions that Tess is 

reporting on Schedule D, Part II, for 2004. On August 21, 1999, she 

bought 200 shares of XYZ Company for $1,500. On October 1, 2000, 

she bought 500 shares of TUV, Inc., for $8,000, and on November 

18, 2000, she bought 2,000 shares of QRS, Inc., for $5,000. Each 

amount includes the commission.

On January 10, 2004, Tess sold the stock in XYZ and TUV. The 

Form 1099-B from her broker reported gross proceeds of $1,875 for 

the XYZ stock, and $6,000 for TUV. Tess paid commissions of $35 

for selling the XYZ shares, and $40 for selling TUV. On May 27, 

2004, Tess sold the QRS stock for $10,000. She paid a $50 commission. Her broker reported net proceeds of $9,950 on Form 1099-B.

This example shows how to:

■ Report basis when Form 1099-B shows gross proceeds (XYZ 

and TUV—basis includes commissions on the sale, as well as 

prior adjusted basis), in contrast to when it shows net proceeds 

(QRS—basis does not include commissions on the sale, but only 

the prior adjusted basis).

■ Net gains and losses in column (f).
12-12 Lesson 12

PENSION EARNER

June 1

(subject to 

Long-Term Capital Gains and Losses—Assets Held More Than One Year ch

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

Part II

13

9

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

(f) Gain or (loss)

Subtract (e) from (d)

200 sh. XYZ

500 sh. TUV

2,000 sh. QRS

8/21/99

10/1/00

11/18/00

1/10/04

1/10/04

5/27/04

1,875 00

6,000 00

9,950 00

1,535 00

8,040 00

5,000 00

340 00

(2,040 00)

4,950 00

17,825 00

3,250 00

Exhibit 4 Tess’ Schedule D, Part II

Exercise 2

For each of the following situations, figure the gain or loss on the 

sale of stock and indicate whether the gain or loss will be long 

term or short term.

A. On March 15, 2003, Bill bought 1,000 shares of stock for 

$15,000, including commission. On March 15, 2004, he sold 600 

shares of the stock for $7,800, net proceeds on Form 1099-B.

1. Will Bill report a gain or a loss? 

2. How much is the gain or loss? 

3. Is the holding period long term or short term?

B. On January 7, 2001, Margo bought stock for $1,500, plus a $25 

commission. On July 15, 2004, she sold the stock for $2,000 

and paid a $25 commission. Her Form 1099-B shows the gross

proceeds of $2,000 as the sales price.

1. Will Margo report a gain or a loss? 

2. How much is the gain or loss? 

3. Is the holding period long term or short term?
Lesson 12 12-13

PENSION EARNER

Reporting Capital Gain Distributions From Form 1099-DIV on 

Schedule D

If the taxpayer received Form 1099-DIV, Dividends and 

Distributions, see whether an amount is shown in box 2a.

■ If capital gain distributions from Form 1099-DIV are the only 

capital gains or losses the taxpayer had for the year, the taxpayer may be able to report them directly on Form 1040A or 

Form 1040, as explained in Lesson 3, Income.

■ If the taxpayer also sold stock reported on Form 1099-B, report 

the total capital gain distributions from Form 1099-DIV on line 

13, column (f), of Schedule D. 

Example 8

Alec received a Form 1099-DIV. Box 2a which shows he received 

a total capital gain distribution of $170. Alec also received a Form 

1099-B that shows a net sales price of $1,200 on the sale of 600 

shares of ABC Group, Inc. He bought the stock on February 19, 

2000, and sold it on August 25, 2004. His basis in ABC, including 

commission, is $1,455. Alec’s Form 1099-DIV, and Part II of his 

Schedule D, are shown in Exhibits 6. In this example, the capital 

gain distribution must be shown on Schedule D because Alec also 

sold stock in 2004 that must be reported on Schedule D.

Unrecap. Sec. 1250 gain

VOID CORRECTED

PAYERíS name, street address, city, state, ZIP code, and telephone no. 1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

RECIPIENTíS identification

number

PAYERíS Federal identification

number

RECIPIENTíS name Sect 2c ion 1202 gain 2d Collectibles (28%) gain

$

3

Street address (including apt. no.) 5 Investment expenses

City, state, and ZIP code

Noncash liquidation

distributions

Cash liquidation 9

distributions

Account number (optional) 8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

Dividends and

Distributions

$

9191

2nd TIN not.

Form 1099-DIV Cat. No. 14415N Department of the Treasury - Internal Revenue Service

Copy A

File with Form 1096.

For Privacy Act

and Paperwork

Reduction Act

Notice, see the

2004 General

Instructions for

Forms 1099,

1098, 5498,

and W-2G.

For

Internal Revenue

Service Center

Do Not Cut or Separate Forms on This Page –– Do Not Cut or Separate Forms on This Page

6 Foreign tax paid 7 Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

$

2004

170.00

MIG INC.

4321 Main Street

Anytown, VA 00012

00-0000123 000-00-0128

Alec Green

1234 A Street

Anytown, VA 00013

Exhibit 5 Alec’s Form 1099-DIV
12-14 Lesson 12

PENSION EARNER

June 1

(subject to 

Long-Term Capital Gains and Losses—Assets Held More Than One Year ch

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

Part II

13

9

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

(f) Gain or (loss)

Subtract (e) from (d)

600 sh. ABC 2/19/00 8/25/04 1,200 00 1,455 00 (255 00)

1,200 00

170 00

85 00

Exhibit 6 Alec’s Schedule D, Part II

After Completing Parts I and II of Schedule D

Double-check your entries on Schedule D up to this point.

■ Check that the sales price amount from each Form 1099-B 

agrees with the amount entered in column (d) of either line 1 or 

line 8.

■ Check that all entries in column (d), lines 1 and 2, add up to the 

amount on line 3.

■ Check that all entries in column (d), lines 8 and 9, add up to the 

amount on line 10.

■ Check that line 3, added to line 10, agrees with the total sales 

price reported on all of the taxpayer’s Forms 1099-B.

■ Check that the amount on line 13, column (f), is the same as the 

total from all the taxpayer’s Forms 1099-DIV, box 2a.
Lesson 12 12-15

PENSION EARNER

Exercise 3

This exercise will give you practice with Schedule D. Use the following information to complete Parts I and II of Jane’s Schedule D.

Jane sold five stocks during 2004. Her broker reported net proceeds 

as sales price.

Stock

Purchase

Date

Date

Sold

Net Sales

Price

Adjusted

Basis

500 sh LSR 1/21/03 1/4/04 $ 4,000 $ 9,000

250 sh BGI 3/11/03 2/12/04 10,000 2,500

75 sh ABC 1/22/01 1/29/04 2,000 7,500

400 sh XYZ 12/3/99 3/6/04 15,000 10,000

100 sh DEF 4/2/99 10/16/04 1,200 2,000

Jane also owns shares in a mutual fund that sent her a Form 1099-

DIV. It reported $1,200 paid to her in total capital gain distributions 

for the year.
12-16 Lesson 12

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

7

(f) Gain or (loss)

Subtract (e) from (d)

Exhibit 7

Complete Parts I and II of Jane’s Schedule D.
Lesson 12 12-17

PENSION EARNER

Part III: Summary of Parts I and II

Combine the amounts from line 7 (net short-term capital gain or 

loss) and line 15 (net long-term capital gain or loss). Enter the 

result on line 16 in Part III. This combined number may be a gain 

or a loss.

■ If the line 16 amount is a gain, also enter it on line 13 of 

Form 1040.

■ If the line 16 amount is a loss, skip to line 21 of Schedule D. 

Line 21 ensures that no more than the maximum allowable 

capital loss is deducted on Form 1040. The line 21 amount is 

limited to the smaller of:

■ The loss from line 16 or

■ $3,000 ($1,500 for a married taxpayer filing separately).

Also enter this amount on line 13 of Form 1040. Because it is a loss, 

be sure to put parentheses around the number when you enter it 

on Form 1040.

Tax Computation using either Qualified Dividends and Capital Gain 

Tax Worksheet or the Schedule D Tax Worksheet 

The law limits tax rates on net long-term capital gains. To obtain 

the lowest rate, taxpayers with long-term capital gains must go 

to Schedule D Tax Worksheet to figure their tax. To determine 

whether you need a worksheet, complete Form 1040 through line 

42, Taxable Income. Then go to the appropriate worksheet when:

■ Both lines 15 and 16 of Schedule D are gains, and

■ Form 1040, line 42, is more than zero.

Example 9

Edmund’s tax return shows:

 Filing status: Form 1040, line 1 box checked, single.

 Amount from: Form 1040, line 42: $65,001

 Schedule D, line 7: (5,000)

 Schedule D, line 15: 16,000

 Schedule D, line 16: 11,000

 (Transferred to Form 1040, line 13.)

There is capital gain on Schedule D, line 15, and Form 1040, 

line 42, is more than zero.

Exhibits 8 and 9 show Edmund’s Schedule D Part III, his Qualified 

Dividends and Capital Gain Tax Worksheet, and his Form 1040, 

lines 13 and 42. His tax is $11,894. Without Schedule D, his tax 

from the Tax Table would be $12,994. Using Schedule D saved 

Edmund $1,100.
12-18 Lesson 12

PENSION EARNER

Exhibit 8 Edmund’s Schedule D, Part III

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.
Lesson 12 12-19

PENSION EARNER

Exhibit 9 Edmund’s Schedule D, Part III

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

Need more information or forms? See page 7. - 34 -

65,001.00

✘

11,000.00

11,000.00

11,000.00

54,001.00

29,050.00

✘

✘ 11,000.00

11,000.00

1,650.00

10,244.00

11,894.00

12,994.00

11,894.00
12-20 Lesson 12

PENSION EARNER

Exhibit 10 Edmund’s Form 1040, Lines 12 and 42.

y

12 Business income or (loss). Attach Schedule C or C-EZ 12

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 of

4

line 6d. If line 37 is over $107,025, see the worksheet on page 35

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 Tax (see page 36). Check if any tax is from: a Form(s) 8814 b Form 4972 43

11,000 00

11,894 00

65,001 00

Exercise 4

Melvin sold the following stocks during 2004. His broker reported 

net sales proceeds on Form 1099-B.

Stock

Purchase

Date

Date

Sold

Net Sales

Price

Adjusted

Basis

50 sh ABC 9/15/03 7/26/04 $ 4,000 $5,000

200 sh MLG 9/10/03 6/7/04 1,200 1,000

150 sh XYZ 4/17/02 3/8/04 5,500 6,000

300 sh MLS 1/13/98 6/19/04 6,000 3,000

Melvin also had shares in a mutual fund. The fund sent him a Form 

1099-DIV that showed he received $1,500 in total capital gain distributions. His taxable income (line 42, Form 1040) was $67,001. His 

fi ling status is single.

Use the information given to complete Melvin’s Schedule D.

What amounts would be shown on his:

(A) 1. Form 1040, line 13? 

 2. Form 1040, line 42? 

 
Lesson 12 12-21

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment

 Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)

Exhibit 11 

(B) Complete this form. Schedule D, page 1
12-22 Lesson 12

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.

Exhibit 12 

(C) Complete this form. Schedule D, page 2

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

Exhibit 13 
Lesson 12 12-23

PENSION EARNER

Capital Loss Carryovers

Use the Capital Loss Carryover Worksheet in the Schedule D 

instructions to figure how much capital loss the taxpayer can carry 

from 2004 to 2005. As you learned earlier, a taxpayer cannot take 

net losses of more than $3,000 ($1,500 for married taxpayers filing 

separately) in figuring taxable income. The allowable loss for the 

year is also referred to as the deduction limit.

Unused losses are not gone forever. Rather, they are carried over 

to the next year. The carryover losses are combined with the gains 

and losses that actually occur in that next year. Unused losses are 

recycled this way, year after year, until they are all deducted. There 

is no limit on how many times a loss can be carried over during the 

taxpayer’s life.

Unused losses keep their short-term or long-term classification 

when they are carried over. If the taxpayer has a short-term capital loss carryover from 2003, enter it on line 6, Part I, Schedule D. 

Enter it on line 14, Part II, if it is long-term.

NOTE: If a capital loss is limited and the remainder must be carried forward to 2005, remind the taxpayer to bring a copy of the 

2004 return for 2005 return preparation.

Example 10

Andrew sold two stocks in 2004, as summarized here.

Stock 

Purchase

Date

Date

Sold

Net Sales

Price

Adjusted

Basis

200 sh FFF 5/8/03 1/6/04 $ 4,000 $ 3,025

50 sh WWW 11/6/00 3/12/04 8,700 11,000

Andrew’s 2003 return showed the following capital loss carryovers 

to 2004: a $4,200 short-term loss (line 8 of the 2002 Capital Loss 

Carryover Worksheet) and a $240 long-term loss (line 13 of the 2003 

worksheet). His 2004 Form 1040, line 42, shows $55,825.

Andrew’s Schedule D, Parts I through III, his 2004 Form 1040, line 

13, and his 2003 Capital Loss Carryover Worksheet appear below as 

Exhibits 12 through 15. This example shows how to:

■ Report a capital loss carryover from 2003 and work it into the 

computation on Schedule D as if it had resulted from a 2004 

sale. This example shows both a short-term loss (reported on 

Schedule D, Part I, line 6) and a long-term loss (reported on 

Schedule D, Part II, line 14).

TAX TIPS

★★★★★★★★

It is easy to double 

check the carryover 

from 2004 to 2005. Take 

as much as possible of 

the $3,000 (or $1,500) 

deduction from shortterm capital losses 

fi rst. Then take any 

remaining amount of 

the $3,000 (or $1,500) 

from long-term capital 

losses. What is left is 

the carryover to 2005.
12-24 Lesson 12

PENSION EARNER

■ Combine a short-term capital loss and a long-term capital loss 

and apply the deduction limit ($3,000 for Andrew). Andrew 

reports the combined long-term and short-term loss on Schedule 

D, Part III, line 16. Line 21 applies Andrew’s deduction limit, his 

allowable loss for the year.

■ Show the allowable loss for the year ($3,000 for Andrew) in the 

Income section of Form 1040.

■ The Capital Loss Carryover Worksheet was being revised and 

not available for this publication. See the Schedule D instructions for additional detail on Carryover Losses from 2004 to 

2005.
Lesson 12 12-25

PENSION EARNER

Exhibit 14 Andrew’s Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment

 Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)

200 sh. FFF 5/8/03 1/6/04 4,000 00 3,025 00 975 00

4,200 00

(3,225 00)

50 sh. WWW 11/6/00 3/12/04 8,700 00 11,000 00 (2,300 00)

8,700 00

240 00

(2,540 00)

4,000 00
12-26 Lesson 12

PENSION EARNER

12 Business income or (loss). Attach Schedule C or C-EZ 12

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

If did 14

(3,000 00)

Exhibit 16 Andrew’s Form 1040, line 13

Exhibit 17 Andrew’s Capital Loss Carryover Worksheet

Exhibit 15 Andrew’s Schedule D, Part III

oof as of

2004

ge)

Schedule D (Form 1040) 2004

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

(5,765 00)

(3,000

Proof as

June 18, 200

(subject to cha

Capital Loss Carryover Worksheet—Line 18 ngKeep for Your Records

Use this worksheet to figure your capital loss carryovers from 2003 to 2004 if Schedule D, line 18, is a loss and (a) that loss is a

smaller loss than the loss on Schedule D, line 17, or (b) Form 1040, line 39, is less than zero. Otherwise, you do not have any

carryovers.

1. Enter the amount from Form 1040, line 39. If a loss, enclose the amount in parentheses .................. 1.

2. Enter the loss from Schedule D, line 18, as a positive amount .................................... 2.

3. Combine lines 1 and 2. If zero or less, enter -0- .............................................. 3.

4. Enter the smaller of line 2 or line 3 ...................................................... 4.

If line 7 of Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9.

5. Enter the loss from Schedule D, line 7, as a positive amount ..................................... 5.

6. Enter any gain from Schedule D, line 16 .................................... 6.

7. Add lines 4 and 6 .................................................................. 7.

8. Short-term capital loss carryover to 2004. Subtract line 7 from line 5. If zero or less, enter -0- ............ 8.

If line 16 of Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13.

9. Enter the loss from Schedule D, line 16, as a positive amount .................................... 9.

10. Enter any gain from Schedule D, line 7 .................................... 10.

11. Subtract line 5 from line 4. If zero or less, enter -0- ............................ 11.

12. Add lines 10 and 11 ................................................................. 12.

13. Long-term capital loss carryover to 2004. Subtract line 12 from line 9. If zero or less, enter -0- ........... 13.

55,825.00

3,000.00

58,825.00

3,000.00

3,225.00

3,000.00

225.00

2,540.00

2,540.00

00)
Lesson 12 12-27

PENSION EARNER

Exercise 5

This exercise and the next one review the concepts covered in this 

lesson. They will measure your ability to apply what you have 

learned.

Matthew has a Form 1099-B from Broker One, who reported gross

proceeds:

Stock Date Sold Sales Price

100 sh MNO 2/8/04 $5,050

500 sh ZYX 8/7/04 $5,250

Broker One reported sales commissions to Matthew separately. 

They were:

 MNO: $50 ZYX: $200

Matthew also has a Form 1099-B from Broker Two, who reported 

net proceeds:

Stock Date Sold Sales Price

200 sh BCA 8/7/04 $4,000

300 sh JKL 8/7/04 $5,910

Matthew gave you the following information about the stocks he 

sold:

■ He paid $6,940, plus a $60 commission, to buy the MNO stock on 

February 9, 2003.

■ He bought the ZYX on March 11, 2001, for $5,200, plus a $100 

commission.

■ He paid $3,900, plus a $50 commission, to buy the BCA stock on 

January 29, 2004.

■ He bought the JKL on June 26, 2002, for $6,300, plus a $30 

commission.

Matthew’s filing status is head of household. His Form 1040, line 

42, shows $55,282. When you look at Matthew’s Form 1040 and 

Capital Loss Carryover Worksheet from 2003, you see that he has 

a $450 short-term loss and a $325 long-term loss that he can carry 

over to his 2004 return.

Use this information to complete Matthew’s Schedule D, Parts I, II, 

and III, and his Form 1040, line 13, for 2004. 
12-28 Lesson 12

PENSION EARNER

Exhibit 18

(A) Complete this form. Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment  Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)
Lesson 12 12-29

PENSION EARNER

oof as of

8 2004

ge)

Schedule D (Form 1040) 2004

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Exhibit 19 

(B) Complete this form. Schedule D, Part III

Exhibit 20

(C) Complete this line on Matthew’s Form 1040. Form 1040, line 13

12 Business income or (loss). Attach Schedule C or C EZ

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14
12-30 Lesson 12

PENSION EARNER

Exercise 6

Katherine has two Forms 1099-B. They show:

From Broker No. 1 ( gross proceeds reported):

Stock Date Sold Sales Price

100 sh LMN 4/20/04 $3,000

50 sh PQR 4/17/04 2,600

500 OLE 6/17/04 7,800

Expenses for selling the stock through Broker No. 1 (reported to 

Katherine separately from Form 1099-B) were:

On the sale of: LMN stock: $175 PQR stock: $105 OLE: $590

From Broker No. 2 (net proceeds reported):

Stock Date Sold Sales Price

75 sh ABC 1/24/04 $2,500

125 sh XYZ 3/22/04 6,000

Katherine gave you the following information about these stocks:

■ She bought 100 shares of LMN stock on March 6, 2000, for 

$12.50 a share ($1,250), plus a 10% broker’s commission ($125).

■ She bought 200 shares of PQR stock on January 8, 2004, for $14 

a share ($2,800), plus a 10% broker’s commission ($280).

■ Katherine bought OLE stock on two dates. On November 27, 

2000, she bought 800 shares for $10 a share ($8,000), plus 10% 

broker’s commission ($800). On March 6, 2003, she bought 600 

more shares for $18 a share ($10,800), plus a 10% broker’s commission ($1,080). When Katherine sold 500 shares of OLE in 

2003, she did not specify which block they came from.

■ Katherine bought 100 shares of ABC on October 15, 1999, for 

$72 a share ($7,200), plus a 5% broker’s commission ($360). On 

May 8, 2000, the stock split two-for-one, so Katherine owned 

200 shares after the split.

■ She bought 125 shares of XYZ stock on October 26, 2003, for 

$74 a share ($9,250), plus a broker’s commission of $250.

Katherine also gave you a Form 1099-DIV from the Acme Mutual 

Fund. It showed $1,050 in total capital gain distributions. From 

Katherine’s tax return and worksheets for last year (2003), you 

found she has a $150 long-term capital loss carryover from 2003 to 

2004.

Complete Katherine’s Schedule D, Parts I through III, and her 

Form 1040, lines 13 and 43. She is single, and her taxable income 

shown on line 42 of her Form 1040 is $61,221.
Lesson 12 12-31

PENSION EARNER

Exhibit 21 

(A) Complete this form. Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment

 Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)
12-32 Lesson 12

PENSION EARNER

Exhibit 22

(B) Complete this form. Schedule D, Part III 

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.
Lesson 12 12-33

PENSION EARNER

Exhibit 23 

Qualified Dividends and Capital Gain Tax Worksheet Form 1040, Line 43

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 43

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

Need more information or forms? See page 7. - 34 -
12-34 Lesson 12

PENSION EARNER

  Summing Up This Lesson  

To figure and properly report a taxpayer’s gain or loss on a sale 

of stock, you need to know:

1. Sales price (reported to the taxpayer and to the IRS on Form 

1099-B),

2. Adjusted basis, and

3. Holding period.

To determine gain or loss, subtract adjusted basis from sales 

price. The holding period determines whether the gain or loss is 

long-term or short-term. Long-term capital gains are generally 

taxed at lower rates than short-term capital gains.

Use Schedule D, Parts I though IV, to figure capital gain or loss 

and the correct tax. Be sure the total sales price you report on 

line 3 plus line 10 of Schedule D is the same as the total sales 

price from all the taxpayer’s Forms 1099-B, box 2.

Include capital gain distributions (reported to the taxpayer and 

to IRS on Form 1099-DIV) in the computation of longterm capital gains. Show them on Schedule D, Part II, line 13. Report capital gains distributions directly on Form 1040, line 13 (or on Form 

1040A, line 10), if a Schedule D is not required to be completed 

for the gain or loss on a sale of stock.

A taxpayer can deduct up to $3,000 ($1,500 for a married taxpayer filing separately) in net capital loss for the year. The taxpayer can carry over any remaining loss to the next year. If the 

taxpayer has a carryover loss from 2003, include it on Schedule 

D, Part I, line 6, or Part II, line 14. The Capital Loss Carryover 

Worksheet, in the Schedule D instructions, can help you figure 

the carryover amount for 2005. 

Report capital gain or loss on Form 1040, line 13.

Exhibit 24

(C) Complete these lines from Katherine’s Form 1040. Form 1040, lines 13 and 42

( )

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

of

4

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 Tax (see page 36). Check if any tax is from: a Form(s) 8814 b Form 4972 43

44
Lesson 12 12-35

PENSION EARNER

Exercise 1

A. 1. $2,550. [($5,000 + $100) ÷ 1,000] x 500 = $2,550

2. Long-term.

3. $3,255. $3,300 - $45 = $3,255

B. 1. $3,550. $3,500 + $50 = $3,550

2. Short-term.

C. 1. $5,000. [($9,965 + $35) ÷ 200] x 100 = $5,000

2. Long-term.

3. $6,440. $6,470 - $30 = $6,440

Exercise 2

A. 1. Loss.

2. $1,200. $7,800 - [($15,000 ÷ 1,000) x 600] = ($1,200)

3. Short-term.

B. 1. Gain.

2. $450. $2,000 - ($1,500 + $25 + $25) = $450

3. Long-term.

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
12-36 Lesson 12

PENSION EARNER

Exercise 3

Jane’s Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment  Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)

500 sh. LSR

250 sh. BGI

1/12/03

3/11/03

1/4/04

2/12/04

4,000.00

10,000.00

9,000.00

2,500.00

(5,000.00)

7,500.00

14,000.00

2,500.00

75 sh. ABC

400 sh. XYZ

100 sh. DEF

1/22/01

12/3/99

4/2/99

1/29/04

3/6/04

1/16/04

2,000.00

15,000.00

1,200.00

7,500.00

10,000.00

2,000.00

(5,500.00)

5,000.00

(800.00)

18,200.00

1,200.00

(100.00)

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
Lesson 12 12-37

PENSION EARNER

Exercise 4

(A) 1. Form 1040, line 13: $3,200

 2. Form 1040, line 43: $12,766

(B) Melvin’s Schedule D, Page 1

Proof as of

June 18, 2004

(subject to change)

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date acquired

(Mo., day, yr.)

2

9

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

7

(f) Gain or (loss)

Subtract (e) from (d)

50 sh. ABC

200 sh. MLG

9/15/03

9/10/03

7/26/04

6/7/04

4,000.00

1,200.00

5,000.00

1,000.00

(1,000.00)

200.00

5,200.00

(800.00)

150 sh. XYZ

300 sh. MLS

4/17/02

1/13/98

3/8/04

6/19/04

5,500.00

6,000.00

6,000.00

3,000.00

(500.00)

3,000.00

11,500.00

1,500.00

4,000.00

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
12-38 Lesson 12

PENSION EARNER

(C) Melvin’s Schedule D, Page 2

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.

3,200 00

X

X

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
Lesson 12 12-39

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Form 1040—Line 43

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

67,001.00

0.00

✘

3,200.00

3,200.00

0.00

3,200.00

63,801.00

29,050.00

✘

3,200.00

✘

3,200.00

480.00

12,694.00

13,174.00

13,494.00

13,174.00

Qualified Dividends & Capital Gain Tax Worksheet for Melvin 

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
12-40 Lesson 12

PENSION EARNER

Exercise 5

(A) Matthew’s Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

7

(f) Gain or (loss)

Subtract (e) from (d)

100 sh. MNO

200 sh. BCA

2/9/03

1/29/04

2/8/04

8/7/04

7,050 00

4,000 00

5,050 (2000

50

9,050

450

(2,400 00)

00

00

00

00 00)

5,910

5,250

6,330

5,500

11,160

325

(995 00)

00

00

(250 00)

(420 00)

00

00

00

00

3,950 00

500 sh. ZYX

300 sh. JKL

3/11/01

6/26/01

8/7/04

8/7/04

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
Lesson 12 12-41

PENSION EARNER

(B) Matthew’s Schedule D, Part III

Proof as of

e 18, 2004

change)

Schedule D (Form 1040) 2004

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.

(C) Matthew’s Form 1040, Line 13 us ess co e o ( oss) ac Sc edu e C o C

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13 (3,000.00)

(3,395.00)

X

(3,000.00)

X

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
12-42 Lesson 12

PENSION EARNER

Exercise 6

Basis Computations:

LMN:

100 shares bought at $12.50 = $1,250

Commission on purchase = 125

Commission on sale = + 175

Adjusted basis, LMN sold = $1,550

PQR:

200 shares bought at $14 = $2,800

Commission on purchase = + 280

Total paid for purchase = 3,080

Divided by number of shares bought ÷ 200

Per share basis after purchase = 15.40

Times number of shares sold x 50

= 770

Commission on sale = + 105

Adjusted basis, PQR sold $ 875

OLE: Katherine did not specify which block of stock to sell; the 

stocks sold are assumed to be from the block purchased first.

800 shares bought at $10 = $8,000

Commission on purchase = + 800

Total paid for purchase = 8,800

Divided by number of shares bought ÷ 800

Per share basis after purchase = 11

Times number of shares sold x 500

= 5,500

Commission on sale = + 590

Adjusted basis, OLE sold $6,090

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
Lesson 12 12-43

PENSION EARNER

ABC:

100 shares bought at $72 = $7,200

Commission on purchase = + 360

Total paid for purchase = 7,560

Divided by number of shares Katherine 

held after the two-for-one split

÷ 200

Per share basis after the split = 37.80

Times number of shares sold = x 75

Adjusted basis, ABC sold = $2,835

XYZ:

125 shares bought at $74 = $9,250

Commission on purchase = + 250

Adjusted basis, XYZ sold = $9,500

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
12-44 Lesson 12

PENSION EARNER

Exercise 6

(A) Katherine’s Schedule D, Parts I and II

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment  Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)

50 sh. PQR

125 sh. XYZ

100 sh. LMN

500 sh. OLE

75 sh. ABC

1/8/04

10/26/03

4/17/04

3/22/04

3/6/00 4/20/04

11/27/00 6/17/04

10/15/99 1/24/04

2,600.00

6,000.00

875.00

9,500.00

1,725.00

(3,500.00)

8,600.00

(1,775.00)

3,000.00 1,550.00 1,450.00

7,800.00 6,090.00 1,710.00

2,500.00 2,835.00

13,300.00

1,050.00

150.00

3,725.00

(335.00)

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
Lesson 12 12-45

PENSION EARNER

(B) Katherine’s Schedule D, Part III

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.

1,950.00

X

X

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

61,221.00

✘

1,950.00

1,950.00

1,950.00

59,271.00

29,050.00

✘

✘ 1,950.00

1,950.00

293.00

11,556.00

11,849.00

12,044.00

11,849.00

 SALE OF STOCK ANSWERS TO EXERCISES Lesson 12
12-46 Lesson 12

PENSION EARNER

(C) Katherine’s Form 1040, lines 13 and 43

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

of

4

,

43 Tax (see page 36). Check if any tax is from: a Form(s) 8814 b Form 4972 43

44

1,950.00

11,849.00

Lesson 12 SALE OF STOCK ANSWERS TO EXERCISES
Notes to

Instructors N-13-1

LESSON OVERVIEW AND OBJECTIVES

This lesson covers the rules that apply to sales of a main home in 

2004. Approximately 3⁄4 to 1 hour should be devoted to covering the 

objectives of this lesson.

■ At the end of this lesson students will be able to identify the 

amount of gain a taxpayer may exclude if a primary residence 

is sold.

TRAINING MATERIALS AND ON-SITE RESOURCE GUIDE

This lesson will refer to the following IRS forms and publications. 

If you would like to provide the students with the most current 

revision of the forms and publications, you can download the files 

from www.irs.gov.

■ Publication 523, Selling Your Home

■ Form 1099-S, Proceeds from Real Estate Transactions

■ For military returns: Publication 3, Armed Forces’ Tax Guide

■ Publication 4012, Volunteer Resource Guide, is included in 

each student training kit. The publication is designed for both 

classroom and actual site usage. 

TEACHING TIPS

1. Explain to students that this lesson covers the sale of another 

capital asset, a personal (main) home. A taxable gain on such a 

sale must be reported on Schedule D, Capital Gains and Losses.

2. Remind students that it is important to ask the taxpayer all 

relevant questions to ensure the sale of the home qualifies for 

the exclusion.

3. Stress to students that the person responsible for closing the 

transaction is generally required to file and furnish Form 

1099-S for all sale transactions, unless the seller provides 

a signed written assurance (certification) that includes the 

necessary information to support the conclusion that the full 

gain on the sale is excludable from the seller’s gross income. A 

list of transactions that are not reportable are covered in the 

Instructions for Form 1099-S.

4. Some taxpayers may be reluctant to provide the information 

that a volunteer needs to determine whether a home is a main 

home. The volunteer should explain to the taxpayer that he or 

she needs this information to make sure the taxpayer does not 

pay unnecessary tax on capital gains from the sale of his or her 

home. Remind volunteers to get to know the taxpayers first, 

before asking questions of a personal nature. 

SALE OF HOME NOTES TO INSTRUCTORS Lesson 13
Notes to N-13-2 Instructors

5. Explain to students that if a taxpayer sold a main home in 2004 

that was used as rental property or partly for business, he or 

she must report the taxable gain on the sale of the home on his 

or her tax return. A taxpayer in this situation should seek the 

assistance of a paid professional tax preparer.

6. Caution students that many different situations may occur 

when taxpayers sell their main home. They must listen carefully to the taxpayer as well as ask probing questions to get all 

the relevant information regarding the sale.

7. Remind volunteers how important it is to avoid overly 

complicated tax returns. If a volunteer does not feel qualified to 

deal with a particular sale of home situation, or if the taxpayer 

is only eligible for partial gain exclusion, the volunteer should 

suggest that the taxpayer see a paid professional tax preparer.
Lesson 13 13-1

PENSION EARNER

 SALE OF HOME Lesson 13

INTRODUCTION AND OBJECTIVES

Introduction

This lesson discusses the tax rules that apply when 

a taxpayer sells his or her main home in 2004. The 

taxpayer’s main home is the one in which he or she 

lives most of the time.

A taxpayer does not need to report the sale of his or 

her main home on his or her tax return if the gain 

on the sale is less than or equal to an exclusion

amount (discussed later). Generally, a taxpayer who 

meets the ownership and use tests, discussed later, 

can generally exclude from income a gain of up to 

$250,000 ($500,000 if married filing jointly) on a sale 

of a main home.

This lesson does not cover the sale of a main home 

used as rental property or partially for business. 

Objective

■ At the end of this lesson you will be able to determine the amount of gain a taxpayer may exclude if 

a primary residence is sold.

MAIN HOME

Only the gain from the sale of the taxpayer’s main 

home is eligible for the rules discussed in this lesson. 

If a home that is not the taxpayer’s main home is sold 

during the year, the gain generally will have to be 

reported as income. Any gain that must be reported 

as income is reported on Schedule D ( Form 1040), 

Capital Gains and Losses. A clear understanding of 

what is an individual’s main home is very important.

A main home is where the taxpayer lives most of the 

time. The home does not necessarily have to be a house. 

A houseboat, a mobile home, a cooperative apartment, 

or a condominium (house or apartment) may also 

qualify as a main home. A taxpayer’s main home is 

not necessarily a home that is owned by the taxpayer. 

A rented home or apartment may be a main home. 

Taxpayers cannot choose which home to designate as 

their main home. Facts and circumstances determine 

which home is the main home.
13-2 Lesson 13

PENSION EARNER

If a taxpayer has more than one home, it is necessary to determine 

which home he or she lives in most of the time. In many cases the 

taxpayer owns a single home in which he or she lives all the time. 

You must be sure that the owner of a single home also meets the 

requirement of living in the home most of the time. If not, it cannot 

be considered the main home.

Never assume that the house sold during the year was the 

taxpayer’s main home, even if the house was the only one owned 

by the taxpayer. Be sure to check that the house was, in fact, the 

individual’s main home.

Example 1

Lucille owns a home in a Colorado ski area (the ski home). She 

stays at the ski home most weekends and spends the entire months 

of December, January, and February there. When she is not at the 

ski home, she lives in a four-room apartment that she rents in 

Denver. For over half the year, she lives in Denver. Lucille’s main

home is her rental apartment in Denver, because she lives there 

most of the time. This is so even though she does not own the 

apartment in Denver.

GAIN ON SALE OF MAIN HOME

To figure the gain (or loss) on the sale of the taxpayer’s main home, 

you must know the selling price, the amount realized, and the 

adjusted basis.

 Selling price

The selling price is the total amount the taxpayer (seller) received 

for his or her main home. It includes money, all notes, mortgages, 

or other debts taken over by the buyer as part of the sale, and the 

fair market value of any other property or services that the seller 

received.

Form 1099-S

If the taxpayer received Form 1099-S, Proceeds From Real Estate 

Transactions, box 1 shows the date of sale (closing) and box 2 shows 

the gross proceeds received from the sale of his or her main home. 

If the taxpayer can exclude the entire gain from a sale in 2004, the 

person responsible for closing the sale (for example, a real estate 

broker or settlement agent) generally will not have to report it on 

Form 1099-S.

Example 1

Joe and Sarah Blackhawk sold their main home on July 7, 2004. 

They will not be able to exclude the entire gain from income (they 

had paid $200,000 for the home; their gain exceeds $500,000). The 

Lincoln Title Company provided them with a Form 1099-S (Exhibit 1).
Lesson 13 13-3

PENSION EARNER

Exhibit 1 - Blackhawk 1099-S

CORRECTED (if checked)

Copy B

This is important tax

information and is being

furnished to the Internal

Revenue Service. If you

are required to file a

return, a negligence

penalty or other

sanction may be

imposed on you if this

item is required to be

reported and the IRS

determines that it has

not been reported.

(keep for your records)

For Transferor

OMB No. 1545-0997

Proceeds From Real

Estate Transactions

FILER’S Federal identification number TRANSFEROR’S identification number

Gross proceeds

1 Date of closing

TRANSFEROR’S name

Address or legal description

Street address (including apt. no.)

City, state, and ZIP code Transferor received or will receive property or services

as part of the consideration (if checked) 

Account or escrow number (optional)

Form 1099-S Department of the Treasury - Internal Revenue Service

FILER’S name, street address, city, state, ZIP code, and telephone no.

2

3

4

$ Form 1099-S

5 Buyer’s part of real estate tax

$

2004 LINCOLN TITLE COMPANY

123 LINCOLN AVE

YOUR CITY, STATE ZIP

XX-XXXXXXX XXX-XX-XXXX

JOE AND SARAH BLACKHAWK

91 YALE DR

YOUR CITY, STATE ZIP

7-7-04

789,000.00

84 NORTHEAST ST

YOUR CITY, STATE ZIP

Amount realized

The amount realized is the selling price minus selling expenses.

Selling expenses

Selling expenses include commissions, advertising fees, legal fees, 

and loan charges paid by the seller, such as points. 

Adjusted basis

While the taxpayer owned his or her main home, he or she may 

have made adjustments (increases or decreases) to the basis.

This adjusted basis is used to figure gain or loss on the sale of the 

taxpayer’s main home.

Amount of gain (or loss)

When you know the amount realized and the home’s adjusted

basis, you can figure the taxpayer’s gain or loss. If the amount

realized is more than the adjusted basis, the difference is a gain 

and the taxpayer may be able to exclude all or part of it. If the 

amount realized is less than the adjusted basis, the difference is a 

loss. A loss on the sale of the taxpayer’s main home cannot be 

deducted.
13-4 Lesson 13

PENSION EARNER

AMOUNT OF EXCLUSION

A single homeowner can generally exclude up to $250,000 of gain 

from the sale of a main home. A married couple can exclude up to 

$500,000 if they meet all of the following conditions.

1. They filed a joint return.

2. Either spouse or both meet the ownership test.

3. Both individuals meet the use test.

4. Neither individual excluded gain in the 2 years before the 

current sale of the home (not counting any sales before 

May 7, 1997).

For married individuals filing jointly if either spouse does not 

satisfy all these requirements, the maximum exclusion that can 

be claimed by the couple is the total of the maximum exclusion 

that each spouse would qualify for if not married and the amounts 

were figured separately. For this purpose, each spouse is treated as 

owning the property during the period that either spouse owned 

the property.

OWNERSHIP AND USE TESTS

The exclusion is allowed each time a taxpayer sells or exchanges 

his or her main home, but generally no more than once every 2 

years. To be eligible, the property must have been:

1. Owned by the taxpayer for a combined period of at least 2 years 

out of a 5-year period ending on the date of sale (the ownership 

test).

2. Lived in as the taxpayer’s main home for at least 2 years of that 

5-year period (the use test).

Period of ownership and use

The required 2 years of ownership and use do not have to be 

continuous. The taxpayer meets the tests if the taxpayer can show 

that he or she owned and lived in the property as his or her main

home for either 24 full months or 730 days during the 5-year 

period. Short temporary absences, even if the property is rented 

during those absences, are counted as periods of use.

Ownership and use tests can be met during different 2-year 

periods. However, a taxpayer must meet both tests during the 

5-year period ending on the date of the sale.

POTENTIAL

PITFALLS

A taxpayer who 

used his or her main 

home for business 

should seek the 

assistance of a 

paid professional 

preparer.

POTENTIAL

PITFALLS

There are exceptions 

to the ownership 

and use tests. Sales 

due to a change in 

employment location, 

health issues, 

or unforeseen 

circumstances

may qualify for an 

exception. These 

taxpayers should 

seek the assistance 

of a paid preparer.
Lesson 13 13-5

PENSION EARNER

Example 2

In 1996, Helen Jones lived in a rented apartment. The apartment 

building was later changed to a condominium, and she bought her 

apartment on December 1, 2001. In 2002, Helen became ill and on 

April 14 of that year she moved in to her daughter’s home. On July 

10, 2004, while still living in her daughter’s home, she sold her 

apartment.

Helen can exclude all the gain on the sale of her apartment because 

she met the ownership and use tests. Her 5-year period is from 

July 11, 1999, to July 10, 2004, the date she sold the apartment. 

She owned her apartment from December 1, 2001, to July 10, 2004 

(over 2 years). She lived in the apartment from July 11, 1999 (the 

beginning of the 5-year period), to April 14, 2002 (over 2 years).

Reduced Exclusion

If the property was owned and used as a main home for less than 

2 years, a taxpayer may be able to claim a reduced exclusion. If 

this situation applies to a taxpayer, he or she should consult a paid 

preparer.
13-6 Lesson 13

PENSION EARNER

Exercise 1

John is single and sold his home in July 2004, for $300,000. The 

amount he realized from the sale was $297,500. His adjusted

basis in the home was $255,500. Assuming he meets the ownership and use tests,

a. What is the amount of the gain?

b. What is his exclusion amount?

Exercise 2

Tim owns two homes. One residence is located in St. Louis where 

he works and the other is located in a resort area approximately 

100 miles away. Tim lives in his St. Louis home during the week 

(Monday through Friday) and travels to his weekend home for 

Saturday and Sunday. His office allows him to work from home 

so approximately 2 months of the year he works from his weekend home. Which home is his main home?

 TAXWISE HINTS

If a gain on the sale of a main home must be reported on the 

taxpayer’s Form 1040. Link to a Schedule D, enter the description 

of property, and complete the remaining entries annotated in red. 

The software will calculate the gain and carry the calculation to the 

Form 1040.

  SUMMING UP THIS LESSON  

In this lesson you have learned about the rules that apply to 

homeowners who sell or exchange their principal residence.
Lesson 13 13-7

PENSION EARNER

Exercise 1a. $42,000 ($297,500 minus $255,500)

 1b. $42,000

Exercise 2. His main home is the St. Louis residence.

 SALE OF HOME ANSWERS TO EXERCISES Lesson 13
13-8 Lesson 13

PENSION EARNER

STUDENT NOTES
Notes to

Instructors N-14-1

LESSON OVERVIEW AND OBJECTIVES

This lesson will explain the concept of taxable and nontaxable 

retirement income. The lesson covers three types of retirement 

income: pensions, annuities and social security. This lesson can be 

completed in 2 to 3 hours. See the Suggested Class Schedules in 

Appendix B for additional information.

After completing this lesson, each student should be able to:

■ Determine the taxable portion of different types of retirement 

income.

■ Report retirement income on the tax return.

■ Explain when a minimum distribution is required.

■ Determine when an adjustment to withholding should be made.

TRAINING AND SITE RESOURCE GUIDE

This lesson will refer to forms that are used to report pension and 

annuity income. If you would like to provide your students with 

the most current revision of the Forms, you can download the files 

from www.irs.gov. (Forms RRB-1099, RRB-1099-R, CSA 1099 and 

SSA-1099 are not available at this site.)

You may also find the following publications helpful as you prepare 

your lesson. You can download a copy of the following publications 

from www.irs.gov.

■ Publication 575, Pension and Annuity Income

■ Publication 590, Individual Retirement Arrangements

■ Publication 721, Tax Guide to U.S. Civil Service Retirement 

Benefits

■ Publication 915, Social Security and Equivalent Railroad 

Retirement Benefits

Publication 4012, VITA/TCE Quick reference Guide, is included 

in each student training kit. The publication is designed for both 

classroom and actual site usage. Make sure the student is aware 

of the content and how to use the publication.

Remind volunteers how important it is to avoid overly complicated 

tax returns. If a volunteer does not feel qualified to deal with a particular pension situation, or if the taxpayer needs to compute the 

General Rule, the volunteer should suggest that the taxpayer see a 

paid professional tax preparer.

PENSIONS NOTES TO INSTRUCTORS Lesson 14
Notes to N-14-2 Instructors

For additional information about this topic see the applicable 

chapters of the Publication 17, Your Federal Income Tax (For 

Individuals).

TEACHING TIPS AND GUIDED QUESTIONS

To help you teach this lesson, we are providing you with the following teaching tips. The tips are divided into sections that correspond 

with the student text.

Guided questions can be a tool for you to get information about how 

well your students understand the tax rules that you have covered. 

The guided questions are associated with the related teaching tips. 

It is always best to avoid asking a specific student to answer the 

question unless you have arranged this in advance. You could have 

the students answer the questions on index cards and then anonymously hand in their cards. You could use the answers on the cards 

to continue your discussion of the tax rules.

Teaching Tips – Introduction and Objectives

■ Start your lesson on time. If you have a short story to tell about 

pension and annuity income, you can share it as an opener. Be 

careful to not offend anyone with your comments.

■ Suggest that the students have their Publications 678 available 

during this lesson.

■ Inform students that this lesson will not cover all of the possible 

retirement income scenarios. Remind volunteers how important 

it is to avoid overly complicated tax returns. If a volunteer does 

not feel qualified to deal with a particular pension situation, the 

volunteer should seek assistance from the site coordinator. If 

the taxpayer’s situation is beyond the volunteer program scope, 

suggest that the taxpayer see a paid tax preparer.

■ Review the objectives with the students.

Teaching Tips – Asking the Right Questions

■ Effective interviewing is essential to the completion of an 

accurate return.

■ If you have the time, ask students to suggest questions that 

they might need to ask about retirement income. Record their 

answers on a chalkboard or overhead projector. Or, you can ask 

someone to be the scribe and write down the responses. Provide 

a copy of the suggestions to all of the students.
Notes to

Instructors N-14-3

Teaching Tips – Pensions and Annuities

■ Review the section with the students and reassure them that 

the types of income will be covered more thoroughly as they go 

through the lesson.

■ Alert students that taxpayers sometimes bring several years 

of 1099s with them. The volunteer should always sort out the 

current year forms from the prior year forms.

Teaching Tips – Pensions and Annuities – Fully or Partially Taxable

■ Review the section with the students and point out:

■ A fully taxable pension is reported on line 16b, Form 1040 or 

line 12b Form 1040A.

■ Military pensions are usually fully taxable. Note the exception for contributions to a Thrift Savings Plan while in a 

combat zone.

Teaching Tips – Determining Taxable Retirement Income

■ If you need additional resources to prepare to teach this 

segment of the lesson, you can consult Publication 575, Pension 

and Annuity Income.

■ Remind students that the Simplified Method Worksheet does 

not have to be completed unless the tax-free portion of the 

retirement benefit is not known.

Teaching Tips – Reporting Retirement Income

Students may wonder why it is important to get the retirement 

income on the correct line of the tax return. The IRS receives copies 

of the 1099s that are issued to the taxpayers. If the 1099-R reports 

that the taxpayer had an IRA distribution but the preparer mistakenly puts the amount on the pension income line, the IRS may 

send a letter to the taxpayer asking why they didn’t report the IRA 

distribution.

Retired Civil Service employees may come to the site with a Form 

CSA 1099-R or a Form CSF 1099-R. These forms are used to report 

retirement benefits and withholding. For additional information 

on these forms, see Publication 721, Tax Guide to U.S. Civil Service 

Retirement Benefits.

Guided Questions – Reporting Retirement Income

How would you compute taxable pension income for a 

taxpayer who has more than one pension or annuity?

The taxable part of each pension or annuity should be computed 

separately and only the totals should be entered on the proper 

lines of Form 1040 or Form 1040A.
Notes to N-14-4 Instructors

Teaching Tips – Disability Pension Income

■ Review Example 3 with the students.

Teaching Tips – Lump-sum Distributions

■ Stress that if the plan participant was born after January 2, 

1936, the special elections mentioned in this section do not 

apply. 

Guided Questions – Lump-sum Distributions

How can you determine whether a taxpayer has been paid 

a lump-sum distribution of his or her pension?

Lump-sum distributions are reported on Form 1099-R. A check 

in box 2b, Total distribution, indicates that it is a lump-sum 

distribution.

Teaching Tips – Minimum Distributions

■ Review the “required beginning date” section with the students. 

■ Remind students that some employer-sponsored pension plans 

may require the taxpayer to start taking distributions earlier

than the “required beginning date” mentioned in this section.

Guided Questions – Minimum Distributions

By what date, and at what age, is a taxpayer required to 

receive minimum distributions?

For traditional IRAs, taxpayers must receive minimum distributions by April 1 of the year following the calendar year in which 

they turn 70 1⁄2 years old. Generally, for all other retirement plans 

discussed in this lesson, a taxpayer who is still working at age 701⁄2 

can postpone receiving distributions until April 1 of the year after 

he or she retires.

Teaching Tips – Railroad Retirement Benefits

■ If your site serves a significant number of railroad retirees, you 

may want to review the discussion of railroad retirement benefits in Publications 575 and 915 before you teach this section.

Teaching Tips – Social Security and Tier 1 Railroad Retirement 

Benefits

■ Remind the students that taxpayers whose total income is less 

than the base amount will not have taxable benefits.

■ Lump-sum benefits may require the assistance of a paid preparer.
Notes to

Instructors N-14-5

Guided Questions – Social Security and Tier 1 Railroad Retirement

Are social security benefits always nontaxable?

No; some taxpayers have to include part of their social security 

benefits in taxable income.

What is the maximum amount of social security benefits 

that is subject to tax?

The taxable portion of social security benefits is never more than 

85 percent of the net benefits.

If some of a taxpayer’s social security benefits are taxable, 

can he or she have tax withheld on the taxable portion?

Yes; taxpayers may elect to have taxes withheld on their social 

security benefits.

To make this choice, taxpayers will have to fill out Form W-4V, 

Voluntary Withholding Request, or equivalent, and give it to 

the payer.

Which amounts from the Social Security Benefits Worksheet 

are transferred to Form 1040 or 1040A?

The amounts on lines 1 and 18

What two options can be used to compute the taxable 

portion of lump-sum benefit payments, which could be 

for both the current and prior tax years?

The first option used to compute the taxable portion of lump-sum 

benefit payments is to report the whole payment in 2004, the 

year it was received, and complete the Social Security Benefits 

Worksheet in the usual manner by including the lump-sum payment on line 1. The second option spreads payments back to the 

earlier year(s) and figures taxable benefits based on income from 

the earlier year(s) by using a special procedure. Any part that is 

taxable is then added to any taxable benefits for 2004.

How is a lump-sum death benefit taxed?

Lump-sum death benefits are not subject to tax.

Teaching Tips –IRAs 

■ Remind students that it is important to report the IRA distribution on the correct line on the tax return.

■ Traditional IRAs require a minimum distribution by age 701⁄2.

■ Qualified Roth IRA distributions are not taxable.

■ Roth IRAs do not require a minimum distribution.
Notes to N-14-6 Instructors

Guided Questions – IRAs

What is an IRA?

An IRA is an Individual Retirement Arrangement—any of several 

kinds of tax-sheltered retirement plans set up by the taxpayer.

On what form are IRA distributions reported?

Form 1099-R Distributions From Pensions, Annuities, Retirement 

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Teaching Tips – Pension Withholding and Estimated Tax

■ Pension plan administrators may require the taxpayer to use a 

Form W-4P that is specific to their plan. This is especially true 

with government-related plans.

Guided Questions – Pension Withholding and Estimated Tax

What may occur if a taxpayer does not pay enough tax, 

either through withholding or through estimated tax 

payments?

The IRS may charge the taxpayer interest and a penalty.

REVIEW THE FOLLOWING SUMMARY POINTS WITH YOUR CLASS:

■ Pensions or annuities may have a tax-free portion if the 

taxpayer made after-tax contributions to the plan.

■ Pension money received for disability is treated as wages until 

the taxpayer reaches the minimum retirement age.

■ Federal income tax on pension, annuity, and social security 

income can be withheld by the payer, or the taxpayer may 

choose to pay estimated tax.
Lesson 14 14-1

PENSION EARNER

 PENSIONS Lesson 14

INTRODUCTION AND OBJECTIVES

In this lesson, you will learn about pensions and 

annuities including taxable and nontaxable retirement 

income. Pensions and annuities provide cash payments, 

usually after a person has retired. These payments 

may be for life or for a fixed period of time. They may 

begin at retirement or at a specific age. This lesson

covers pensions, annuities, social security benefits, 

railroad retirement benefits and individual retirement

arrangements.

This lesson will refer to forms that are used to report 

pension and annuity income. The most current version 

of the forms is available at www.irs.gov (Note: Railroad 

Retirement and Social Security forms are not available 

on this site.)

After completing this lesson, you should be able to:

■ Determine the taxable portion of different types of 

retirement income.

■ Report retirement income on the tax return.

■ Explain when a minimum distribution is required.

■ Determine when an adjustment to withholding should 

be made.

Asking the Right Questions

Many of you will use software to complete the tax 

returns for your customers. While the software will do an 

excellent job of calculating the return, you are the key to 

calculating the correct tax treatment of your customer’s 

pension or annuity income. As you work through this 

lesson, note what questions you may need to ask your 

customer. A thorough interview can help eliminate 

common errors.

PENSIONS AND ANNUITIES

Pensions and annuities provide cash payments, usually 

after a person has retired. The payments may be for life 

or a fixed period of time. They may begin at retirement 

or at a specific age.
14-2 Lesson 14

PENSION EARNER

■ A pension is generally a series of definitely determinable payments made to an employee or survivor (the beneficiary of a 

deceased employee’s pension) after the employee retires from 

work. Payments are made regularly and are for past services 

with an employer.

■ An annuity is a series of payments under a contract from an 

insurance company, a trust company, or an individual. Annuity 

payments are made at regular intervals over a period of more 

than one full year.

■ A qualified employee plan is an employer’s stock bonus, 

pension or profit-sharing plan that is for the exclusive benefit 

of employees. The plan must meet Internal Revenue Code 

requirements. Most plans that you will be working with will 

be qualified plans.

■ A 401(k) plan is an arrangement that permits an employee 

to elect to have the employer contribute part of the employee’s 

cash wages to a retirement plan on a pre-tax basis. These 

deferred wages are not subject to income tax withholding at 

the time of deferral. The deferred wages are not reflected on 

Form 1040 since they were not included in taxable wages of box 

1, Form W-2. (However, they are included as wages subject to 

social security, Medicare, and federal unemployment taxes.) 

The most common form used to report pension and annuity 

distributions is Form 1099-R, Distributions from Pensions, 

Annuities, Retirement or Profit-Sharing Plans, IRAs, 

Insurance Contracts etc. This lesson will help you understand 

how to treat the amounts listed on the Form 1099-R.

PENSIONS AND ANNUITIES – FULLY OR PARTIALLY TAXABLE

A pension is fully or partially taxable depending on whether the 

employee contributed to the pension plan. Employee contributions 

are “after-tax” amounts that the employee paid into the pension 

fund. The employer usually deducts the contributions from wages 

and deposits them into the pension fund on behalf of the employee. 

Each year, the employee pays tax on the amount that he or she 

contributed that year. The employee’s contributions are included 

in his or her Form W-2. Employee contributions are often referred 

to as the cost of the pension or as the investment in the annuity 

contract. For pensions discussed here, the employer will also have 

contributed to the pension fund.

■ Fully Taxable Pensions

If a taxpayer receives periodic payments of retirement benefits 

in the form of pension or annuity payments from a qualified 

employer retirement plan, the amounts received may be fully 

taxable or partially taxable. (IRAs, social security, and equivalent railroad retirement benefits are discussed later in this lesson.) Periodic payments are amounts paid at regular intervals 

for a period of time greater than one year.

POTENTIAL

PITFALLS

Retirement

distributions

for civil service 

retirees may appear 

on Form CSA1099. Retirement 

distributions for 

railroad retirees are 

reported on RRB1099 forms (covered 

later in this lesson).
Lesson 14 14-3

PENSION EARNER

 Generally, if the taxpayer did not contribute to the cost of the 

pension plan, the pension benefits received are fully taxable. 

Military pensions are noncontributory and, therefore, fully 

taxable.

 (Note: If the taxpayer participates in the uniformed services 

Thrift Savings Plan, their account may include contributions 

from combat zone pay. This pay is tax-exempt and contributions 

attributable to that pay are tax-exempt when they are 

distributed.)

 Fully taxable pension payments are reported on line 16b, Form 

1040, or line 12b, Form 1040A. You should make no entry on 

16a, Form 1040, or line 12a, Form 1040A.

■ Partially Taxable Pensions and Annuities

 If a taxpayer contributed to a pension plan with after-tax 

dollars while employed, part of the pension received is a return 

of the income taxed in earlier years and, therefore, is nontaxable. If the taxpayer has paid tax on the pension contribution 

(it was included in wages), the amount contributed is not taxed 

again when the pension is received.

For periodic payments that began after 1992, the payer is required 

to enter the taxpayer’s contributions to a profit-sharing or retirement plan, or insurance premiums that the taxpayer may recover 

tax-free this year in box 5, Form 1099-R. 

Example 1 Rudy retired from The Mart in 2002. He started 

receiving pension payments in October, 2002. His 2004 Form 

1099-R shows an amount of $2,043 in box 5. This is the amount of 

his 2004 payments that are considered a recovery of his cost. He 

will not include this portion of the payment in his income.

If the payer is unable to reasonably obtain the data necessary to 

compute the taxpayer’s cost, box 5 can be left blank. 

Exercise 1

Wanda retired from the flour company in 2003. She receives a 

monthly pension of $1,000 from her former employer’s pension 

plan. She shows you her 2004 Form 1099-R. The amount in box 5 

is $892. How much of Wanda’s 2004 distribution is considered a 

recovery of her cost in the plan? ________

In the next section, you will learn how to determine the taxable 

portion of a partially taxable pension or annuity when the payer 

has not determined the taxable portion of the payment. 
14-4 Lesson 14

PENSION EARNER

DETERMINING TAXABLE RETIREMENT INCOME

If the taxpayer has a cost to recover from the pension or annuity plan, he or she can exclude part of each annuity payment from 

income as a recovery of cost, until all of the cost has been recovered. 

The tax-free part of the payment is figured when the annuity starts 

and remains the same each year, even if the amount of the payment changes.

The General Rule for Annuity Payments

Most taxpayers who are covered by a qualified retirement plan will 

no longer be eligible to use the General Rule for annuity payments 

received from the plan. However, if a taxpayer is 75 or over and his 

or her annuity starting date is after November 18, 1996, use the 

General Rule if the payments are guaranteed for at least 5 years. 

Initial calculation of the tax-free portion of a pension under 

the General Rule is beyond the scope of the volunteer program. 

However, volunteers can assist taxpayers who already know the 

amount they can exclude under the General Rule.

The Simplified Method for Figuring Taxable Retirement Income

If the taxpayer’s annuity starting date is after November 18, 1996, 

generally the Simplified Method must be used to figure the taxable 

portion of the pension if the taxpayer participated in a qualified 

plan.

If the payer does not calculate the taxable portion of the distribution, you will need to complete a Simplified Method Worksheet 

if this is the first year of the distribution. The tax-free amount 

remains the same each month, even if the amount of the payment 

changes. 

The Simplified Method Worksheet requires that you figure the 

tax-free part of each annuity payment by dividing the taxpayer’s 

cost (or investment) by the total number of anticipated monthly 

payments. The number of anticipated monthly payments is based 

on the annuitant’s age when the payments start and is determined 

from a table that is included in the worksheet.

Example 2

Peter, age 65, receives retirement benefits under a joint and survivor annuity, to be paid over the joint lives of Peter and his wife, 

Mary, age 62. Peter’s annuity starting date is January 1, 2004. 

He contributed $31,000 to a qualified plan and did not receive 

any distributions before the annuity starting date. Peter receives 

monthly payments of $1,200 and his tax-free monthly amount is 

$100. Mary will receive monthly survivor benefits of $600 upon her 

husband’s death. See Exhibit 1 for a completed Simplified Method 

Worksheet for Peter.
Lesson 14 14-5

PENSION EARNER

Use the Simplified Method for Peter because his annuity starting date is after November 18, 1996, and the payments are from a 

qualified plan. In addition, because his annuity is payable over the 

lives of more than one annuitant, you must combine his age with 

his wife’s age in completing line 3 of the worksheet. 

Proof as of

June 18, 2004

(subject to change)

Simplified Method Worksheet—Lines 12a and 12b Keep for Your Records

Before you begin:  If you are the beneficiary of a deceased employee or former employee who died before August

21, 1996, see Pub. 939 to find out if you are entitled to a death benefit exclusion of up to

$5,000. If you are, include the exclusion in the amount entered on line 2 below.

Note. If you had more than one partially taxable pension or annuity, figure the taxable part of each separately. Enter the total of the taxable

parts on Form 1040A, line 12b. Enter the total pension or annuity payments received in 2004 on Form 1040A, line 12a.

1. Enter the total pension or annuity payments received in 2004. Also, enter this amount on Form 1040A, line 12a ... 1.

2. Enter your cost in the plan at the annuity starting date .............................. 2.

3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after

1997 and the payments are for your life and that of your beneficiary, enter the appropriate

number from Table 2 below ................................................ 3.

4. Divide line 2 by the number on line 3 ......................................... 4.

5. Multiply line 4 by the number of months for which this year’s payments were made. If your

annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8.

Otherwise, go to line 6 .................................................... 5.

6. Enter the amount, if any, recovered tax free in years after 1986 ....................... 6.

7. Subtract line 6 from line 2 ................................................. 7.

8. Enter the smaller of line 5 or line 7 ........................................................ 8.

9. Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, enter this amount on

Form 1040A, line 12b. If your Form 1099-R shows a larger amount, use the amount on this line instead of the

amount from Form 1099-R ............................................................... 9.

Table 1 for Line 3 Above

IF the age at annuity AND your annuity starting date was—

starting date (see before November 19, 1996, after November 18, 1996,

page 24) was . . . enter on line 3 . . . enter on line 3 . . .

55 or under 300 360

56–60 260 310

61–65 240 260

66–70 170 210

71 or older 120 160

Table 2 for Line 3 Above

IF the combined ages at annuity

starting date (see page 24) were . . . THEN enter on line 3 . . .

110 or under 410

111–120 360

121–130 310

131–140 260

141 or older 210

14,400.00

31,000.00

310

100.00

1,200.00

0.00

31,000.00

1,200.00

13,200.00

Exhibit 1 – Peter’s Simplified Method Worksheet
14-6 Lesson 14

PENSION EARNER

After Peter excludes $31,000 from taxable income the rest of his 

retirement benefits will be fully taxable. Because this is a joint and 

survivor annuity, if Peter dies before recovering all of the pension 

cost, his wife will also exclude $100 from her $600 monthly payment until the pension cost is fully recovered. If she dies before 

recovering all of the pension cost, the remaining unrecovered cost 

will be deducted on her final income tax return as a miscellaneous 

itemized deduction on Schedule A (Form 1040) (not subject to the 

2-percent of adjusted-gross-income limitation).

Note: The Simplified Method Worksheet is part of the 1099R input 

screen in the Taxwise® software. Scroll to the bottom of the input 

screen to see the worksheet.

Exercise 2

George, age 65, began receiving pension income under a joint and 

survivor annuity. George’s annuity starting date is January 1, 

2004. George had contributed $26,000 to a qualified plan and had 

received no distribution before 2004. George is to receive a monthly 

retirement benefit of $1,000 and his wife, age 68, is to receive a 

monthly survivor benefit of $500 upon George’s death. Using the 

2004 Form 1099-R (Exhibit 2) for George, complete the Simplified 

Method Worksheet (Exhibit 3).

Exhibit 2 – George’s Form 1099-R

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

THE COMPANY

#1 MAPLE SQUARE

YOUR CITY, STATE, ZIP

12,000.00

✘

XX-XXXXXXX XXX-XX-XXXX

GEORGE LINCOLN

123 CALHOUN AVE

YOUR CITY, STATE, ZIP

7

26,000
Lesson 14 14-7

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Simplified Method Worksheet—Lines 12a and 12b Keep for Your Records

Before you begin:  If you are the beneficiary of a deceased employee or former employee who died before August

21, 1996, see Pub. 939 to find out if you are entitled to a death benefit exclusion of up to

$5,000. If you are, include the exclusion in the amount entered on line 2 below.

Note. If you had more than one partially taxable pension or annuity, figure the taxable part of each separately. Enter the total of the taxable

parts on Form 1040A, line 12b. Enter the total pension or annuity payments received in 2004 on Form 1040A, line 12a.

1. Enter the total pension or annuity payments received in 2004. Also, enter this amount on Form 1040A, line 12a ... 1.

2. Enter your cost in the plan at the annuity starting date .............................. 2.

3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after

1997 and the payments are for your life and that of your beneficiary, enter the appropriate

number from Table 2 below ................................................ 3.

4. Divide line 2 by the number on line 3 ......................................... 4.

5. Multiply line 4 by the number of months for which this year’s payments were made. If your

annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8.

Otherwise, go to line 6 .................................................... 5.

6. Enter the amount, if any, recovered tax free in years after 1986 ....................... 6.

7. Subtract line 6 from line 2 ................................................. 7.

8. Enter the smaller of line 5 or line 7 ........................................................ 8.

9. Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, enter this amount on

Form 1040A, line 12b. If your Form 1099-R shows a larger amount, use the amount on this line instead of the

amount from Form 1099-R ............................................................... 9.

Table 1 for Line 3 Above

IF the age at annuity AND your annuity starting date was—

starting date (see before November 19, 1996, after November 18, 1996,

page 24) was . . . enter on line 3 . . . enter on line 3 . . .

55 or under 300 360

56–60 260 310

61–65 240 260

66–70 170 210

71 or older 120 160

Table 2 for Line 3 Above

IF the combined ages at annuity

starting date (see page 24) were . . . THEN enter on line 3 . . .

110 or under 410

111–120 360

121–130 310

131–140 260

141 or older 210

Exhibit 3 – George’s Simplified Method Worksheet
14-8 Lesson 14

PENSION EARNER

Reporting Retirement Income 

It is important that you enter the retirement income on the correct 

line of the tax return. Tax software will make the correct entries if 

you input the income information correctly.

Type of Retirement Income Form 1040A Line(s) Form 1040 Line(s)

Fully taxable IRA distribution 11b 15b

Nontaxable IRA Rollover 11a & 11b (zero) 15a & 15b (zero)

Fully taxable pension or annuity 12b 16b

Partially taxable pension or annuity 12a & 12b 16a & 16b

Social Security and RRB Tier1

No portion subject to tax

14b (zero) if filing 

separate and did not 

live with spouse

20b (zero) if filing 

separate and did not 

live with spouse

Partially taxable Social Security and 

RRB Tier 1

14a & 14b 20a & 20b

Disability pension income

If the taxpayer retired on disability, he or she generally must 

include in income any disability pension received under a plan 

that is paid for by the employer. Taxable disability payments are 

treated as wages (and entered on line 7 of the Form 1040 or Form 

1040A) until the taxpayer reaches minimum retirement age. The 

minimum retirement age generally is the age at which the taxpayer could first receive a pension or annuity, from that employer, 

if he or she was not disabled. (The payer may report the disability 

income on a Form W-2 or a Form 1099-R with code 3 in box 7.)

Example 3

Jason, age 41, retired on permanent and total disability in August 

due to multiple sclerosis. He received $700 per month (starting 

in August) from a plan that his employer had paid for. Jason had 

received $10,000 in wages from January 1 until his disability 

retirement. Jason will report the following income on line 7 of his 

tax return: 

 Wages $10,000

 Disability (5 x $700) 3,500

 Total $ 13,500

When Jason reaches minimum retirement age, the monthly 

amount will no longer be treated as wages; it will be considered 

pension income. 

Lump-sum Distributions

If the taxpayer received a lump-sum distribution from a qualified 

retirement plan or a qualified retirement annuity and the plan 

participant was born before 1936, the taxpayer may be able to 

elect optional methods of figuring the tax on the distribution. 

These optional methods can be elected only once after 1986 for 
Lesson 14 14-9

PENSION EARNER

any eligible plan participant. If the plan participant was born 

after January 2, 1936, the elections for lump-sum distributions do not apply.

A lump-sum distribution is the distribution or payment within 

one tax year of an employee’s entire balance (less deductible voluntary employee contributions and certain amounts forfeited or 

subject to forfeiture) from all qualified pension, stock bonus, or 

profit-sharing plans that the employer maintains. Usually, lumpsum distributions are reported on Form 1099-R. Some lump-sum 

distributions qualify for special tax treatments. Code A in box 7 of 

the 1099-R indicates that it is a lump-sum distribution and it may 

qualify for special tax treatments. The application of the special tax 

treatment is beyond the scope of the volunteer program. Suggest 

that the taxpayer seek the assistance of a paid preparer.

Minimum Distributions

To make sure that most retirement benefits are paid during the 

taxpayer’s lifetime, rather than to the taxpayer’s beneficiaries, payments from qualified retirement plans (other than Roth IRAs) must 

begin no later than the required beginning date. 

Generally, the required beginning date is April 1 of the year 

following the later of:

■ The calendar year in which the taxpayer reached age 70 1⁄2, or

■ The calendar year in which the taxpayer retired.

By the required beginning date, the taxpayer must either receive 

their entire interest in the plan or begin receiving periodic distributions based on life expectancy. The amount that must be taken out 

is known as the minimum required distribution.

A minimum distribution is:

■ The entire amount in the pension plan, or

■ Regular periodic distributions in an amount large enough to use 

up the entire amount in the pension plan over:

1. The taxpayer’s life expectancy,

2. The joint life expectancies of the taxpayer and a designated 

surviving beneficiary, or

3. A shorter period of time than these life expectancies.

IMPORTANT! If the taxpayer does not receive the minimum 

distribution, an excise tax may be imposed. The tax is 50 percent of 

the difference between the minimum distribution and the amount 

actually distributed for the tax year.
14-10 Lesson 14

PENSION EARNER

Railroad Retirement Benefits and Reporting Forms RRB-1099

Benefits paid under the Railroad Retirement Act fall into two

categories. These categories are treated differently for income 

tax purposes.

1. The first category is the amount of tier 1 railroad retirement 

benefits that equal the social security benefit that a railroad 

employee or beneficiary would have been entitled to receive 

under the social security system. 

 This part of the tier 1 benefit is called the “social security equivalent benefit” and is treated for tax purposes like social security 

benefits. It is shown on the blue part of the Form RRB-1099, 

Payments by the Railroad Retirement Board. Use the amount 

from box 5 of Form RRB-1099.

2. The second category contains the rest of the tier 1 benefits, 

called the “non-social security equivalent benefit,” any tier 

2 benefits, vested dual benefits, and supplemental annuity 

benefits. 

 This category of benefits, shown on Form RRB-1099-R, 

Annuities or Pensions by the Railroad Retirement Board, is

treated as an amount received from a qualified employer plan. 

Vested dual benefits and supplemental annuity benefits are 

fully taxable pensions.

Example 4

David is retired from the Drake Railroad Line. He files Form 1040, 

jointly with his wife Elizabeth. He received a Form RRB-1099 

(Exhibit 4) and a Form RRB-1099-R (Exhibit 5) for 2004. Elizabeth 

also received a Form RRB-1099-R (Exhibit 6). Elizabeth had wages 

of $7,390 (line 7, Form 1040). They had $3,598 of interest income 

(line 8a, Form 1040). They also had ordinary dividends of $2,019 

(line 9a, Form 1040) and $480 (line 13, Form 1040) in capital gain 

distributions.

Since box 3 on the Forms RRB-1099-R is blank, the payments 

shown in box 4 are fully taxable. The amount in box 6 is also fully 

taxable. They will include the $13,544 ($3,054 + $10,490) on line 

16b of their Form 1040.

The Social Security (and Tier 1 Equivalent) Benefits worksheet 

(Exhibit 7) reveals that $613 of the amount on Form RRB-1099 is 

taxable. 
Lesson 14 14-11

PENSION EARNER

 Exhibit 4 – David’s Form RRB-1099

PAYER’S NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-2092

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

1. Claim Number and Payee Code

2. Recipient’s Identification Number

Recipient’s Name, Street Address, City, State, and Zip Code

FORM RRB-1099

2004

3.

Social Security Equivalent Benefit

Portion of Tier 1 Repaid to RRB in 2004

Net Social Security Equivalent Benefit

Portion of Tier 1 Paid in 2004

Workers’ Compensation Offset in 2004

Social Security Equivalent Benefit

Portion of Tier 1 Paid for 2003

Social Security Equivalent Benefit

Portion of Tier 1 Paid for 2002

Social Security Equivalent Benefit

Portion of Tier 1 Paid for Years

Prior to 2000

Federal Income Tax Withheld

PAYMENTS BY THE 

RAILROAD RETIREMENT BOARD

DO NOT ATTACH TO YOUR INCOME TAX RETURN

Gross Social Security Equivalent Benefit

Portion of Tier 1 Paid in 2004

4.

5.

6.

7.

8.

9.

10.

COPY C -

FOR

RECIPIENT’S

RECORDS

THIS

INFORMATION

IS BEING

FURNISHED

TO THE

INTERNAL

REVENUE

SERVICE.

11. Medicare Premium Total

X XXXXXX

XXX-XX-XXXX

DAVID YALE

1900 S STATE ST

YOUR CITY, STATE,ZIP

12,390.00

0.00

12,390.00

0.00

25.00

120.00 799.00

 Exhibit 5 – David’s Form RRB-1099-R

PAYERS’ NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-2092

2004 ANNUITIES OR PENSIONS BY THE

RAILROAD RETIREMENT BOARD

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

FORM RRB-1099-R

COPY B -

REPORT THIS INCOME ON

YOUR FEDERAL TAX

RETURN. IF THIS FORM

SHOWS FEDERAL INCOME

TAX WITHHELD IN BOX 9

ATTACH THIS COPY TO

YOUR RETURN.

THIS INFORMATION IS BEING

FURNISHED TO THE INTERNAL

REVENUE SERVICE.

1.

2.

Claim Number and Payee Code

Recipient’s Identification Number

Recipient’s Name, Street Address, City, State, and ZIP Code

3.

4.

5.

6.

7.

8.

9.

10. 11.

Employee Contributions

Contributory Amount Paid

Vested Dual Benefit

Supplemental Annuity

Total Gross Paid

Repayments

Federal Income Tax

Withheld

Rate of Tax Country 12. Medicare Premium Total

X XXXXXX

XXX-XX-XXXX

DAVID YALE

1900 S STATE ST

YOUR CITY, STATE, ZIP

9,906.00

584.00

10,490.00

0.00

 Exhibit 6 – Elizabeth’s Form RRB-1099-R

PAYERS’ NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-2092

2004 ANNUITIES OR PENSIONS BY THE

RAILROAD RETIREMENT BOARD

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

FORM RRB-1099-R

COPY B -

REPORT THIS INCOME ON

YOUR FEDERAL TAX

RETURN. IF THIS FORM

SHOWS FEDERAL INCOME

TAX WITHHELD IN BOX 9

ATTACH THIS COPY TO

YOUR RETURN.

THIS INFORMATION IS BEING

FURNISHED TO THE INTERNAL

REVENUE SERVICE.

1.

2.

Claim Number and Payee Code

Recipient’s Identification Number

Recipient’s Name, Street Address, City, State, and ZIP Code

3.

4.

5.

6.

7.

8.

9.

10. 11.

Employee Contributions

Contributory Amount Paid

Vested Dual Benefit

Supplemental Annuity

Total Gross Paid

Repayments

Federal Income Tax

Withheld

Rate of Tax Country 12. Medicare Premium Total

X XXXXXX

XXX-XX-XXXX

ELIZABETH YALE

1900 S STATE ST

YOUR CITY, STATE, ZIP

2,470.00

584.00

3,054.00

1,280.00
14-12 Lesson 14

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 20a and 20b Keep for Your Records

Before you begin:  Complete Form 1040, lines 21, 23 through 25, and 28 through 34a, if they apply

to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35

(see page 33).

 If you are married filing separately and you lived apart from your spouse for all

of 2004, enter “D” to the right of the word “benefits” on line 20a.

 Be sure you have read the Exception on page 27 to see if you can use this

worksheet instead of a publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and

Forms RRB-1099 .......................................... 1.

2. Enter one-half of line 1 ...................................................... 2.

3. Enter the total of the amounts from Form 1040, lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17

through 19, and 21 .......................................................... 3.

4. Enter the amount, if any, from Form 1040, line 8b .................................. 4.

5. Add lines 2, 3, and 4 ........................................................ 5.

6. Enter the total of the amounts from Form 1040, lines 23 through 25, and 28 through 34a, plus

any write-in adjustments you entered on the dotted line next to line 35 ................... 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 ............................................. 7.

8. If you are:

• Married filing jointly, enter $32,000

• Single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004, enter

$25,000 } .............. 8.

• Married filing separately and you lived with your spouse at any time

in 2004, skip lines 8 through 15; multiply line 7 by 85% (.85) and enter

the result on line 16. Then go to line 17

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any

amounts on line 20a or 20b of Form 1040. But if you are married filing

separately and you lived apart from your spouse for all of 2004, enter -0- on line

20b. Be sure you entered “D” to the right of the word “benefits” on line 20a.

Yes. Subtract line 8 from line 7 ............................................. 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying

widow(er), or married filing separately and you lived apart from your spouse for all of 2004 . . 10.

11. Subtract line 10 from line 9. If zero or less, enter -0- ................................ 11.

12. Enter the smaller of line 9 or line 10 ............................................ 12.

13. Enter one-half of line 12 ..................................................... 13.

14. Enter the smaller of line 2 or line 13 ............................................ 14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- ............................ 15.

16. Add lines 14 and 15 ........................................................ 16.

17. Multiply line 1 by 85% (.85) .................................................. 17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 ................. 18.

• Enter the amount from line 1 above on Form 1040, line 20a.

• Enter the amount from line 18 above on Form 1040, line 20b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year,

you may be able to reduce the taxable amount. See Pub. 915 for details. TIP

12,390.00

6,195.00

27,031.00

0.00

33,226.00

0.00

✘ 33,226.00

32,000.00

✘ 1,226.00

12,000.00

0.00

1,226.00

613.00

613.00

0.00

613.00

10,532.00

613.00

Exhibit 7 – Yale’s Social Security Worksheet
Lesson 14 14-13

PENSION EARNER

Social Security and Tier 1 Railroad Retirement Benefits

This section explains the federal income tax rules for social security

benefits and equivalent tier 1 railroad retirement benefits. Social 

security benefits (as they are used in this lesson) include monthly 

survivor and disability benefits. They do not include supplemental 

security benefits (SSI) which are not taxable. 

The Social Security Administration issues Form SSA-1099 to 

social security benefit recipients. The net benefit for the year is 

listed in box five (5). The social security equivalent of the Railroad 

Retirement Benefits is shown in box five (5) of Form RRB-1099.

To determine whether any of the taxpayer’s benefits may be taxable, you must select the base amount for the taxpayer. The base 

amounts are as follows:

■ $25,000 if the filing status is single, head of household, or 

qualifying widow(er),

■ $25,000 if the filing status is married filing separately and the 

taxpayer lived apart from the spouse for all of the year,

■ $32,000 if the filing status is married filing jointly, or

■ $-0- if the filing status is married filing separately and the 

taxpayer lived with the spouse at any time during the year

Next, compare the base amount with the total of:

■ One-half of the social security benefits (and equivalent tier 1 

railroad retirement benefits), plus

■ All other income, including tax-exempt interest 

If the total is more than the base amount for the filing status, a 

portion of the taxpayer’s social security benefit may be subject to 

federal income tax. 

If part of the benefits is taxable, how much is taxable depends 

on the total amount of the benefits and other income. Generally, 

the higher that total amount, the greater the taxable part of the 

benefits. 

The person who has the legal right to receive the benefits is the 

one who must consider whether the benefits are taxable.
14-14 Lesson 14

PENSION EARNER

Form SSA-1099

Social security benefits are reported to the taxpayer on Form 

SSA-1099, Social Security Benefit Statement. The amount in box 

5, Net benefits for 2004, is entered on a worksheet to figure if any 

of the benefits are taxable. Make sure you enter the amount from 

box 5 of Form SSA-1099 on line 1 of the worksheet. Neither Form 

SSA-1099 nor the worksheet (explained below) is attached to the 

income tax return. They are kept with the taxpayer’s other personal records.

A worksheet to figure the taxable portion of the social security benefits (and equivalent tier 1 railroad retirement benefits) is included 

in the instructions to the Form 1040 and the Form 1040A. If you 

are using software to prepare the return, you may not actually 

complete a worksheet. The software can make the determination 

of the taxable portion of the benefits based on the personal and 

financial information you enter for the taxpayer. Taxable portions 

of social security benefits (and equivalent tier 1 railroad retirement 

benefits) cannot be reported on Form 1040EZ.

Example 5

Gilbert, age 72, is single and files Form 1040A. In addition to 

receiving social security payments, he received a fully taxable pension of $18,600 (line 12b), wages from a part-time job of $9,400 

(line 7) and taxable interest income of $990 (line 8a), for a total of 

$28,990. He received a Form SSA-1099 that shows his net social 

security benefits of $5,980 in box 5. His completed worksheet is 

shown in Exhibit 8. On line 14a of his Form 1040A, Gilbert will 

enter $5,980. On line 14b he will enter the taxable benefit of 

$2,990.
Lesson 14 14-15

PENSION EARNER

 Exhibit 8 – Gilbert’s Social Security Worksheet

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 14a and 14b Keep for Your Records

Before you begin:  Complete Form 1040A, lines 16 and 17, if they apply to you.

 If you are married filing separately and you lived apart from your spouse for all of 2004, enter “D” to

the right of the word “benefits” on line 14a.

 Be sure you have read the Exception on page 25 to see if you can use this worksheet instead of a

publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099 .... 1.

2. Enter one-half of line 1 .................................................................. 2.

3. Enter the total of the amounts from Form 1040A, lines 7, 8a, 9a, 10, 11b, 12b, and 13 ....................... 3.

4. Enter the amount, if any, from Form 1040A, line 8b .............................................. 4.

5. Add lines 2, 3, and 4 ................................................................... 5.

6. Enter the total of the amounts from Form 1040A, lines 16 and 17 ..................................... 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 ........................................................ 7.

8. If you are:

• Married filing jointly, enter $32,000.

• Single, head of household, qualifying widow(er), or married filing separately and 

you lived apart from your spouse for all of 2004, enter $25,000.

} ............... 8.

• Married filing separately and you lived with your spouse at any time in 2004, skip 

lines 8 through 15; multiply line 7 by 85% (.85) and enter the result on line 16.

Then go to line 17.

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any amount on line 

 14a or 14b of Form 1040A. But if you are married filing separately and you lived apart from 

 your spouse for all of 2004, enter -0- on line 14b. Be sure you entered “D” to the right of the 

 word “benefits” on line 14a.

Yes. Subtract line 8 from line 7 ........................................................ 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004 ......................................10.

11. Subtract line 10 from line 9. If zero or less, enter -0- .............................................11.

12. Enter the smaller of line 9 or line 10 ........................................................12.

13. Enter one-half of line 12 .................................................................13.

14. Enter the smaller of line 2 or line 13 ........................................................14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- ..........................................15.

16. Add lines 14 and 15 ....................................................................16.

17. Multiply line 1 by 85% (.85) ..............................................................17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 ................................18.

• Enter the amount from line 1 above on Form 1040A, line 14a.

• Enter the amount from line 18 above on Form 1040A, line 14b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year, you may be able to

reduce the taxable amount. See Pub. 915 for details. TIP

5,980.00

2,990.00

28,990.00

0.00

31,980.00

0.00

✘ 31,980.00

25,000.00

✘ 6,980.00

9,000.00

0.00

6,980.00

3,490.00

2,990.00

0.00

2,990.00

5,083.00

2,990.00

Lump-Sum Social Security Benefits Payments – Figuring the 

Taxable Portion

Some taxpayers may have received a lump-sum benefit payment in 2004. This payment could be for both the current tax year 

and prior tax year(s). The lump-sum payment will be included in 

box 3 of the Form SSA-1099 or Form RRB-1099 that the taxpayer 

receives. The form will also show the year, or years, of the payment. 
14-16 Lesson 14

PENSION EARNER

This type of lump-sum benefit payment should not be confused 

with the lump-sum death benefits that both the Social Security 

Administration and the Railroad Retirement Board pay to many of 

their beneficiaries. No part of the lump-sum death benefit is subject to tax.

When figuring the taxable portion of social security benefits, (and 

RRB Tier1 equivalents), two options are available for lump-sum 

benefit payments.

1. The first option allows the taxpayer to report the whole payment in the year it was received. When the taxpayer chooses 

this option, complete the Social Security Benefits Worksheet as

usual by including the entire lump-sum payment on line 1. 

2. The taxpayer also has the option of treating the payment as 

received in the earlier year or years. This is done by figuring 

whether any part of these benefits is taxable, based on the 

earlier year’s income. Any part that is taxable is then added to 

any taxable benefits for the current year (2004) and included 

on Form 1040, line 20b.

If the taxpayer chooses to spread the payments back to earlier 

years, only 2004 income will be adjusted. The taxpayer does not file 

amended returns for the earlier years. However, a special procedure 

must be used to figure the taxable portion of the benefits assigned 

to the earlier years. If the taxpayer wants to use this option, he or 

she should consult a paid preparer.

Individual Retirement Arrangement (IRA) Distributions

As a volunteer, you can complete the return of a taxpayer who 

received either a fully taxable or a totally tax free distribution from 

an IRA. If only part of the distribution is taxable, the taxpayer 

should consult a paid preparer.

A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE 

IRA. A traditional IRA is sometimes called an ordinary or regular 

IRA.

A Roth IRA is an individual retirement arrangement that is 

designated as a Roth when it is set up. Taxpayers cannot deduct 

contributions to a Roth IRA. However, if the taxpayer satisfies the 

requirements described later, qualified distributions are tax-free. 

A Savings Incentive Match Plan for Employees (SIMPLE) is 

a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their 

employees. For SIMPLE plan purposes, the term employee includes 

a self-employed individual who received earned income.
Lesson 14 14-17

PENSION EARNER

IRAs – Traditional Taxation of Distributions

General Rules

In general, distributions from a traditional IRA are taxable in 

the year received. Taxable distributions from traditional IRAs are 

treated as ordinary income. The taxpayer cannot use the 10-year 

tax option or the capital gain treatment for a lump-sum distribution from an IRA. 

Fully Taxable

If only deductible contributions were made to a traditional IRA, the 

taxpayer has no basis (cost or investment) in the IRA. Because the 

taxpayer has no basis, any distribution from the IRA is fully taxable when received.

Partly Taxable

If the taxpayer made nondeductible contributions to a traditional 

IRA, he or she has a cost basis (investment in the contract) equal to 

the amount of those contributions. The nondeductible contributions 

are not taxed when they are distributed because they represent a 

return of the investment in the IRA. The volunteer program does 

not cover distributions that are partly taxable.

If the taxpayer receives a distribution from a traditional IRA, he or 

she will receive Form 1099-R, or similar statement. IRA distributions are shown in boxes 1 and 2 of Form 1099-R. The IRA box to 

the right of box 7 should be checked.

Example 6

Tyrone contributed $500 a year to a traditional IRA. Each year he 

deducted his traditional IRA contribution from his income. This 

year he received his first distribution from the traditional IRA. It 

is fully taxable. Tyrone will pay income tax on the distributions he 

receives which represent the contributions he made and deducted 

as well as the money the contributions have earned over the years.

Traditional Required Minimum Distributions

Taxpayers cannot keep funds in a traditional IRA indefinitely. 

Eventually, the funds must be distributed. The owner of a traditional IRA must start taking distributions when he or she reaches 

age 70 1⁄2. The taxpayer must take the first distributions from the 

IRA by April 1 of the year following the year in which he or she 

reaches age 70 1⁄2. The taxpayer will need to take two distributions 

in the same tax year if he or she postpones the first distribution 

until the year following the year he or she turns 70 1⁄2.

If there are no distributions or the distributions are not large 

enough, the taxpayer may have to pay the additional 50% tax 

(described earlier in this lesson) on the amount not distributed.
14-18 Lesson 14

PENSION EARNER

Roth Taxation of Distributions

In general, taxpayers do not include qualified distributions from

Roth IRAs in gross income. 

A qualified distribution is generally any payment or distribution 

made after the 5-taxable-year period beginning with the first year 

for which a contribution was made to a Roth IRA and that is made:

■ On or after the taxpayer reaches age 591⁄2, or

■ Because the taxpayer is disabled, or

■ To a beneficiary or an estate after the death of the taxpayer, or

■ To buy, build or rebuild a first home

Part of any distribution that is not a qualified distribution may be 

taxable as ordinary income and subject to the additional 10% tax 

on early distributions. Distributions of conversion contributions 

within a 5-year period following a conversion may be subject to 

the 10% early distribution tax, even if the contributions have been 

included as income in an earlier year. 

Taxpayers are not required to take distributions from a Roth IRA 

at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. The 

amount withdrawn from a Roth IRA cannot be used to satisfy the 

minimum distribution requirements for the taxpayer’s traditional 

IRA(s), if any. 

Pension Withholding and Estimated Tax Payments

Income tax is normally withheld from the taxable part of a

pension or annuity. The taxpayer can adjust the withholding 

amount or stop the withholding completely by notifying the payer. 

The taxpayer usually communicates these changes by completing Form W-4P, Withholding Certificate for Pension or Annuity 

Payments, and providing it to the payer of the pension.

A taxpayer who chooses not to have tax withheld (or has too little 

tax withheld) may have to pay estimated tax. Taxpayers, who owe 

more than $1,000 when they file their tax return, may be penalized 

for failure to estimate (and pay) the proper amount of tax.

Health Coverage Tax Credit

The Health Coverage Tax Credit (HCTC) is a federal tax credit. 

It was established by the Trade Act of 2002 to assist the following 

groups of people:

1. Workers who lose their jobs due to the effects of international 

trade and

■ Are eligible for certain Trade Adjustment Assistance (TAA) 

benefits; or

■ Are eligible for benefits under the Alternative Trade 

Adjustment Assistance (ATAA) program. 
Lesson 14 14-19

PENSION EARNER

2. People who receive benefits from the Pension Benefit Guaranty 

Corporation (PBGC) and are at least 55 years old. 

The program is a partnership of the federal government, state 

governments and health plan administrators. The federal government administers the program. State agencies help identify people 

who are eligible and help promote the program. State agencies and 

health plan administrators work together to make qualified coverage options available for eligible individuals.

Taxpayers who are potentially eligible will be notified. If the taxpayer is receiving benefit payments from the PBGC and is at 

least 55 years of age, he or she will receive notification from the 

appropriate state agency. Shortly thereafter, the HCTC Customer 

Contact Center will send the taxpayer the HCTC Program Kit, a 

booklet describing the program and eligibility requirements. In 

addition to the Program Kit, the HCTC program sent two mailings 

(Publications 4258 and 4260) in early 2004 to all HCTC candidates 

reminding them to claim the credit if they are eligible. 

For additional information visit www.irs.gov and search for HCTC. 

This credit is outside of the scope of the volunteer program. 

Taxpayers who need assistance with this credit may need to seek 

the assistance of a paid professional tax preparer.

Summary Exercise

Using the concepts you learned in this lesson, complete the 

following summary exercise.

Bart, age 66, and Mildred, age 56, are filing a joint return for 

2004. They want to file their return on a Form 1040 because that 

is what they have always done. They had the following income:

 Mildred’s wage $9,500 

 Interest (joint) 500

 Dividends 2,000

 Bart’s pension 20,900

 Bart’s IRA distribution 3,400

 Bart’s Social Security 9,500

Bart never made any after-tax contributions to his pension plan. 

All of Bart’s IRA contributions were tax-deductible when made.

A) How much of the pension income is taxable? ___________

B) What line(s) will you list the pension income on? ___________

C) How much of the IRA distribution is taxable?___________

D) What line(s) will you list the IRA distribution on? ___________

E) Will any portion of the social security benefits be 

taxable? ___________
14-20 Lesson 14

PENSION EARNER

  SUMMING UP THIS LESSON  

In this lesson, you learned about the taxability of several types 

of retirement income. 

 You now know that some retirement income, such as a 

qualified Roth IRA distribution, is not taxed. 

 Some retirement income, such as a pension plan that had 

after-tax contributions, is partially taxable. 

 Retirement income, such as a social security benefits, may be 

taxable if total income exceeds a specified amount.

 Retirement income, such as a distribution from a traditional 

IRA, can be fully taxable if the taxpayer does not have a basis 

in the plan.

 The Simplified Method Worksheet is used to compute the 

taxable portion of a partially taxable pension or annuity.

 A worksheet is also available to calculate the taxable portion, 

if any, of Social Security benefits.

 The scope of the volunteer program does not include IRA 

distributions that are partly taxable.

 Some taxpayers may need to make estimated tax payments.
Lesson 14 14-21

PENSION EARNER

Exercise 1

$892.00

The amount in box 5 of Form 1099R is considered the amount 

of the current year’s pension distribution that is considered a 

recovery of cost or investment.

Exercise 2

Please see Exhibit 9 on the following page for George’s completed 

Simplified Method worksheet.

Answer to Summary Exercise

A. $20,900 

 Since Bart did not make any after-tax contributions to the 

pension plan, the entire distribution is taxable. 

B. 16b 

 The pension is fully taxable; no entry should be made on 16a.

C. $3,400 

 Bart was able to deduct all of his contributions to the traditional 

IRA, the distribution is fully taxable.

D. 15b 

 The distribution is fully taxable. No entry should be made on 

15a.

E. Yes. 

 The joint income (with 1⁄2 the social security benefits added) is 

$41,050. This exceeds the base amount for a married filing joint 

taxpayer. A portion of the social security benefits will be subject 

to tax.

PENSIONS ANSWERS TO EXERCISES Lesson 14
14-22 Lesson 14

PENSION EARNER

Proof as of

June 18, 2004

(subject to change)

Simplified Method Worksheet—Lines 12a and 12b Keep for Your Records

Before you begin:  If you are the beneficiary of a deceased employee or former employee who died before August

21, 1996, see Pub. 939 to find out if you are entitled to a death benefit exclusion of up to

$5,000. If you are, include the exclusion in the amount entered on line 2 below.

Note. If you had more than one partially taxable pension or annuity, figure the taxable part of each separately. Enter the total of the taxable

parts on Form 1040A, line 12b. Enter the total pension or annuity payments received in 2004 on Form 1040A, line 12a.

1. Enter the total pension or annuity payments received in 2004. Also, enter this amount on Form 1040A, line 12a ... 1.

2. Enter your cost in the plan at the annuity starting date .............................. 2.

3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after

1997 and the payments are for your life and that of your beneficiary, enter the appropriate

number from Table 2 below ................................................ 3.

4. Divide line 2 by the number on line 3 ......................................... 4.

5. Multiply line 4 by the number of months for which this year’s payments were made. If your

annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8.

Otherwise, go to line 6 .................................................... 5.

6. Enter the amount, if any, recovered tax free in years after 1986 ....................... 6.

7. Subtract line 6 from line 2 ................................................. 7.

8. Enter the smaller of line 5 or line 7 ........................................................ 8.

9. Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, enter this amount on

Form 1040A, line 12b. If your Form 1099-R shows a larger amount, use the amount on this line instead of the

amount from Form 1099-R ............................................................... 9.

Table 1 for Line 3 Above

IF the age at annuity AND your annuity starting date was—

starting date (see before November 19, 1996, after November 18, 1996,

page 24) was . . . enter on line 3 . . . enter on line 3 . . .

55 or under 300 360

56–60 260 310

61–65 240 260

66–70 170 210

71 or older 120 160

Table 2 for Line 3 Above

IF the combined ages at annuity

starting date (see page 24) were . . . THEN enter on line 3 . . .

110 or under 410

111–120 360

121–130 310

131–140 260

141 or older 210

12,000.00

26,000.00

260

100.00

1,200.00

0.00

26,000.00

1,200.00

10,800.00

Exhibit 9 – George’s Completed Simplified Method Worksheet
Comprehensive

Problems CP-1

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

INTRODUCTION

In this section, you will complete tax returns for several 

common pension-earner scenarios often encountered at 

volunteer assistance sites. This will be valuable practice 

as you prepare to help taxpayers. Although answers to 

each of the problems are shown at the end of this section, you should try to complete the blank forms for 

each problem before referring to its answers.

After completing this section, you will be able to:

■ accurately complete a basic tax return with some 

advanced topics.

PROBLEM 1

Stuart and Donna Morehouse are married and need 

your help with their 2004 federal income tax return. 

They provide you with the following information:

■ Stuart was born July 2, 1936. Donna was born 

December 28, 1951.

■ The address and social security numbers are correct on their income statements. Stuart’s middle 

name is Liam and Donna’s middle name is Rae. 

They show their social security cards and a photo 

ID to you.

■ Neither one wishes to contribute to the 

Presidential Election Campaign.

■ They want to file a joint return.

■ Neither Stuart nor Donna can be claimed as someone else’s dependent.

■ They do not have any dependents.

■ Stuart is retired. Donna is a secretary at the local 

bank. 

■ Donna has W-2 (Exhibit 1) for her wages.

■ Stuart has interest income from a savings account 

(Exhibit 4).

■ They did not have any dividend or capital gain 

income. They do not have any capital loss carryovers.

■ They did not take any money out of an IRA nor did 

they have any unemployment income.
CP-2 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

■ Stuart received a distribution from a qualified pension 

(Exhibit 3) and Social Security (Exhibit 2) income.

■ Donna made a $900 contribution to her 2004 IRA on January 15, 

2005. (She has never taken any money out of the IRA.) She always 

gets to deduct the contribution on her tax return (because their 

joint income does not exceed the amount allowable for their filing 

status). They have no other adjustments to income. 

■ They want to use the standard deduction. Neither one of them 

is blind.

■ They did not make any estimated tax payments.

■ If they are entitled to a refund, they want the check mailed to 

their house.

■ They do not want to designate a third-party representative.

■ Your site identification number is Sxxxxxxxx.

Complete their Form 1040A (Exhibit 5) including the Social 

Security Benefits worksheet (Exhibit 6) and Form 8880 

(Exhibit 7), if needed. 

See Exhibits 16–18 for the answer.

Exhibit 1—Donna’s W-2

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

8162834 at www.irs.gov.

XX-XXXXXXX

FIRST BANK OF MARTIN CITY

1000 TAFT STREET

YOUR CITY, STATE, ZIP

XXX-XX-XXXX

DONNA MOREHOUSE

10923 FRANKLIN ST

YOUR CITY, STATE, ZIP

18526.00 2423.00

18525.00 1149.00

18526.00 269.00

✘

XX-XXXXXXX 18526.00 984.00
Comprehensive

Problems CP-3

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 2—Stuart’s Form SSA-1099

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

STUART MOREHOUSE XXX-XX-XXXX

10,998.00 0.00 10,998.00

PAID BY DIRECT

DEPOSIT 10,199.00

MEDICARE

PREMIUMS 799.00

 -------

BENEFITS PAID IN 

2004 10,998.00

10923 FRANKLIN 

YOUR CITY, STATE, ZIP
CP-4 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

APPLE INDUSTIRES

123 PEACH STREET

YOUR CITY, STATE, ZIP

13,567.00

13,567.00

XX-XXXXXXX XXX-XX-XXXX

STUART MOREHOUSE

10923 FRANKLIN ST

1,357.00

YOUR CITY, STATE, ZIP

7

Exhibit 3—Stuart’s Form 1099R
Comprehensive

Problems CP-5

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 4—Stuart’s 1099-INT

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 EMBRY BANK

4000 N BIRCH ST

YOUR CITY, STATE, ZIP

XX-XXXXXXX XXX-XX-XXXX

STUART MOREHOUSE

10923 FRANKLIN ST

YOUR CITY, STATE, ZIP

716.00
CP-6 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 5—Morehouse Form 1040A

Proof as of

June 18, 2004

(subject to change)

Head of household (with qualifying person). (See page 20.)

If the qualifying person is a child but not your dependent,

enter this child’s name here.  Married filing separately. Enter spouse’s SSN above and

full name here. 

Form Department of the Treasury—Internal Revenue Service

1040A 2004 U.S. Individual Income Tax Return

OMB No. 1545-0085

Your social security number

Your first name and initial Last name Label L

A

B

E

L

H

E

R

E

(See page 19.)

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the

IRS label. Home address (number and street). If you have a P.O. box, see page 20. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 20.

Filing

status

Boxes

checked on

6a and 6b

Yourself. If someone can claim you as a dependent, do not check

box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 23)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 23)

If more than six

dependents,

see page 21.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2. 7

8a Taxable interest. Attach Schedule 1 if required. 8a

b Tax-exempt interest. Do not include on line 8a. 8b

Attach

Form(s) W-2

here. Also

attach

Form(s)

1099-R if tax

was withheld.

9a Ordinary dividends. Attach Schedule 1 if required. 9a

IRA

distributions.

11a Taxable amount

(see page 25).

11b

Enclose, but do

not attach, any

payment.

11a 11b

Taxable amount

(see page 26).

12a Pensions and 12b

annuities. 12a 12b

13 Unemployment compensation and Alaska Permanent Fund dividends. 13

14a Taxable amount

(see page 28).

Social security

benefits.

14b

14a 14b

15 Add lines 7 through 14b (far right column). This is your total income.  15

17 IRA deduction (see page 28). 17

Student loan interest deduction (see page 31).

Income

18

Add lines 16 through 19. These are your total adjustments. 20

Subtract line 20 from line 15. This is your adjusted gross income. 

18

21

Dependents:



Check only

one box.

If you did not

get a W-2, see

page 24.

Form 1040A (2004)

IRS Use Only—Do not write or staple in this space.

(3) Dependent’s

relationship to

(1) First name Last name you

20

21

Adjusted

gross 

income

Important! 

Cat. No. 11327A

Otherwise,

please print

or type.

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 57.

(99)

10 Capital gain distributions (see page 25). 10

Presidential

Election Campaign

(See page 20.)  Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund?  No Yes

You Spouse

19 Tuition and fees deduction (see page 31). 19

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child (see page 21)

4

5

16 Deduction for clean-fuel vehicles (see page 28). 16

b Qualified dividends (see page 25). 9b
Comprehensive

Problems CP-7

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b

c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

Exhibit 5 (continued)—Morehouse Form 1040A
CP-8 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 14a and 14b Keep for Your Records

Before you beg  Complete Form 1040A, lines 16 and 17, if they apply to you. in:

 If you are married filing separately and you lived apart from your spouse for all of 2004, enter “D” to

the right of the word “benefits” on line 14a. 

 Be sure you have read the Exception on page 25 to see if you can use this worksheet instead of a

publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099 . . . . 1.

2. Enter one-half of line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

3. Enter the total of the amounts from Form 1040A, lines 7, 8a, 9a, 10, 11b, 12b, and 13 . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Enter the amount, if any, from Form 1040A, line 8b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

5. Add lines 2, 3, and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

6. Enter the total of the amounts from Form 1040A, lines 16 and 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.

8. If you are:

• Married filing jointly, enter $32,000.

• Single, head of household, qualifying widow(er), or married filing separately and 

you lived apart from your spouse for all of 2004, enter $25,000. } . . . . . . . . . . . . . . . 8.

• Married filing separately and you lived with your spouse at any time in 2004, skip 

lines 8 through 15; multiply line 7 by 85% (.85) and enter the result on line 16. 

Then go to line 17.

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any amount on line 

 14a or 14b of Form 1040A. But if you are married filing separately and you lived apart from 

 your spouse for all of 2004, enter -0- on line 14b. Be sure you entered “D” to the right of the 

 word “benefits” on line 14a.

Yes. Subtract line 8 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.

11. Subtract line 10 from line 9. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.

12. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12.

13. Enter one-half of line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13.

14. Enter the smaller of line 2 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.

16. Add lines 14 and 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16.

17. Multiply line 1 by 85% (.85) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18.

• Enter the amount from line 1 above on Form 1040A, line 14a.

• Enter the amount from line 18 above on Form 1040A, line 14b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year, you may be able to

reduce the taxable amount. See Pub. 915 for details.

TIP

Exhibit 6—Stuart’s Social Security Worksheet
Comprehensive

Problems CP-9

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1805

8880 Credit for Qualified Retirement Savings Contributions Form

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 129

 Attach to Form 1040 or Form 1040A.

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 33394D Form 8880 (2004)

● The amount on Form 1040, line 37, or Form 1040A, line 22, is more than $25,000 ($37,500 if head of household;

$50,000 if married filing jointly).

You cannot take this credit if either of the following applies.

4

1

Traditional and Roth IRA contributions for 2004. Do not include rollover

contributions

1

3

2

5

6

7

8

9

10

11

12

13

14

Elective deferrals to a 401(k) or other qualified employer plan, voluntary

employee contributions, and 501(c)(18)(D) plan contributions for 2004

(see instructions) 

2

3 Add lines 1 and 2

Certain distributions received after 2001 and before the due date

(including extensions) of your 2004 tax return (see instructions). If

married filing jointly, include both spouses’ amounts in both columns.

See instructions for an exception 

4

5 Subtract line 4 from line 3. If zero or less, enter -0-

6 In each column, enter the smaller of line 5 or $2,000 

8 Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

9 Enter the applicable decimal amount shown below:

Note: If line 9 is zero, stop; you cannot take this credit.

10 Multiply line 7 by line 9 

11 Enter the amount from Form 1040, line 45, or Form 1040A, line 28

Enter the total of your credits from Form 1040, lines 46 through 51, or

Form 1040A, lines 29 through 32

12

13 Subtract line 12 from line 11. If zero, stop; you cannot take this credit 

Credit for qualified retirement savings contributions. Enter the smaller of line 10 or line

13 here and on Form 1040, line 52, or Form 1040A, line 33

14

(a) You (b) Your spouse

● The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1987, (b) is

claimed as a dependent on someone else’s 2004 tax return, or (c) was a student (see instructions).

7 Add the amounts on line 6. If zero, stop; you cannot take this credit 

*See Pub. 590 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

If line 8 is— 

Enter on line 9—

Single, Married filing 

separately, or 

Qualifying widow(er)

Over— But not 

over—

Married

filing jointly

Head of 

household

---

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

---

.5

.5

.5

.5

.5

.5

.2

.1

.1

.0

.5

.5

.5

.2

.1

.1

.1

.1

.0

.0

.5

.2

.1

.1

.1

.0

.0

.0

.0

.0

X .

And your filing status is—

 See instructions on back.

2004

CAUTION

Exhibit 7—Morehouse Form 8880
CP-10 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

PROBLEM 2

Jay and Sandra Madison are married and they need your help with 

their 2004 federal income tax return. They provide you with the following information:

■ Jay was born February 14, 1931. Sandra was born November 27, 

1936.

■ The address and social security numbers are correct on their 

income statements. Jay’s middle name is Roy and Sandra’s middle name is Helen. They show their social security cards and a 

photo ID to you.

■ They want to file a joint return and both of them want to 

contribute to the Presidential Election Campaign.

■ Neither of them can be claimed as someone else’s dependent 

and they do not have any dependents.

■ Jay is retired. Sandra has never worked outside the home.

■ Jay receives pension (Exhibit 8) and social security income 

(Exhibit 9).

■ The only other income they have is from the sale of stock 

(Exhibits 10 and 11). The 100 shares of ABC stock was bought 

on 12/01/1985 at $24.00 per share. The 200 shares of XYZ stock 

was bought on 12/20/1987 at $28.50 per share. The basis of the 

stock has not changed since the purchase date. No commission 

was paid on the purchase or the sale. There are no capital loss 

carryovers.

■ They do not have enough deductions to itemize. They are 

not blind.

■ They did not make any estimated tax payments.

■ If they are entitled to a refund, they want the check mailed to 

their house.

■ They do not want to designate a third party representative.

■ Your site identification number is Sxxxxxxxx.

Complete their Form 1040 (Exhibit 12) using the Schedule D 

(Exhibit 13), the Social Security Worksheet (Exhibit 14) and the 

Qualified Dividends and Capital Gain Tax Worksheet (Exhibit 15)

if needed.

See Exhibits 19–22 for the answer.
Comprehensive

Problems CP-11

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 8—Jay’s Form 1099-R

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

CONCORD ASSOCIATES

345 EAST 100TH ST

YOUR CITY, STATE, ZIP

18,946.00

18,946.00

XX-XXXXXXX XXX-XX-XXXX

JAY R MADISON

99 DOUGLAS AVE

2,560.00

YOUR CITY, STATE,ZIP

7
CP-12 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 9—Jay’s Form SSA-1099

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

JAY R MADISON XXX-XX-XXXX

14,264.00 14,264.00

PAID BY DIRECT

DEPOSIT 13,465.00

MEDICARE

PREMIUMS 799.00

 ---------

BENEFITS PAID

IN 2004 14,264.00

99 DOUGLAS AVENUE

YOUR CITY, STATE ZIP
Comprehensive

Problems CP-13

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 10—Jay’s 1099-B

Proceeds From

Broker and

Barter Exchange

Transactions

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

CORRECTED (if checked)

Form 1099-B (keep for your records) Department of the Treasury - Internal Revenue Service

PAYER’S name, street address, city, state, ZIP code, and telephone no. Date of sale or exchange 1a OMB No. 1545-0715

1b CUSIP no.

2 Stocks, bonds, etc. Reported

to IRS

Gross proceeds

$ Gross proceeds less commissions and option premiums

PAYER’S Federal identification number RECIPIENT’S identification number 3 Bartering 4 Federal income tax withheld

$ $

RECIPIENT’S name No. of shares exchanged 5

Street address (including apt. no.) Description 7

City, state, and ZIP code

Account number (optional) 2nd TIN not.



Form 1099-B

8

$

Profit or (loss) realized in

2004

9 Unrealized profit or (loss) on

open contracts—12/31/2003

10 Unrealized profit or (loss) on

open contracts–12/31/2004

11 Aggregate profit or (loss)

$

$ $

Classes of stock

exchanged

6

CORPORATION’S name, street address, city, state, and ZIP code

12 If this box is checked, you cannot take a loss on your

tax return based on the amount in box 2

2004

Harris Inc

123 Lamar

Your City, State Zip

XX-XXXXXXX XXX-XX-XXXX

JAY R MADISON

99 DOUGLAS

YOUR CITY, STATE ZIP

07/15/2004

5,124

✘

100 shares ABC Inc.
CP-14 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 11—Sandra’s 1099-B

Proceeds From

Broker and

Barter Exchange

Transactions

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

CORRECTED (if checked)

Form 1099-B (keep for your records) Department of the Treasury - Internal Revenue Service

PAYER’S name, street address, city, state, ZIP code, and telephone no. Date of sale or exchange 1a OMB No. 1545-0715

1b CUSIP no.

2 Stocks, bonds, etc. Reported

to IRS

Gross proceeds

$ Gross proceeds less commissions and option premiums

PAYER’S Federal identification number RECIPIENT’S identification number 3 Bartering 4 Federal income tax withheld

$ $

RECIPIENT’S name No. of shares exchanged 5

Street address (including apt. no.) Description 7

City, state, and ZIP code

Account number (optional) 2nd TIN not.



Form 1099-B

8

$

Profit or (loss) realized in

2004

9 Unrealized profit or (loss) on

open contracts—12/31/2003

10 Unrealized profit or (loss) on

open contracts–12/31/2004

11 Aggregate profit or (loss)

$

$ $

Classes of stock

exchanged

6

CORPORATION’S name, street address, city, state, and ZIP code

12 If this box is checked, you cannot take a loss on your

tax return based on the amount in box 2

2004

Dillard Inc

345 Fairbury

Your City, State Zip

XX-XXXXXXX XXX-XX-XXXX

SANDRA H MADISON

99 DOUGLAS

YOUR CITY, STATE ZIP

11/14/2004

10,796

✘

200 shares XYZ Inc.
Comprehensive

Problems CP-15

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Department of the Treasury—Internal Revenue Service 1040 U.S. Individual Income Tax Return

For the year Jan. 1–Dec. 31, 2004, or other tax year beginning , 2004, ending , 20 OMB No. 1545-0074

Your first name and initial Last name Your social security number

(See

instructions

on page 19.)

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the IRS

label.

Otherwise,

please print

or type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

Presidential

Election Campaign

1 Single

Filing Status 2 Married filing jointly (even if only one had income)

Check only

one box.

3

Qualifying widow(er) with dependent child (see page 20)

6a Yourself. If someone can claim you as a dependent, do not check box 6a

Exemptions b Spouse

(4) if qualifying

child for child tax

credit (see page 21)

c Dependents: (2) Dependent’s

social security number

(3) Dependent’s

relationship to (1) First name Last name you

If more than four

dependents, see

page 21.

d Total number of exemptions claimed

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7

Income 8a Taxable interest. Attach Schedule B if required 8a

b Tax-exempt interest. Do not include on line 8a 8b Attach

Forms W-2 and

W-2G here.

Also attach

Form(s) 1099-R

if tax was

withheld.

9a Ordinary dividends. Attach Schedule B if required 9a

10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) 10

11 Alimony received 11

12 Business income or (loss). Attach Schedule C or C-EZ 12

Enclose, but do

not attach, any

payment. Also,

please use

Form 1040-V.

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 Other gains or (losses). Attach Form 4797 14

15a IRA distributions 15a 15b b Taxable amount (see page 25)

16a Pensions and annuities 16a b Taxable amount (see page 25) 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F 18

19 Unemployment compensation 19

20a Social security benefits 20a b Taxable amount (see page 27) 20b

21 21

22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22

IRA deduction (see page 29) 25

23

27

26

One-half of self-employment tax. Attach Schedule SE

29

Self-employed health insurance deduction (see page 33)

27

30

29

Self-employed SEP, SIMPLE, and qualified plans

31

30

Penalty on early withdrawal of savings

32

31

Alimony paid b Recipient’s SSN 

Add lines 23 through 34a 35

32

Subtract line 35 from line 22. This is your adjusted gross income 

33

Adjusted

Gross

Income

36

If you did not

get a W-2,

see page 22. Form

Married filing separately. Enter spouse’s SSN above

and full name here. 

Cat. No. 11320B





Label

Form 1040 (2004)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) If

the qualifying person is a child but not your dependent, enter

this child’s name here. 

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

25

26

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

Boxes checked

on 6a and 6b

No. of children

on 6c who:

Dependents on 6c

not entered above

Add numbers on

lines above 

● lived with you

● did not live with

you due to divorce

or separation

(see page 21)

34a 34a

Student loan interest deduction (see page 31)

33

35

Important!

Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund? 

You must enter

your SSN(s) above.

No Yes

You Spouse

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

36

4

5

Deduction for clean-fuel vehicles (see page 29) 23

b Qualified dividends (see page 23) 9b

2004

24 Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

28 Health savings account deduction. Attach Form 8889 28

Exhibit 12—Jay and Sandra’s Form 1040
CP-16 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Proof as of

June 18, 2004

(subject to change)

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 63 through 69. These are your total payments 

Form 1040 (2004) Page 2

37 Amount from line 36 (adjusted gross income) 37

Check

if:

38a

Tax and

Credits

38a

Single or

Married filing

separately,

$4,850

If you are married filing separately and your spouse itemizes deductions, or

you were a dual-status alien, see page 34 and check here 

b

38b

39 39

40 Subtract line 39 from line 37 40

41

If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on

line 6d. If line 37 is over $107,025, see the worksheet on page 35

41

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 43

47

48

53

Education credits. Attach Form 8863

46

51

Other credits. Check applicable box(es):

50

55

56

Add lines 46 through 54. These are your total credits

50

Subtract line 55 from line 45. If line 55 is more than line 45, enter -0- 

55

Self-employment tax. Attach Schedule SE

56

Other

Taxes

57

71

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59

58

60

Add lines 56 through 61. This is your total tax 

61 61

63 Federal income tax withheld from Forms W-2 and 1099 63

64 2004 estimated tax payments and amount applied from 2003 return 64

Payments

65

Amount paid with request for extension to file (see page 56) 68

67

Excess social security and tier 1 RRTA tax withheld (see page 56) 66

68

70

69 Other payments from:

72a 72a

73 73

If line 70 is more than line 62, subtract line 62 from line 70. This is the amount you overpaid

74 74

Amount of line 71 you want refunded to you 

Refund

75

Amount of line 71 you want applied to your 2005 estimated tax 

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and

belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

75

You were born before January 2, 1940, Blind.

Spouse was born before January 2, 1940, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

59

Household employment taxes. Attach Schedule H

60

69

Amount

You Owe

Sign

Here Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 70 from line 62. For details on how to pay, see page 57 

b

Direct deposit?

See page 56

and fill in 72b,

72c, and 72d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

b

d





70

49

46

Retirement savings contributions credit. Attach Form 8880

57

58

Advance earned income credit payments from Form(s) W-2

71



Child tax credit (see page 40)

49 Credits from:

53

51

Additional child tax credit. Attach Form 8812

66

67

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

Joint return?

See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

44

45

47

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 43 and 44 

Credit for child and dependent care expenses. Attach Form 2441

48

If you have a

qualifying

child, attach

Schedule EIC.

44

45

65

Spouse’s occupation

( )

Form 1040 (2004)

● People who

checked any

box on line

38a or 38b or who can be

claimed as a

dependent,

see page 34.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 58)? Third Party

Designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

54

Foreign tax credit. Attach Form 1116 if required

54

a Form 8396 b Form 8859

52 52

Adoption credit. Attach Form 8839

62 62

Type:

c Form 8885

Total boxes  checked 

Exhibit 12 (continued)—Jay and Sandra’s Form 1040
Comprehensive

Problems CP-17

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 13—Jay and Sandra’s Schedule D

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment  Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)
CP-18 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 13 (continued)—Jay and Sandra’s Schedule D

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.
Comprehensive

Problems CP-19

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 14—Jay and Sandra’s Social Security Worksheet 

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 20a and 20b Keep for Your Records

Before you begin:  Complete Form 1040, lines 21, 23 through 25, and 28 through 34a, if they apply

to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35

(see page 33).

 If you are married filing separately and you lived apart from your spouse for all

of 2004, enter “D” to the right of the word “benefits” on line 20a.

 Be sure you have read the Exception on page 27 to see if you can use this

worksheet instead of a publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and

Forms RRB-1099 .......................................... 1.

2. Enter one-half of line 1 ...................................................... 2.

3. Enter the total of the amounts from Form 1040, lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17

through 19, and 21 .......................................................... 3.

4. Enter the amount, if any, from Form 1040, line 8b .................................. 4.

5. Add lines 2, 3, and 4 ........................................................ 5.

6. Enter the total of the amounts from Form 1040, lines 23 through 25, and 28 through 34a, plus

any write-in adjustments you entered on the dotted line next to line 35 ................... 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 ............................................. 7.

8. If you are:

• Married filing jointly, enter $32,000

• Single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004, enter

$25,000 } .............. 8.

• Married filing separately and you lived with your spouse at any time

in 2004, skip lines 8 through 15; multiply line 7 by 85% (.85) and enter

the result on line 16. Then go to line 17

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any

amounts on line 20a or 20b of Form 1040. But if you are married filing

separately and you lived apart from your spouse for all of 2004, enter -0- on line

20b. Be sure you entered “D” to the right of the word “benefits” on line 20a.

Yes. Subtract line 8 from line 7 ............................................. 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying

widow(er), or married filing separately and you lived apart from your spouse for all of 2004 . . 10.

11. Subtract line 10 from line 9. If zero or less, enter -0- ................................ 11.

12. Enter the smaller of line 9 or line 10 ............................................ 12.

13. Enter one-half of line 12 ..................................................... 13.

14. Enter the smaller of line 2 or line 13 ............................................ 14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- ............................ 15.

16. Add lines 14 and 15 ........................................................ 16.

17. Multiply line 1 by 85% (.85) .................................................. 17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 ................. 18.

• Enter the amount from line 1 above on Form 1040, line 20a.

• Enter the amount from line 18 above on Form 1040, line 20b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year,

you may be able to reduce the taxable amount. See Pub. 915 for details.

TIP

- 25 - Need more information or forms? See page 7.
CP-20 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 15—Madison Tax Computation

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

Need more information or forms? See page 7. - 34 -
Comprehensive

Problems CP-21

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 16—Morehouse 1040A

Proof as of

June 18, 2004

(subject to change)

Head of household (with qualifying person). (See page 20.)

If the qualifying person is a child but not your dependent,

enter this child’s name here.  Married filing separately. Enter spouse’s SSN above and

full name here. 

Form Department of the Treasury—Internal Revenue Service

1040A 2004 U.S. Individual Income Tax Return

OMB No. 1545-0085

Your social security number

Your first name and initial Last name Label L

A

B

E

L

H

E

R

E

(See page 19.)

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the

IRS label. Home address (number and street). If you have a P.O. box, see page 20. Apt. no.

You must enter your

SSN(s) above.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 20.

Filing

status

Boxes

checked on

6a and 6b

Yourself. If someone can claim you as a dependent, do not check

box 6a. Exemptions 6a

b Spouse No. of children

on 6c who: (4) if qualifying

child for child

tax credit (see

page 23)

(2) Dependent’s social

security number

c ● lived with

you

● did not live

with you due

to divorce or

separation

(see page 23)

If more than six

dependents,

see page 21.

Dependents

on 6c not

entered above

d

Add numbers

on lines Total number of exemptions claimed. above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2. 7

8a Taxable interest. Attach Schedule 1 if required. 8a

b Tax-exempt interest. Do not include on line 8a. 8b

Attach

Form(s) W-2

here. Also

attach

Form(s)

1099-R if tax

was withheld.

9a Ordinary dividends. Attach Schedule 1 if required. 9a

IRA

distributions.

11a Taxable amount

(see page 25).

11b

Enclose, but do

not attach, any

payment.

11a 11b

Taxable amount

(see page 26).

12a Pensions and 12b

annuities. 12a 12b

13 Unemployment compensation and Alaska Permanent Fund dividends. 13

14a Taxable amount

(see page 28).

Social security

benefits.

14b

14a 14b

15 Add lines 7 through 14b (far right column). This is your total income.  15

17 IRA deduction (see page 28). 17

Student loan interest deduction (see page 31).

Income

18

Add lines 16 through 19. These are your total adjustments. 20

Subtract line 20 from line 15. This is your adjusted gross income. 

18

21

Dependents:



Check only

one box.

If you did not

get a W-2, see

page 24.

Form 1040A (2004)

IRS Use Only—Do not write or staple in this space.

(3) Dependent’s

relationship to

(1) First name Last name you

20

21

Adjusted

gross 

income

Important! 

Cat. No. 11327A

Otherwise,

please print

or type.

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 57.

(99)

10 Capital gain distributions (see page 25). 10

Presidential

Election Campaign

(See page 20.)  Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund?  No Yes

You Spouse

19 Tuition and fees deduction (see page 31). 19

1 Single

2 Married filing jointly (even if only one had income)

3

Qualifying widow(er) with dependent child (see page 21)

4

5

16 Deduction for clean-fuel vehicles (see page 28). 16

b Qualified dividends (see page 25). 9b

STUART L MOREHOUSE XXX XX XXXX

DONNA R MOREHOUSE XXX XX XXXX

10923 FRANKLIN ST

YOUR CITY, STATE, ZIP

✘ ✘

✘

✘

✘

2

2

18,526

716

13,567

10,998.00 2,704

35,513

900

900

34,613

ANSWERS TO PROBLEMS
CP-22 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Exhibit 16 (continued)—Morehouse 1040A

Proof as of

June 18, 2004

(subject to change)

If you have

a qualifying

child, attach

Schedule

EIC.

Single or

Married filing

separately,

$4,850

30

22 Enter the amount from line 21 (adjusted gross income). 22

Total boxes

checked 

Check You were born before January 2, 1940, Blind

if:

23a

Spouse was born before January 2, 1940, Blind 23a

b

23b

If you are married filing separately and your spouse itemizes

deductions, see page 32 and check here 

Tax,

credits,

and

payments

24 24

25 Subtract line 24 from line 22. If line 24 is more than line 22, enter -0-. 25

26 Multiply $3,100 by the total number of exemptions claimed on line 6d. 26

Subtract line 26 from line 25. If line 26 is more than line 25, enter -0-.

This is your taxable income. 

27

27

28 Tax, including any alternative minimum tax (see page 33). 28

31 Education credits. Attach Form 8863. 31

35

36 Subtract line 35 from line 28. If line 35 is more than line 28, enter -0-. 36

37 Advance earned income credit payments from Form(s) W-2. 37

Add lines 36 and 37. This is your total tax.  38

Federal income tax withheld from Forms W-2

and 1099.

39

39

2004 estimated tax payments and amount

applied from 2003 return. 40

Add lines 39 through 42. These are your total payments.  43

If line 43 is more than line 38, subtract line 38 from line 43.

This is the amount you overpaid.

44

45a

Refund

Amount of line 44 you want applied to your

2005 estimated tax.

46

46

Amount you owe. Subtract line 43 from line 38. For details on how

to pay, see page 51. 

47

47

48 Estimated tax penalty (see page 52). 48

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my

knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than the taxpayer) is based on all information of which the preparer has any knowledge.



Enter your standard deduction (see left margin).

Form 1040A (2004)

44

45a Amount of line 44 you want refunded to you. 

38

Credit for child and dependent care expenses.

Attach Schedule 2.

29

29

Adoption credit. Attach Form 8839.

33

33

32 Child tax credit (see page 37). 32

Credit for the elderly or the disabled. Attach

Schedule 3.

30

35 Add lines 29 through 34. These are your total credits.

40

42

43

Additional child tax credit. Attach Form 8812. 42

Routing

number

Account

number

Checking Savings  b c

 d

Amount

you owe

Direct

deposit?

See page 50

and fill in

45b, 45c,

and 45d.



41 Earned income credit (EIC). 41

Page 2

Form 1040A (2004)

Sign

here

Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

preparer’s

use only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation Joint return?

See page 20.

Daytime phone number

( )

Spouse’s occupation

( )

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

● People who

checked any

box on line

23a or 23b or

who can be

claimed as a

dependent,

see page 32.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 52)? Third party

designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

34 34

Printed on recycled paper

Retirement savings contributions credit. Attach

Form 8880.

Type:

34,613

✘ 1

10,650

23,963

6,200

17,763

1,951

1,951

1,951

3,780

3,780

1,829

1,829

✘

RETIRED

SECRETARY

Sxxxxxxxx
Comprehensive

Problems CP-23

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Exhibit 17—Morehouse Social Security Worksheet

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 14a and 14b Keep for Your Records

Before you beg  Complete Form 1040A, lines 16 and 17, if they apply to you. in:

 If you are married filing separately and you lived apart from your spouse for all of 2004, enter “D” to

the right of the word “benefits” on line 14a. 

 Be sure you have read the Exception on page 25 to see if you can use this worksheet instead of a

publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099 . . . . 1.

2. Enter one-half of line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

3. Enter the total of the amounts from Form 1040A, lines 7, 8a, 9a, 10, 11b, 12b, and 13 . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Enter the amount, if any, from Form 1040A, line 8b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

5. Add lines 2, 3, and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

6. Enter the total of the amounts from Form 1040A, lines 16 and 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.

8. If you are:

• Married filing jointly, enter $32,000.

• Single, head of household, qualifying widow(er), or married filing separately and 

you lived apart from your spouse for all of 2004, enter $25,000. } . . . . . . . . . . . . . . . 8.

• Married filing separately and you lived with your spouse at any time in 2004, skip 

lines 8 through 15; multiply line 7 by 85% (.85) and enter the result on line 16. 

Then go to line 17.

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any amount on line 

 14a or 14b of Form 1040A. But if you are married filing separately and you lived apart from 

 your spouse for all of 2004, enter -0- on line 14b. Be sure you entered “D” to the right of the 

 word “benefits” on line 14a.

Yes. Subtract line 8 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.

11. Subtract line 10 from line 9. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.

12. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12.

13. Enter one-half of line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13.

14. Enter the smaller of line 2 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.

16. Add lines 14 and 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16.

17. Multiply line 1 by 85% (.85) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18.

• Enter the amount from line 1 above on Form 1040A, line 14a.

• Enter the amount from line 18 above on Form 1040A, line 14b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year, you may be able to

reduce the taxable amount. See Pub. 915 for details.

TIP

10,998.00

5,499.00

32,809.00

38,308.00

900.00

✘ 37,408.00

32,000.00

✘ 5,408.00

12,000.00

0.00

5,408.00

2,704.00

2,704.00

0.00

2,704.00

9,348.00

2,704.00
CP-24 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 18—Morehouse Form 8880

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-1805

8880 Credit for Qualified Retirement Savings Contributions Form

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 129

 Attach to Form 1040 or Form 1040A.

Name(s) shown on return Your social security number

For Paperwork Reduction Act Notice, see back of form. Cat. No. 33394D Form 8880 (2004)

● The amount on Form 1040, line 37, or Form 1040A, line 22, is more than $25,000 ($37,500 if head of household;

$50,000 if married filing jointly).

You cannot take this credit if either of the following applies.

4

1

Traditional and Roth IRA contributions for 2004. Do not include rollover

contributions

1

3

2

5

6

7

8

9

10

11

12

13

14

Elective deferrals to a 401(k) or other qualified employer plan, voluntary

employee contributions, and 501(c)(18)(D) plan contributions for 2004

(see instructions) 

2

3 Add lines 1 and 2

Certain distributions received after 2001 and before the due date

(including extensions) of your 2004 tax return (see instructions). If

married filing jointly, include both spouses’ amounts in both columns.

See instructions for an exception 

4

5 Subtract line 4 from line 3. If zero or less, enter -0-

6 In each column, enter the smaller of line 5 or $2,000 

8 Enter the amount from Form 1040, line 37*, or Form 1040A, line 22

9 Enter the applicable decimal amount shown below:

Note: If line 9 is zero, stop; you cannot take this credit.

10 Multiply line 7 by line 9 

11 Enter the amount from Form 1040, line 45, or Form 1040A, line 28

Enter the total of your credits from Form 1040, lines 46 through 51, or

Form 1040A, lines 29 through 32

12

13 Subtract line 12 from line 11. If zero, stop; you cannot take this credit 

Credit for qualified retirement savings contributions. Enter the smaller of line 10 or line

13 here and on Form 1040, line 52, or Form 1040A, line 33

14

(a) You (b) Your spouse

● The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1987, (b) is

claimed as a dependent on someone else’s 2004 tax return, or (c) was a student (see instructions).

7 Add the amounts on line 6. If zero, stop; you cannot take this credit 

*See Pub. 590 for the amount to enter if you are filing Form 2555, 2555-EZ, or 4563 or you are excluding income from Puerto Rico.

If line 8 is— 

Enter on line 9—

Single, Married filing 

separately, or 

Qualifying widow(er)

Over— But not 

over—

Married

filing jointly

Head of 

household

---

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

$15,000

$16,250

$22,500

$24,375

$25,000

$30,000

$32,500

$37,500

$50,000

---

.5

.5

.5

.5

.5

.5

.2

.1

.1

.0

.5

.5

.5

.2

.1

.1

.1

.1

.0

.0

.5

.2

.1

.1

.1

.0

.0

.0

.0

.0

X .

And your filing status is—

 See instructions on back.

2004

CAUTION

STUART L AND DONNA R MOREHOUSE XXX XX XXXX

900

900.00

13,567.00 13,567.00

0.00 0.00

0.00 0.00

0.00

ANSWERS TO PROBLEMS

Stuart·s pension 

distribution

exceeds Donna·s

IRA contribution. 

Therefore, they 

are not eligible 

for the credit.
Comprehensive

Problems CP-25

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS ANSWERS TO PROBLEMS

Exhibit 19—Madison Form 1040

Proof as of

June 18, 2004

(subject to change)

Department of the Treasury—Internal Revenue Service 1040 U.S. Individual Income Tax Return

For the year Jan. 1–Dec. 31, 2004, or other tax year beginning , 2004, ending , 20 OMB No. 1545-0074

Your first name and initial Last name Your social security number

(See

instructions

on page 19.)

L

A

B

E

L

H

E

R

E

If a joint return, spouse’s first name and initial Last name Spouse’s social security number

Use the IRS

label.

Otherwise,

please print

or type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

Presidential

Election Campaign

1 Single

Filing Status 2 Married filing jointly (even if only one had income)

Check only

one box.

3

Qualifying widow(er) with dependent child (see page 20)

6a Yourself. If someone can claim you as a dependent, do not check box 6a

Exemptions b Spouse

(4) if qualifying

child for child tax

credit (see page 21)

c Dependents: (2) Dependent’s

social security number

(3) Dependent’s

relationship to (1) First name Last name you

If more than four

dependents, see

page 21.

d Total number of exemptions claimed

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7

Income 8a Taxable interest. Attach Schedule B if required 8a

b Tax-exempt interest. Do not include on line 8a 8b Attach

Forms W-2 and

W-2G here.

Also attach

Form(s) 1099-R

if tax was

withheld.

9a Ordinary dividends. Attach Schedule B if required 9a

10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) 10

11 Alimony received 11

12 Business income or (loss). Attach Schedule C or C-EZ 12

Enclose, but do

not attach, any

payment. Also,

please use

Form 1040-V.

13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13

14 Other gains or (losses). Attach Form 4797 14

15a IRA distributions 15a 15b b Taxable amount (see page 25)

16a Pensions and annuities 16a b Taxable amount (see page 25) 16b

17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17

18 Farm income or (loss). Attach Schedule F 18

19 Unemployment compensation 19

20a Social security benefits 20a b Taxable amount (see page 27) 20b

21 21

22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22

IRA deduction (see page 29) 25

23

27

26

One-half of self-employment tax. Attach Schedule SE

29

Self-employed health insurance deduction (see page 33)

27

30

29

Self-employed SEP, SIMPLE, and qualified plans

31

30

Penalty on early withdrawal of savings

32

31

Alimony paid b Recipient’s SSN 

Add lines 23 through 34a 35

32

Subtract line 35 from line 22. This is your adjusted gross income 

33

Adjusted

Gross

Income

36

If you did not

get a W-2,

see page 22. Form

Married filing separately. Enter spouse’s SSN above

and full name here. 

Cat. No. 11320B





Label

Form 1040 (2004)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) If

the qualifying person is a child but not your dependent, enter

this child’s name here. 

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

25

26

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

Boxes checked

on 6a and 6b

No. of children on 6c who:

Dependents on 6c

not entered above

Add numbers on

lines above 

● lived with you

● did not live with

you due to divorce

or separation

(see page 21)

34a 34a

Student loan interest deduction (see page 31)

33

35

Important!

Yes No

Note. Checking “Yes” will not change your tax or reduce your refund.

Do you, or your spouse if filing a joint return, want $3 to go to this fund? 

You must enter

your SSN(s) above.

No Yes

You Spouse

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

36

4

5

Deduction for clean-fuel vehicles (see page 29) 23

b Qualified dividends (see page 23) 9b

2004

24 Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

28 Health savings account deduction. Attach Form 8889 28

JAY R MADISON XXX XX XXXX

SANDRA H MADISON XXX XX XXXX

99 DOUGLAS AVE

YOUR CITY, STATE, ZIP

✘ ✘

✘

✘

✘

2

2

7,820

18,946

14,264 949

27,715

27,715
CP-26 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 19 (continued)—Madison Form 1040

Proof as of

June 18, 2004

(subject to change)

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 63 through 69. These are your total payments 

Form 1040 (2004) Page 2

37 Amount from line 36 (adjusted gross income) 37

Check

if:

38a

Tax and

Credits

38a

Single or

Married filing

separately,

$4,850

If you are married filing separately and your spouse itemizes deductions, or

you were a dual-status alien, see page 34 and check here 

b

38b

39 39

40 Subtract line 39 from line 37 40

41

If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on

line 6d. If line 37 is over $107,025, see the worksheet on page 35

41

42 Taxable income. Subtract line 41 from line 40. If line 41 is more than line 40, enter -0- 42

43 43

47

48

53

Education credits. Attach Form 8863

46

51

Other credits. Check applicable box(es):

50

55

56

Add lines 46 through 54. These are your total credits

50

Subtract line 55 from line 45. If line 55 is more than line 45, enter -0- 

55

Self-employment tax. Attach Schedule SE

56

Other

Taxes

57

71

Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59

58

60

Add lines 56 through 61. This is your total tax 

61 61

63 Federal income tax withheld from Forms W-2 and 1099 63

64 2004 estimated tax payments and amount applied from 2003 return 64

Payments

65

Amount paid with request for extension to file (see page 56) 68

67

Excess social security and tier 1 RRTA tax withheld (see page 56) 66

68

70

69 Other payments from:

72a 72a

73 73

If line 70 is more than line 62, subtract line 62 from line 70. This is the amount you overpaid

74 74

Amount of line 71 you want refunded to you 

Refund

75

Amount of line 71 you want applied to your 2005 estimated tax 

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and

belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

75

You were born before January 2, 1940, Blind.

Spouse was born before January 2, 1940, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

59

Household employment taxes. Attach Schedule H

60

69

Amount

You Owe

Sign

Here Your signature Date

Keep a copy

for your

records.

Spouse’s signature. If a joint return, both must sign. Date

Date Preparer’s SSN or PTIN Preparer’s

signature Check if

self-employed

Paid

Preparer’s

Use Only Firm’s name (or

yours if self-employed),

address, and ZIP code

EIN

Phone no.







Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 70 from line 62. For details on how to pay, see page 57 

b

Direct deposit?

See page 56

and fill in 72b,

72c, and 72d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

b

d





70

49

46

Retirement savings contributions credit. Attach Form 8880

57

58

Advance earned income credit payments from Form(s) W-2

71



Child tax credit (see page 40)

49 Credits from:

53

51

Additional child tax credit. Attach Form 8812

66

67

Head of

household,

$7,150

Married filing

jointly or

Qualifying

widow(er),

$9,700

Standard

Deduction

for—

Joint return?

See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

44

45

47

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 43 and 44 

Credit for child and dependent care expenses. Attach Form 2441

48

If you have a

qualifying

child, attach

Schedule EIC.

44

45

65

Spouse’s occupation

( )

Form 1040 (2004)

● People who

checked any

box on line

38a or 38b or who can be

claimed as a

dependent,

see page 34.

● All others:

Designee’s

name 

Do you want to allow another person to discuss this return with the IRS (see page 58)? Third Party

Designee Phone

no.  ( )

Yes. Complete the following. No

Personal identification

number (PIN) 

54

Foreign tax credit. Attach Form 1116 if required

54

a Form 8396 b Form 8859

52 52

Adoption credit. Attach Form 8839

62 62

Type:

c Form 8885

Total boxes  checked 

27,715

✘

✘ 2

11,600

16,115

6,200

9,915

600

600

600

600

2,560

2,560

1,960

1,960

✘

RETIRED

HOMEMAKER

Sxxxxxxxx

ANSWERS TO PROBLEMS
Comprehensive

Problems CP-27

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 20—Madison Schedule D

Proof as of

June 18, 2004

(subject to change)

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040)  Attach to Form 1040.  See Instructions for Schedule D (Form 1040). Department of the Treasury

Internal Revenue Service

Attachment  Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss)

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from Schedule D-1,

line 2

2

Total short-term sales price amounts. Add lines 1 and 2 in

column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

7

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from Schedule D-1,

line 9

9

10 Total long-term sales price amounts. Add lines 8 and 9 in

column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or

(loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from

Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

14

15

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss

Carryover Worksheet on page D-5 of the Instructions ( )

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f). Then go to

Part III on the back 15

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11338H Schedule D (Form 1040) 2004

( )

4 4

Part I

Part II

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

2004

7

(f) Gain or (loss)

Subtract (e) from (d)

JAY R AND SANDRA H MADISON XXX XX XXXX

100 SHARES ABC INC 12/01/85 07/15/04 5,124 2,400 2,724

200 SHARES XYZ 12/20/87 11/14/04 10,796 5,700 5,096

15,920

7,820

ANSWERS TO PROBLEMS
CP-28 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 20 (continued)—Madison Schedule D

Proof as of

June 18, 2004

(subject to change)

Schedule D (Form 1040) 2004

Printed on recycled paper

Summary

Combine lines 7 and 15 and enter the result. If line 16 is a loss, skip lines 17 through 20, and

go to line 21. If a gain, enter the gain on Form 1040, line 13

16

16

18

Part III

Page 2

18 Enter the amount, if any, from line 7 of the 28% Rate Gain Worksheet on page D-7 of the

instructions 

Are lines 18 and 19 both zero or blank?

19

Schedule D (Form 1040) 2004

21

Enter the amount, if any, from line 18 of the Unrecaptured Section 1250 Gain Worksheet on

page D-8 of the instructions 

20

21 If line 16 is a loss, enter here and on Form 1040, line 13, the smaller of:

19

● The loss on line 16 or

● ($3,000), or if married filing separately, ($1,500) 

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040. Do not complete

lines 21 and 22 below.

No. Complete the Schedule D Tax Worksheet on page D-10 of the instructions. Do not

complete lines 21 and 22 below.

22 Do you have qualified dividends on Form 1040, line 9b?

Yes. Complete Form 1040 through line 42, and then complete the Qualified Dividends and

Capital Gain Tax Worksheet on page 37 of the Instructions for Form 1040.

No. Complete the rest of Form 1040.

( )

17 Are lines 15 and 16 both gains?

Yes. Go to line 18.

No. Skip lines 18 through 21, and go to line 22.

Note. When figuring which amount is smaller, treat both amounts as positive numbers.

7,820

✘

0

0

✘

ANSWERS TO PROBLEMS
Comprehensive

Problems CP-29

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 21—Madison Social Security Benefits Worksheet

Proof as of

June 18, 2004

(subject to change)

Social Security Benefits Worksheet—Lines 20a and 20b Keep for Your Records

Before you begin:  Complete Form 1040, lines 21, 23 through 25, and 28 through 34a, if they apply

to you.

 Figure any write-in adjustments to be entered on the dotted line next to line 35

(see page 33).

 If you are married filing separately and you lived apart from your spouse for all

of 2004, enter “D” to the right of the word “benefits” on line 20a.

 Be sure you have read the Exception on page 27 to see if you can use this

worksheet instead of a publication to find out if any of your benefits are taxable.

1. Enter the total amount from box 5 of all your Forms SSA-1099 and

Forms RRB-1099 .......................................... 1.

2. Enter one-half of line 1 ...................................................... 2.

3. Enter the total of the amounts from Form 1040, lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17

through 19, and 21 .......................................................... 3.

4. Enter the amount, if any, from Form 1040, line 8b .................................. 4.

5. Add lines 2, 3, and 4 ........................................................ 5.

6. Enter the total of the amounts from Form 1040, lines 23 through 25, and 28 through 34a, plus

any write-in adjustments you entered on the dotted line next to line 35 ................... 6.

7. Is the amount on line 6 less than the amount on line 5?

No. STOP None of your social security benefits are taxable.

Yes. Subtract line 6 from line 5 ............................................. 7.

8. If you are:

• Married filing jointly, enter $32,000

• Single, head of household, qualifying widow(er), or married filing

separately and you lived apart from your spouse for all of 2004, enter

$25,000 } .............. 8.

• Married filing separately and you lived with your spouse at any time

in 2004, skip lines 8 through 15; multiply line 7 by 85% (.85) and enter

the result on line 16. Then go to line 17

9. Is the amount on line 8 less than the amount on line 7?

No. STOP None of your social security benefits are taxable. You do not have to enter any

amounts on line 20a or 20b of Form 1040. But if you are married filing

separately and you lived apart from your spouse for all of 2004, enter -0- on line

20b. Be sure you entered “D” to the right of the word “benefits” on line 20a.

Yes. Subtract line 8 from line 7 ............................................. 9.

10. Enter: $12,000 if married filing jointly; $9,000 if single, head of household, qualifying

widow(er), or married filing separately and you lived apart from your spouse for all of 2004 . . 10.

11. Subtract line 10 from line 9. If zero or less, enter -0- ................................ 11.

12. Enter the smaller of line 9 or line 10 ............................................ 12.

13. Enter one-half of line 12 ..................................................... 13.

14. Enter the smaller of line 2 or line 13 ............................................ 14.

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- ............................ 15.

16. Add lines 14 and 15 ........................................................ 16.

17. Multiply line 1 by 85% (.85) .................................................. 17.

18. Taxable social security benefits. Enter the smaller of line 16 or line 17 ................. 18.

• Enter the amount from line 1 above on Form 1040, line 20a.

• Enter the amount from line 18 above on Form 1040, line 20b.

If part of your benefits are taxable for 2004 and they include benefits paid in 2004 that were for an earlier year,

you may be able to reduce the taxable amount. See Pub. 915 for details. TIP

14,264.00

7,132.00

26,766.00

33,898.00

✘ 33,898.00

32,000.00

✘ 1,898.00

12,000.00

0.00

1,898.00

949.00

949.00

0.00

949.00

12,124.00

949.00

ANSWERS TO PROBLEMS
CP-30 Comprehensive

Problems

PENSION EARNER 

PENSION EARNER COMPREHENSIVE

PROBLEMS

Exhibit 22—Madison Tax Computation

Proof as of

June 18, 2004

(subject to change)

Qualified Dividends and Capital Gain Tax Worksheet—Line 43 Keep for Your Records

Before you begin:  See the instructions for line 43 on page 36 to see if you can use this worksheet to

figure your tax.

 If you do not have to file Schedule D and you received capital gain distributions,

be sure you checked the box on line 13 of Form 1040.

1. Enter the amount from Form 1040, line 42 .................................1.

2. Enter the amount from Form 1040, line 9b ..................... 2.

3. Are you filing Schedule D?

Yes. Enter the smaller of line 15 or 16 of Schedule D, but

do not enter less than -0- } . . 3.

No. Enter the amount from Form 1040, line 13

4. Add lines 2 and 3 ....................................... 4.

5. If you are claiming investment interest expense on Form 4952, enter

the amount from line 4g of that form. Otherwise, enter -0- ......... 5.

6. Subtract line 5 from line 4. If zero or less, enter -0- ..........................6.

7. Subtract line 6 from line 1. If zero or less, enter -0- ..........................7.

8. Enter the smaller of:

• The amount on line 1 or

• $29,050 if single or married filing separately, } .........8.

$58,100 if married filing jointly or qualifying widow(er), or

$38,900 if head of household.

9. Is the amount on line 7 equal to or more than the amount on line 8?

 Yes. Skip lines 9 through 11; go to line 12 and check the ‘‘No’’ box.

No. Enter the amount from line 7 ....................................9.

10. Subtract line 9 from line 8 .............................................10.

11. Multiply line 10 by 5% (.05) .......................................................11.

12. Are the amounts on lines 6 and 10 the same?

 Yes. Skip lines 12 through 15; go to line 16.

No. Enter the smaller of line 1 or line 6 ...............................12.

13. Enter the amount from line 10 (if line 10 is blank, enter -0-) ....................13.

14. Subtract line 13 from line 12 ...........................................14.

15. Multiply line 14 by 15% (.15) ......................................................15.

16. Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................16.

17. Add lines 11, 15, and 16 ..........................................................17.

18. Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever

applies .......................................................................18.

19. Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form

1040, line 43 ...................................................................19.

9,915.00

✘

7,820.00

7,820.00

7,820.00

2,095.00

9,915.00

✘ 2,095.00

7,820.00

391.00

✘

209.00

600.00

993.00

600.00

ANSWERS TO PROBLEMS
Appendix N-A-1

INTEGRATED TRAINING

The volunteer tax preparation program must continuously seek the 

most efficient and effective training method.

Integrated training combines tax law training with tax preparation software training. The goal is a certified volunteer in less time 

than teaching tax law and tax software separately. Additional goals 

include:

■ Making integrated training more interesting, less fatiguing and 

less intimidating than traditional methods,

■ Achieving higher training retention, and

■ Achieving tax law learning objectives as outlined in the 

Publication 678, Volunteer Assistor’s Guide, lessons.

The training plan presented here is one approach to accomplishing 

integrated training. Instructors may need to modify the process to 

fit their particular training requirements.

Instructors

An instructional team with both tax law and TaxWise (application) 

expertise should conduct the class. At a minimum, instructors are 

certified by the successful completion of the student test booklet, 

VITA/TCE Student Testing Materials, Form 6744. Additional 

assistant instructors can be assigned based on class size—ideally 

one assistant for five students.

Classroom

Integrated training class size should be 20 students or less.

The classroom should have:

■ A computer for each student 

■ An instructor station with computer and projector

■ Table space for documents

Instructors should be aware of computer storage limitations in 

some computer labs. For example, some university computer labs 

do not allow students to save training exercises to lab computers. 

In this case, instructors will need to ensure students have disks or 

CDs to save their work for the next day. 

Student Materials

■ Form 1040 (and Form 1040 Instructions)

■ IRS Publication 678 (678M for military), Volunteer Assistor’s 

Guide

■ IRS Publication 4012, Volunteer Resource Guide

■ Publication 17, Your Federal Income Tax for Individuals, if 

available

■ State training materials (as appropriate)

Appendix A 
N-A-2 Appendix

Testing and Certification

Students are encouraged to complete the test using tax software 

where appropriate. The requirements for certification are the same 

as through the traditional training approach.

Evaluations

Evaluations by instructors and students are vital. Please refer 

to the evaluation procedures found in the traditional training 

instructor notes.

Overview

The suggested approach to integrated training is to introduce 

a segment of tax law (with views and examples from the actual 

software as well as the paper forms) followed by software 

navigation and implementation of that tax law using tax software. 

At appropriate times, students are provided the opportunity to 

work exercises on their own to reinforce what they have just 

learned. This process is continued until all of the tax law is covered.

Exercises

There are three types of exercises in this approach:

1. Comprehensive Training Exercises (CTE): There are 

two comprehensive exercises the instructor and student work 

together. As the instructor works the exercise, the instructor’s 

tax screen is displayed so students can emulate the instructor’s 

entries. This part of the training should focus on an interactive 

approach—ask questions and show the results of entries in the 

application. 

 Comprehensive Training Exercise A covers most course material 

except Earned Income Credit (EIC) and Child Tax Credit (CTC).

 Comprehensive Training Exercise B covers EIC, Advance EIC, 

CTC and Additional CTC.

 After the instructor and students together complete a section 

of the comprehensive exercise, the correct Federal Tax Liability 

is listed. The student can compare this tax liability with the 

number in the bottom left-hand corner of the TaxWise screen or 

select F7 and compare it to the Refund Due line. If the two numbers agree, there is a high probability the student has properly 

entered the information. If not, the instructor can work with the 

student to correct the entry before proceeding to the next section.
Appendix N-A-3

2. Individual Exercises: Ten individual exercises are provided 

for students to work independently. These exercises are 

designed to allow the students to practice what they have 

learned in the comprehensive exercise. 

3. Supplemental Exercises: References to supplemental 

exercises indicate the student will return to a previously 

completed individual exercise. The supplemental exercises 

provide additional information for the student to input into the 

software. These supplemental exercises follow the delivery of 

the related tax law. The supplemental exercises are annotated 

as optional. As time permits use them to reinforce the learning 

process. 

Training Exercise Contents: Table I depicts the relationship 

between the exercise number, the training module, and the Form 

1040 line. The darkened area shows which modules should be 

covered before beginning a specific exercise. For example, Exercises 

1 and 2 should be completed after Training Module 1 and 2 have 

been presented. The x’s indicate which Form 1040 line numbers 

are covered in a particular exercise. The supplemental exercises 

are used to reopen previously completed exercises. For example, 

Supplemental Exercise 1 (S1) is opened following completion of 

Module 5 in order to add Forms 1099-R to Exercises 3 and 4 which 

were completed earlier.
N-A-4 Appendix

2003

1040

Line#

2004

1040

Line#

SUBJECT Exercises

Exercise Number CTE A CTE B 1 2 3 4 5 6 7 89 10

Module 1 

 Filing Status MFJ QW MFJ S MFS QW MFJ S MFJ HH HH MFJ

 TaxPayer or Spouse Blind X

 Decedent Return X 

 Dependent of another X 

6 6 Dependents—Children X X X X X X X X X 

6 6 Dependents—Other X X X X

Module 2 

7 7 W-2 X X X X X X X X X X 

8 8 Interest X X X X X X X X X X X

 Seller financed interest X X 

8b 8b Interest—Non-Taxable X X 

9 9 Dividends X X X X X X

Module 3 

10 10 Taxable Refunds X X 

11 11 Alimony Income X X 

12 12 Small Business (C-EZ) X X X 

Module 4 

13 13 Capital Gain X X X X X

Module 5 

15a 15a IRA Distribution (Code 7) X X 

15a 15a IRA Distribution (Code G) X S1 

 IRA Distribution (Code 1) S1 

16a 16a Pension Income—All Taxable X X X X

16a 16a Pension Income W/ Contributions X X

16a 16a Railroad Retirement Benefits X 

19 19 Unemployment Compensation X X 

20a 20a Social Security Benefits X X X

20a 20a Railroad Retirement—Tier 1 X 

21 21 Other Income—W2G X X 

Module 6 

24 25 IRA Deduction X S2 

25 26 Student Loan Interest Deduct X S2 

1 27/48 Tuition and Fees Deductions X S2 X 

32A 34A Alimony Paid X S2 

Module 7 

37 39 Itemized Deductions X X 

Module 8

45 46 Child & Dependent Care X S3 S3 

46 47 Credit for the Elderly 

44 50 Foreign Tax Credit X X

49 51 Child Tax Credit X X X X X X X X 

48 52 Retirement Savings Credit X X 

56 58 SS & MC Tax on Unreported Tips X 

Module 9 

58 60 Advance EIC X X 

 EITC Worksheets X X X 

65 65 Earned Income Tax Credit X X X 

Module 10 

63 64 Estimated Tax Payments X S4 X

65 67 Additional Child Tax Credit X X 

70/72 72/74 Direct Deposit/Debit X S4 S5 

73 75 Underpayment Penalty S6 

 Installment Payments S6 

 Use PINS X S7 S7

S# = Supplemental Exercises (performed by reopening an exercise after initial completion of the exercise) 
Appendix N-A-5

Process

Tax law is presented beginning with the data collected for the 

TaxWise Main Information Sheet and then in the order it appears 

on IRS Form 1040. The modules and their associated Publication 

678 lessons are:

Module 1 Lesson 1, Getting Started

Lesson 2, Filing Status and Filing Requirements

Module 2 Lesson 3, Income (Wages, Interest, & Dividends)

Module 3 Lesson 3, Income (Taxable Refund, Alimony and 

Business Income)

Module 4 Lesson 12, Sale of Stock

Lesson 13, Sale of Home

Module 5 Lesson 3, Income (Unemployment Compensation 

and Other Income) 

Lesson 14, Pensions 

Module 6 Lesson 4, Adjustments

Module 7 Lesson 5, Standard and Itemized Deductions

Module 8 Lesson 6, Miscellaneous Credits

Lesson 8, Credit for Child and Dependent Care 

Expenses

Lesson 9, Education Credits

Lesson 11, Child Tax Credit

Module 9 Lesson 10, Earned Income Credit

Module 10 Lesson 7, Finishing the Return

Lesson 11, Additional Child Tax Credit

Directions

The exercises are designed to be completed by the student at appropriate times during the lesson.

■ The 2003 exercise answers were derived using TaxWise 2003 

(TW03). Because this publication goes to print long before 

TaxWise 2004 (TW04) is released and because tax law changes 

have not been finalized, the answers for 2004 are estimates 

based on the best information available at the time of 

publication.

■ If TaxWise 2003 is used, assume no Advanced Child Tax Credit 

was received and check box 3 on 1040 Worksheet 3.

■ If TaxWise 2003 is used, reduce all year values by one year. For 

example, Comprehensive Exercise 1, Line 10, states John and 

Jane itemized deductions in 2003. If you are using TaxWise 

2003 software, change the year to 2002. 

■ All of the tax forms are for 2004. If TaxWise 2003 is used, 

assume the forms are for 2003. 

■ Use the “Training” User Name when completing these exercises. 

This user name requires all social security numbers and EIN’s 

begin with three unique numbers followed by the EFIN. See the 

table below for suggested exercise social security number and 

EIN assignments.
N-A-6 Appendix

Suggested Training User SSNs/EINs

Exercise Taypayer SSN Additional SSNs/EINs As Needed

1 011-EFIN 012-EFIN, 013-EFIN........

2 021-EFIN 022-EFIN, 023-EFIN.......

3 031-EFIN 032-EFIN, 033-EFIN.......

4 041-EFIN 042-EFIN, 043-EFIN.......

5 051-EFIN 052-EFIN, 053-EFIN.......

6 061-EFIN 062-EFIN, 063-EFIN.......

7 071-EFIN 072-EFIN, 073-EFIN.......

8 081-EFIN 082-EFIN, 083-EFIN.......

9 091-EFIN 092-EFIN, 093-EFIN.......

10 101-EFIN 102-EFIN, 103-EFIN.......

COMP A 111-EFIN 112-EFIN, 113-EFIN.......

COMP B 121-EFIN 122-EFIN, 123-EFIN.......

■ For entering telephone numbers, enter your telephone number 

or use 200 as the area code plus any other numbers.

■ It is recommended that identical “Initial Forms” setup be established on all computers.

■ If your state has an income tax, enter your state abbreviation. If 

your state has no income tax, check the box indicating no state 

return is being prepared.

■ If an automatic debit withdrawal is requested for tax due, the 

Payment Date must be later than the current date.

■ None of the taxpayers excluded any Puerto Rico income from 

their tax return.

■ None of the taxpayers had an interest in or a signature or other 

authority over a financial account in a foreign country. None of 

the taxpayers received a distribution from, or were grantors of, 

or transferors to a foreign trust. This is information needed to 

complete the Schedule B for interest income.

■ For C-EZ forms, assume the business vehicle was placed in 

service on January 1 of the tax year and is available for use 

during off-duty hours. Other mileage was 10,000 miles and the 

taxpayer has written records. The taxpayer has another vehicle 

available for personal use.

■ In those exercises that request Self Select PINS be used, the 

return may not qualify. To ensure the return qualifies to be 

signed by a PIN do not enter the PIN data until all other tax 

data has been entered, then return to the Main Information 

Sheet and check under the “Self Select and Practitioner PIN” 

section. If the return qualifies, fill in the necessary information. 

If the return does not qualify, Form 8453 must be used. 
Appendix N-A-7

■ Each exercise is be completed to the point of obtaining the correct AGI, Taxable Income and refund/due amount and achieving “Return is eligible for electronic filing” when running the 

diagnostic checks (except for Married Filing Separately returns 

which aren’t eligible for e-file in some states such as community 

property states). 

■ Some of the exercises will be reopened and additional information added as additional tax law is covered.

Publication 4012, Volunteer Resource Guide

Publication 4012 can be very helpful for training and as a 

resource when performing tax preparation using tax software. 

Page references to this guide are included in the following suggested class schedule.

Suggested Class Schedule

The schedule is designed for a four day class for beginning computer literate students with a fifth day as needed for state returns, 

completing exercises or other training.
N-A-8 Appendix

Day

1

Topic

Suggested 

Teaching Time

Page References

 Pub Pub 

 678 4012 

Welcome & Introductions

Administrative 15 minutes

E-File Background

15 minutes Introduction of TaxWise 29 to 31

Enter Comprehensive Training Exercise A (CTE A) and 

input entity data 15 minutes 32 to 33

Module 1 

Lesson 1 Exemptions, Dependents 45 minutes 1-1 to 1-21 9 to 14

Open CTE A and input exemptions and dependents 15 minutes 34

Break 15 minutes

Lesson 2 Filing Status 45 minutes 2-1 to 2-10 7 to 8

Open CTE A and input filing status 15 minutes 33

Lesson 2 Filing Requirements 15 minutes 2-15 to 2-19 3 to 4

Module 2 

Lesson 3 Wages 30 minutes 3-1 to 3-9

Open CTE A and input Forms W-2 15 minutes 37 to 39

Lunch 45 minutes

Lesson 3 Interest 30 minutes 3-9 to 3-17

Open CTE A and input Forms 1099-INT 15 minutes 40 to 41

Lesson 3 Dividends 30 minutes 3-17 to 3-21

Open CTE A and input Form 1099-DIV 15 minutes 42 to 43

Break 15 minutes

Individual Exercise 1 — David Chapman 30 minutes

Individual Exercise 2 — Ashley Madison 30 minutes

Using Exercise 2, get the red out, run diagnostics, create 

e-file, print

30 minutes

Notes:

After teaching basic tax law on wages, interest, and dividends you may find it easier to wrap up each of the 

subjects with TaxWise open to the applicable TaxWise forms. New volunteers may find this less confusing. 

Depending on the experience level of the students, you may need to shift the individual exercises to Day 2. 

Inexperienced volunteers need as much time as possible to walk through TaxWise and input the data for the 

comprehensive training exercise.
Appendix N-A-9

Day

2

Topic

Suggested 

Teaching

Time

Page References

 Pub Pub

 678 4012

Module 3 

Lesson 3 Tax Refund & Alimony 15 minutes 3-21 to 3-22

Open CTE A and input Form 1099-G and alimony 15 minutes

Lesson 3 Self Employment 30 minutes 3-21 to 3-27

Open CTE A and input Form 1099-Misc 30 minutes 44

Individual Exercise 3 — Susanne Denison 30 minutes

Break 15 minutes

Module 4

Lesson 12 Sale of Stock 45 minutes 12-1 to 12-23

Open CTE A and input stock transactions 30 minutes 45

Lesson 13 Sale of Home 15 minutes 13-1 to 13-5

Lunch 45 minutes

Individual Exercise 4 — Clark Knox 30 minutes

Individual Exercise 5 — Andrew Howard 30 minutes

Module 5 

Lesson 14 IRA Distributions 30 minutes 14-16 to 14-18

Open CTE A and input Form 1099-R for IRA distribution 15 minutes 47

Break 15 minutes

Lesson 14 Pensions and Annuities 30 minutes 14-1 to 14-10

Open CTE A and input Form 1099-R for pension 30 minutes 47

Lesson 3 Unemployment Compensation 15 minutes 3-28

Open CTE A and input Form 1099-G 15 minutes

Notes:

After teaching basic tax law on self-employment, sale of stock, IRA distributions and pensions, you may find 

it easier to wrap up each of the subjects with TaxWise open to the applicable TaxWise forms. New volunteers 

may find this less confusing.

Depending on the experience level of the students, you may need to make optional Exercise 4 and Exercise 

5. These exercises can be used as homework.
N-A-10 Appendix

Day

3

Topic 

Suggested 

Teaching 

Time

Page References

 Pub Pub

 678 4012

Lesson 14 Social Security Benefits 15 minutes 14-13 to 14-16

Open CTE A and input Form SSA-1099 15 minutes 48

Lesson 3 Other Income 15 minutes

Open CTE A and input Form W-2G 15 minutes

Optional Supplemental Exercise S-1

Open Exercise 3 (Susanne Denison) and add Form 1099-B 

Open Exercise 4 (Clark Knox) and add Form 1099-R

(30 minutes)

Individual Exercise 6 — James Gordon 30 minutes

Break 15 minutes

Module 6 

Lesson 4 IRA Deductions 30 minutes 4-1 to 4-15

Open CTE A and input the traditional IRA deduction 15 minutes 49

Lesson 4 Student Loan Interest, Tuition and Fees, and 

Alimony Paid Deductions

30 minutes 4-17 to 4-24

Open CTE A and input student loan interest, tuition and 

fees, and alimony paid

15 minutes

49

Optional Supplemental Exercise S-2 

Open Exercise 2 (David Chapman) and add Student Loan 

Interest

Open Exercise 3 (Susanne Denison) and add tuition, 

books and lab fees either as an adjustment to income or 

as education credits

Open Exercise 5 (Andrew Howard) and add alimony paid 

to first wife

(45 minutes)

Lunch 45 minutes

Module 7 

Lesson 5 Standard and Itemized Deductions and Tax 

Computation

45 minutes 5-1 to 5-14

Open CTE A and input itemized deductions 30 minutes 51 to 54

Individual Exercise 7 — Troy McCook 30 minutes

Break 15 minutes

Module 8 

Lesson 6 Miscellaneous Tax Credits 30 minutes 6-1 to 6-11

Discuss the effects of these tax credits on TaxWise 55

Lesson 8 Credit for Child and Dependent Care Expenses 30 minutes 8-1 to 8-6

Open CTE A and input daycare expenses 56

Lesson 9 Education Credits 30 minutes 9-1 to 9-10

Open CTE A and input the tuition expenses 57

Lesson 11 Child Tax Credit 15 minutes 11-1 to 11-7

Discuss the automatic calculation for CTC 15 minutes

Optional Supplemental Exercise S-3

Open Exercise 2 (David Chapman) and add dependent care

Open Exercise 5 (Andrew Howard) and add dependent care

(30 minutes)

Notes:

Teaching times for the optional exercises are shown in parentheses. These times are not figured into the 

total teaching time for the day. Depending on the experience level of your volunteers you may not be able 

to complete these exercises. However, you may want to assign them as homework.

After teaching basic tax law on social security benefits, the adjustments to income and the nonrefundable 

credits, you may find it easier to wrap up each of the subjects with TaxWise open to the applicable TaxWise 

forms. New volunteers may find this less confusing.
Appendix N-A-11

Day

4

Topic

Suggested 

Teaching 

Time

Page References

 Pub Pub

 678 4012

Module 9 

Lesson 10 Earned Income Credit 1 hour 10-1 to 10-31

Comprehensive Exercise B 

Complete a new return through Additional CTC

45 minutes

60

Individual Exercise 8 — John Reed 30 minutes

Break 15 minutes

Module 10

Lesson 7 Finishing the Return 45 minutes 7-1 to 7-26

Open CTE A, add Estimated Tax Payments and finish return 30 minutes 61

Discuss Diagnostics, Printing, Signing 30 minutes

Lunch 45 minutes

Sign return using Self Select PIN 15 minutes 62

Optional Supplemental Exercise S-4

Open Exercise 4 (Clark Knox) and add estimated payments (15 minutes)

Optional Supplemental Exercise S-5 

Open Exercise 7 (Troy McCook) for direct deposit/debit as required (15 minutes)

Optional Supplemental Exercise S-6 

Open Exercise 6 (James Gordon) and complete Form 2210 

Open Exercise 5 (Andrew Howard) and prepare installment payments and request wavier of underpayment if needed(15 minutes)

Optional Supplemental Exercise S-7 

Open Exercise 8 (John Reed) and sign return using Self Select PIN

Open Exercise 4 (Clark Knox) and sign return using Self Select PIN. (15 minutes)

Summary & Review

Changes to Tax Law, TaxWise 2004 Update, Common Errors, 

Questions

60 minutes

Break 15 minutes

Individual Exercise 9 30 minutes

Individual Exercise 10 30 minutes

Notes:

Teaching times for the optional exercises are shown in parentheses. These times are not figured into the total teaching 

time for the day. Depending on the experience level of your volunteers you may not be able to complete these exercises. However, you may want to assign them as homework.

Exercise 9 and Exercise 10 are comprehensive exercises. Students should use these exercises to practice and hone their 

skills in completing tax returns using tax preparation software.

Day

5

Topic

Suggested 

Teaching 

Time

Page References

 Pub Pub

 678 4012

Welcome returning experienced volunteers 15 minutes

Summary and review of tax law and TaxWise, common errors, and 

questions 45 minutes

Break 15 minutes

State Return 2 hours

Lunch 45 minutes

Optional Review Test/ Complete any remaining exercises and/or 

practice (2 hours)

Notes:

Day 5 is an optional day for returning volunteers and to teach any specific state tax issues.
N-A-12 Appendix

TRAINING EXERCISE ANSWERS

Using TaxWise 2003 

Exercise # AGI (Line 34)

Taxable

Income

(Line 40)

Total

Tax

(Line 60)

Total

Payment

(Line 68)

Federal

Refund/(Due)

(Lines 70/72)

CTE A

Davidson 76,965 52,344 5,846 6,084 119

CTE B

Hood 24,612 5,412 1,200 4,008 2,808

1

Chapman 59,574 40,924 4,410 5,384 974

2

Madison 7,002 2,252 431 453 22

3

Denison 42,766 31,916 5,679 6,934 1,255

4

Knox 39,689 24,089 1,721 2,587 866

5

Howard 58,966 40,316 4,046 2,539 (1,507)

6

Gordon 33,273 24,323 3,282 1,478 (1,846) w/42 penalty 

7

McCook 50,727 26,533 2,157 1,580 (577)

8

Reed 26,596 10,446 0 3,677 3,677

9

Rosemont 29,042 15,942 1,131 2,487 1,356

10

Sterling 54,937 34,387 3,606 3,494 (112)

S1-EX 3

Denison NO CHG

S1-EX4

Knox 49,689 34,089 4,221 3,587 (634)

S2-EX1.a

Chapman 57,574 38,924 4,110 5,384 1,274

S2-EX1.b

Chapman 57,257 38,607 4,065 5,384 1,319

S2-EX3

Denison NO CHG

S2-EX5

Howard 54,766 36,116 3,416 2,539 (877)

S3-EX1

Chapman 57,257 38,607 3,690 5,384 1,694

S3-EX5

Howard 54,766 36,116 3,057 2,539 (518)

S4-EX4

Knox 49,689 34,089 4,221 4,687 466

S5-EX 7

McCook NO CHG

S6-EX6

Gordon NO CHG NO CHG NO CHG NO CHG

 (1,804) w/19 penalty 

removed

S7-EX4&8 NO CHG
Appendix N-A-13

TRAINING EXERCISE ANSWERS

Using TaxWise 2004 

Exercise # AGI

(Line 36)

Taxable

Income

(Ln 42)

Total

Tax

(Line 62)

Total

Payment

(Line 70)

Federal

Refund/(Due)

(Lines 72/74)

Std

Ded

Pers 

Exemp

CTE A

Davidson

CTE B

Hood 24,612 5,062 1,200 4,144 2,944 7,150 12,400

1

Chapman 59,574 40,574 4,337 5,384 1,047 9,700 9,300

2

Madison 7,002 2,152 421 453 32 4,850 0

3

Denison 42,766 31,716 5,557 6,934 1,377 4,850 6,200

4

Knox 39,689 23,789 1,462 2,587 1,125 9,700 6,200

5

Howard 58,966 39,960 3,850 2,539

(1,338)

$27 Penalty 9,700 9,300

6

Gordon 33,273 24,123 3,240 1,478

(1,803)

$41 Penalty 6,050 3,100

7

McCook 50,727 26,360 2,075 1,580 (495) 15,067 9,300

8

 Reed 26,596 10,146 0 3,884 3,884 7,150 9,300

9

Rosemont 29,039 15,689 1,082 2,648 1,566 7,150 6,200

10

Sterling 54,937 34,037 3,181 3,494 313 11,600 9,300

S1-EX 3

Denison NO CHG

S1-EX4

Knox 49,689 33,789 4,112 3,587 (525)

S2-EX1.a

Chapman 57,574 38,574 4,064 5,384 1,320

S2-EX1.b

Chapman 57,257 38,257 3,992 5,384 1,392

S2-EX3

Denison NO CHG

S2-EX5

Howard 54,766 35,766 3,220 2,539 (681)

S3-EX1

Chapman 57,257 38,257 3,617 5,384 1,767

S3-EX5

Howard 54,766 35,766 2,861 2,539 (322)

S4-EX4

Knox 49,689 33,789 4,112 4,687 575

S5-EX 7

McCook NO CHG

S6-EX6

Gordon NO CHG NO CHG NO CHG NO CHG

(1,762)

without Pen.

S7-EX4&8 NO CHG
N-A-14 Appendix

STUDENT NOTES
Appendix A-1

APPENDIX

 INTEGRATED TRAINING

The volunteer tax preparation program must continuously 

seek the most efficient and effective training method.

Integrated training combines tax law training with tax 

preparation software training. The goal is a certified 

volunteer in less time than teaching tax law and tax 

software separately. Additional goals include:

■ Making integrated training more interesting, less 

fatiguing and less intimidating than traditional 

methods,

■ Achieving higher training retention, and

■ Achieving tax law learning objectives as outlined 

in the Publication 678, Volunteer Assistor’s Guide, 

lessons.

Testing and Certification

You are encouraged to complete the test using tax software 

where appropriate. The requirements for certification are 

the same as the traditional training approach.

Evaluations

Evaluations by instructors and students are vital. 

Please refer to the evaluation procedures found in the 

traditional training material.

Overview

The suggested approach to integrated training is to introduce a segment of tax law (with views and examples from 

the actual software as well as the paper forms) followed by 

software navigation and implementation of that tax law 

using tax software. At appropriate times, you are provided 

the opportunity to work exercises on your own to reinforce 

what you have just learned. This process is continued until 

all of the tax law is covered.

Exercises

There are three types of exercises in this approach:

1. Comprehensive Training Exercises (CTE):

There are two comprehensive exercises you and your 

instructor will work together. As the instructor works 

the exercise, the instructor’s tax screen is displayed so 

you can emulate the instructor’s entries. This part of 

the training should focus on an interactive approach—

ask questions and see the results of 

entries in the application. 

Appendix
A-2 Appendix

APPENDIX

Comprehensive Training Exercise A covers most course material 

except Earned Income Credit (EIC) and Child Tax Credit (CTC).

Comprehensive Training Exercise B covers EIC, Advance EIC, CTC 

and Additional CTC.

After you and the instructor together complete a section of the 

comprehensive exercise, the correct Federal Tax Liability is listed. 

You can compare this tax liability with the number in the bottom 

left-hand corner of the TaxWise screen or select F7 and compare it 

to the Refund Due line. If the two numbers agree, there is a high 

probability you have properly entered the information. If not, the 

instructor can work with you to correct the entry before proceeding 

to the next section.

2. Individual Exercises: Ten individual exercises are provided 

for you to work independently. These exercises are designed 

to allow you to practice what you have learned in the comprehensive exercise. 

3. Supplemental Exercises: References to supplemental exercises 

indicate you will return to a previously completed individual 

exercise. The supplemental exercises provide additional information for you to input into the software. These supplemental 

exercises follow the delivery of the related tax law. 

Process

Tax law is presented beginning with the data collected for the 

TaxWise Main Information Sheet and then in the order it appears 

on IRS Form 1040. The modules and their associated Publication 

678 lessons are:

Module 1 Lesson 1, Getting Started

Lesson 2, Filing Status and Filing Requirements

Module 2 Lesson 3, Income (Wages, Interest, & Dividends)

Module 3 Lesson 3, Income (Taxable Refund, Alimony and 

Business Income)

Module 4 Lesson 12, Sale of Stock

Lesson 13, Sale of Home

Module 5 Lesson 3, Income (Unemployment Compensation and 

Other Income) 

Lesson 14, Pensions 

Module 6 Lesson 4, Adjustments

Module 7 Lesson 5, Standard and Itemized Deductions

Module 8 Lesson 6, Miscellaneous Credits 

Lesson 8, Credit for Child and Dependent Care Expenses

Lesson 9, Education Credits

Lesson 11, Child Tax Credit

Module 9 Lesson 10, Earned Income Credit

Module 10 Lesson 7, Finishing the Return

Lesson 11, Additional Child Tax Credit
Appendix A-3

APPENDIX

Directions

The exercises are designed to be completed by the student at 

appropriate times during the lesson.

■ The 2003 exercise answers were derived using TaxWise 2003 

(TW03). Because this publication goes to print long before 

TaxWise 2004 (TW04) is released and because tax law changes 

have not been finalized, the answers for 2004 are estimates 

based on the best information available at the time of 

publication.

■ If TaxWise 2003 is used, assume no Advanced Child Tax Credit 

was received and check box 3 on 1040 Worksheet 3.

■ If TaxWise 2003 is used, reduce all year values by one year. For 

example, Comprehensive Exercise 1, Line 10, states John and 

Jane itemized deductions in 2003. If you are using TaxWise 

2003 software, change the year to 2002. 

■ All of the tax forms are for 2004. If TaxWise 2003 is used, 

assume the forms are for 2003. 

■ Use the “Training” User Name when completing these exercises. 

This user name requires all social security numbers and EIN’s 

begin with three unique numbers followed by the EFIN. See the 

table below for suggested exercise social security number and 

EIN assignments.

Suggested Training User SSNs/EINs

Exercise Taypayer SSN Additional SSNs/EINs As Needed

1 011-EFIN 012-EFIN, 013-EFIN........

2 021-EFIN 022-EFIN, 023-EFIN.......

3 031-EFIN 032-EFIN, 033-EFIN.......

4 041-EFIN 042-EFIN, 043-EFIN.......

5 051-EFIN 052-EFIN, 053-EFIN.......

6 061-EFIN 062-EFIN, 063-EFIN.......

7 071-EFIN 072-EFIN, 073-EFIN.......

8 081-EFIN 082-EFIN, 083-EFIN.......

9 091-EFIN 092-EFIN, 093-EFIN.......

10 101-EFIN 102-EFIN, 103-EFIN.......

COMP A 111-EFIN 112-EFIN, 113-EFIN.......

COMP B 121-EFIN 122-EFIN, 123-EFIN.......

■ For entering telephone numbers, enter your telephone number 

or use 200 as the area code plus any other numbers.

■ If your state has an income tax, enter your state abbreviation. If 

your state has no income tax, check the box indicating no state 

return is being prepared.
A-4 Appendix

APPENDIX

■ If an automatic debit withdrawal is requested for tax due, the 

Payment Date must be later than the current date.

■ None of the taxpayers excluded any Puerto Rico income from 

their tax return.

■ None of the taxpayers had an interest in or a signature or other 

authority over a financial account in a foreign country. None of 

the taxpayers received a distribution from, or were grantors of, 

or transferors to a foreign trust. This is information needed to 

complete the Schedule B for interest income.

■ In those exercises that request Self Select PINS be used, the 

return may not qualify. To ensure the return qualifies to be 

signed by a PIN do not enter the PIN data until all other tax 

data has been entered, then return to the Main Information 

Sheet and check under the “Self Select and Practitioner PIN” 

section. If the return qualifies, fill in the necessary information. 

If the return does not qualify, Form 8453 must be used. 

■ Each exercise is be completed to the point of obtaining the correct AGI, Taxable Income and refund/due amount and achieving “Return is eligible for electronic filing” when running the 

diagnostic checks (except for Married Filing Separately returns 

which aren’t eligible for e-file in some states such as community 

property states). 

■ Some of the exercises will be reopened and additional information added as additional tax law is covered.

Publication 4012, Volunteer Resource Guide 

Publication 4012 can be very helpful for training and as a resource 

when performing tax preparation using tax software. 
Appendix A-5

APPENDIX

Comprehensive Training Exercise A

Customer Card 

Taxpayer Name: JOHN Q DAVIDSON SSN: XXX-XX-XXXX

Spouse Name: JANE D SMITH SSN: XXX-XX-XXXX 

Street Address: 1067 POST STREET

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 07/28/1940 (for TW 2004)

Taxpayer: 07/28/1939 (for TW 2003)

Spouse: 01/16/1940

Occupation: TP: CLERK SP: SCHOOL 

TEACHER

Give to Presidential Election Campaign Fund (Y/N): TP: YES SP: NO

John and Jane have a daughter, Mary Davidson, who is a junior 

at a local community college. Her date of birth is 03/13/1983 and 

her SSN is XXX-XX-XXXX. They also have John’s granddaughter, 

Ashley Tyler, living with them full time. Her date of birth is 

05/08/1991 and her SSN is XXX-XX-XXXX. They indicated they 

paid for day care for Ashley while they both worked. 

John and Jane are full time residents of your state and they want 

to file a state return. 

If they have a refund, they want half of the refund applied to 

next years taxes and the other half deposited directly into their 

checking account. If they owe money, they want direct debit of any 

amount taken from their checking account. They show you a personal check with routing number 065502789 and account number 

XX-XXXXXXX. 

John provides you with tax documents and tax information that 

you sort in the order that will follow IRS Form 1040. 
A-6 Appendix

APPENDIX

Line 7 – Wages 

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Martin Petroleum

549 Baylor Street

Your City, State and Zip Code

XXX-XX-XXXX

John Q. Davidson

1067 Post Street

Your City, State and Zip Code

28,134.00 2,176.00

31,087.63 1,927.33

31,087.63 450.77

D 2,953.63

Your XX-XXXXXXX 28,134.00 844.00

✘

1

Control number

Retirement

plan Third-partysick pay Statutoryemployee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Jackson School District

12210 Coker Rd

Your City, State and Zip Code

XXX-XX-XXXX

Jane D. Smith

130 Kilgore

Your City, State and Zip Code

13,817.00 987.00

13,817.00 856.65

13,817.00 200.45

Your XX-XXXXXXX 13,817.00 693.00

✘

PRESS [F7]. TAX REFUND (DUE) – $1,822 (TW03); $2097 

(Est. for TW04 with completion of Form 8880) 
Appendix A-7

APPENDIX

Line 8 – Interest 

John is collecting payments on a seller financed mortgage. The 

purchaser is Charles Campbell (SSN XXX-XX-XXXX), 1523 North 

Curry Rd, Your City, State, and Zip Code. Last year John received 

$2,782.15 interest on that loan. 

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Kendalt Federal Credit Union

2602 Parks Road

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John Q. Davidson

1067 Post Street

Your City, State and Zip Code

456.34

45.63

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Hanover Bank

P.O. Box 4019

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John Q. Davidson

1067 Post Street

Your City, State and Zip Code

123.00

864.35

86.43

John received word from the Gordon Investment Service that he 

had been paid $148.63 in tax exempt interest on that account. 

PRESS [F7]. TAX REFUND (DUE) – $1,285 (TW03); $1,560 

(Est. for TW04) 
A-8 Appendix

APPENDIX

Line 9 – Dividends 

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

2004

Pembroke Fund

PO Box 5270

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John Q. Davidson

1067 Post Street

Your City, State and Zip Code

231.86

231.86

68.75

0.00

3.65

PRESS [F7]. TAX REFUND (DUE) – $1,266 (TW03); $1,545 

(Est. for TW04) 

Line 44 (2003) Line 50 (2004) – Foreign Tax Credit 

John has $3.65 foreign tax credit reported on the above Form 

1099-Div. 

PRESS [F7]. TAX REFUND (DUE) – $1,270 (TW03); $1,549 

(Est. for TW04) 
Appendix A-9

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0120 1 Unemployment compensation

Certain

Government

Payments

$

State or local income tax

refunds, credits, or offsets

2

$

PAYER’S Federal identification number RECIPIENT’S identification number 3 Box 2 amount is for tax year 4 Federal income tax withheld

$

RECIPIENT’S name 6 Taxable grants

$

Street address (including apt. no.) 7 Agriculture payments

$

City, state, and ZIP code

Account number (optional)

Form 1099-G Department of the Treasury - Internal Revenue Service

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

For Recipient

Form 1099-G

5

8 Box 2 is trade or

business income 

2004

Your State Department of Revenue

1600 W Moberly

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John Q Davidson & Jane D Smith

1067 Post Street

Your City, State and Zip Code

437.00

0.00

Line 10 – Taxable Refunds 

John and Jane itemized deductions last year and received a $437 

tax refund from the state. Their taxable income was $75,000 and 

their total itemized deductions were ______ (use $8,210 for 2002 

and $9,860 for 2003). 

PRESS [F7]. TAX REFUND (DUE) – $1,218 (TW03); $1,497 

(Est. for TW04) 

Line 11 – Alimony Received 

During the year Jane received $1,200 in alimony payments from a 

previous husband. 

PRESS [F7]. TAX REFUND (DUE) – $1,038 (TW03); $1,317 

(Est. for TW04) 

Line 12 – Business Income 

Jane has a small business, which she operates out of her home typing medical transcripts. The business code is 561410. In addition 

to the following Form 1099-MISC, she also received $1,082 during 

the year from other doctors for this service. Her expenses were $49 

for paper and $67.50 for a printer cartridge. Jane used her second 

car for picking up and delivering the typing jobs. She maintained 

a written record of mileage of 425 business miles and 10,000 other 

miles. She bought the car and started using it for business on 

January 2, 2003. Jane has another car available for personal use.
A-10 Appendix

APPENDIX

11 12

(keep for your records)

Nonemployee compensation

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. 1 Rents OMB No. 1545-0115

$

2 Royalties

$

3 Other income

RECIPIENT’S identification

number

PAYER’S Federal identification

number

5 Fishing boat proceeds 6 Medical and health care payments

$ $

RECIPIENT’S name Substitute payments in lieu of

dividends or interest

7 8

$ $

Street address (including apt. no.) 9 10 Crop insurance proceeds

City, state, and ZIP code

Gross proceeds paid to

an attorney

Excess golden parachute 14

payments

Account number (optional) 13

$

16 State tax withheld 17 State/Payer’s state no.

$

Department of the Treasury - Internal Revenue Service

18 State income

$

$

$ $

4

$ $

Payer made direct sales of

$5,000 or more of consumer

products to a buyer

(recipient) for resale 

Form 1099-MISC

Form 1099-MISC

Miscellaneous

Income

15

$

Copy B

For Recipient

This is important tax

information and is

being furnished to

the Internal Revenue

Service. If you are

required to file a

return, a negligence

penalty or other

sanction may be

imposed on you if

this income is

taxable and the IRS

determines that it

has not been

reported.

Federal income tax withheld

2004 Pratt Medical Centers, Inc

826 Paine Ave

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Jane D Smith

1067 Post Street

Your City, State and Zip Code

1,637.00

PRESS [F7]. TAX REFUND (DUE) – $347 (TW03); $427 

(Est. for TW04) 

Line 13 – Capital Gain Or Loss 

Proceeds From

Broker and

Barter Exchange

Transactions

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

CORRECTED (if checked)

Form 1099-B (keep for your records) Department of the Treasury - Internal Revenue Service

PAYER’S name, street address, city, state, ZIP code, and telephone no. Date of sale or exchange 1a OMB No. 1545-0715

1b CUSIP no.

2 Stocks, bonds, etc. Reported

to IRS

Gross proceeds

$ Gross proceeds less commissions and option premiums

PAYER’S Federal identification number RECIPIENT’S identification number 3 Bartering 4 Federal income tax withheld

$ $

RECIPIENT’S name No. of shares exchanged 5

Street address (including apt. no.) Description 7

City, state, and ZIP code

Account number (optional) 2nd TIN not.



Form 1099-B

8

$

Profit or (loss) realized in

2004

9 Unrealized profit or (loss) on

open contracts—12/31/2003

10 Unrealized profit or (loss) on

open contracts–12/31/2004

11 Aggregate profit or (loss)

$

$ $

Classes of stock

exchanged

6

CORPORATION’S name, street address, city, state, and ZIP code

12 If this box is checked, you cannot take a loss on your

tax return based on the amount in box 2

2004

Felrum Brokerage Service

82 Douglas St

Your City, State and Zip Code

xx-xxxxxxx xxx-xx-xxxx

John Q Davidson

1067 Post Street

Your City, State, and Zip Code

3/10/2004

8,858.61 ✘

100

Purdue
Appendix A-11

APPENDIX

John paid $10,123 for the above stock on July 13, 1998. 

John also made the following stock transactions during the tax 

year. 

STOCK QTY BUY DATE SELL DATE SELL PRICE COST / BASIS

Rust Corp 100 11/01/1998 09/23/2004 1,700.00 3,200.00

Rio Motors 150 07/15/2003 06/01/2004 10,675.00 9,543.00

Rider Corp 65 08/12/1996 12/30/2004 5,663.00 7,222.00 

PRESS [F7]. TAX REFUND (DUE) – $804 (TW03); $1,080 

(Est. TW04) 

Line 15 – IRA Distributions 

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Your State

xx-xxxxxxx

0 837.55

Sauk Trust Co

PO Box 254

Your City, State and Zip Code

837.55

837.55

XX-XXXXXXX XXX-XX-XXXX

John Q Davidson

1067 Post Street

Your City, State and Zip Code

7 ✘

837.55
A-12 Appendix

APPENDIX

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Yale Security IRA

PO Box 25237

Your City, State and Zip Code

11,754.52

✘

XX-XXXXXXX XXX-XX-XXXX

John Q Davidson

1067 Post Street

YOur City, State and Zip Code

G ✘

John transferred the above IRA account to Merrill Lynch.

PRESS [F7]. TAX REFUND (DUE) – $676 

Line 16 – Pensions And Annuities 

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

0

State/Payer’s state no.

Your State 1,200.00

xx-xxxxxxx

Department of the Treasury - Internal Revenue Service

Defense Finance & Accounting SVC

US Military Retirement Pay

PO Box 7139

Your City, State and Zip Code

1,200.00

1,200.00

XX-XXXXXXX XXX-XX-XXXX

Jane D Smith

1067 Post Street

Your City, State and Zip Code

7
Appendix A-13

APPENDIX

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

0 Your State

Name of locality

xx-xxxxxxx

18,625.00

Stillman Pension Fund

36964 Dana Rd

Your City, State and Zip Code

18,625.00

XX-XXXXXXX XXX-XX-XXXX

John Q Davidson

1067 Post Street

1,715.00

Your City, State and Zip Code

7

5,864.00

John retired at the age of 62 and started drawing his retirement 

pay on January 1, 2002 (2003 for TaxWise 2004). He has recovered 

$271.00 tax free in prior years. Jane is not included in his 

retirement plan. 

PRESS [F7]. TAX REFUND (DUE) – $(541) (TW03); $(465) 

(Est. TW04) 

Line 19 – Unemployment Compensation

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0120 1 Unemployment compensation

Certain

Government

Payments

$

State or local income tax

refunds, credits, or offsets 2

$

PAYER’S Federal identification number RECIPIENT’S identification number 3 Box 2 amount is for tax year 4 Federal income tax withheld

$

RECIPIENT’S name 6 Taxable grants

$

Street address (including apt. no.) 7 Agriculture payments

$

City, state, and ZIP code

Account number (optional)

Form 1099-G Department of the Treasury - Internal Revenue Service

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

For Recipient

Form 1099-G

5

8 Box 2 is trade or

business income 

2004

Your State Unemployment Commission

32 Suffolk Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John Q. Davidson

1067 Post Street

Your City, State and Zip Code

1,263.00

120.00

PRESS [F7]. TAX REFUND (DUE) – $(609) (TW03); $(533) 

(Est. TW04) 

18,625.00
A-14 Appendix

APPENDIX

Line 20 – Social Security Benefits 

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

John Q. Davidson xxx-xx-xxxx

12,682.00 12,682.00

Paid by check or direct 

deposit: $11,883.00

Medicare Premiums: $799.00

Total: $12,682.00

600.00

1067 Post Street

Your City, State, and Zip Code

PRESS [F7]. TAX REFUND (DUE) – $(1773) (TW03); $(1,569) 

(Est. TW04 with $24 penalty) 

Line 21 – Other Income 

CORRECTED (if checked)

OMB No. 1545-0238 1 Gross winnings 2 Federal income tax withheld

3 Type of wager 4 Date won

5 Transaction 6 Race

7 Winnings from identical wagers 8 Cashier

9 Winner’s taxpayer identification no. 10 Window

11 First I.D. 12 Second I.D.

13 State/Payer’s state identification no. 14 State income tax withheld

Under penalties of perjury, I declare that, to the best of my knowledge and belief, the name, address, and taxpayer identification number that I have furnished

correctly identify me as the recipient of this payment and any payments from identical wagers, and that no other person is entitled to any part of these payments.

Signature  Date 

Form W-2G Department of the Treasury - Internal Revenue Service

PAYER’S name, address, ZIP code, Federal

identification number, and telephone number

WINNER’S name, address (including apt. no.), and ZIP code

Copy B

Report this income on your

Federal tax return. If this

form shows Federal income

tax withheld in box 2, attach

this copy to your return.

This information is

being furnished to

the Internal

Revenue Service.

Certain

Gambling

Winnings

Form W-2G

Lottery Board 2004

15 West Jackson

Your City, State, and Zip Code

Jane D. Smith

1067 Post Street

Your City, State, and Zip Code

1,200.00

Lottery 04 14 2004

xxx-xx-xxxx

xx-xxxxxxx 36.00

Jane had $2,250 in gambling losses. 

PRESS [F7]. TAX REFUND (DUE) – $(2080) (TW03); $(1,816) 

(Est. TW04 with $30 penalty) 
Appendix A-15

APPENDIX

Line 24 (2003) Line 25 (2004) – IRA Deductions 

If possible Jane would like to put $2,000, tax free, into her regular 

IRA account. 

PRESS [F7]. TAX REFUND (DUE) – $(2080) (TW03); $(1,816) 

(Est. TW04 with $30 penalty) 

Line 25 (2003) Line 26 (2004) – Student Loan Interest Deduction 

Jane paid $268 interest on a student loan she took to obtain her 

teaching degree. 

PRESS [F7]. TAX REFUND (DUE) – $(2004) (TW03); $(1,715) (Est. 

TW04 with $28 penalty) 

Line 26 (2003) Line 27 (2004) – Tuition And Fees Deductions

Jane had to take several special training courses which were required 

by her job at the local college. The class tuition and fees totaled 

$317.85. (This should be re-examined when all entries have been completed to see if an Education Credit, Form 8863 results in a lower tax.) 

PRESS [F7]. TAX REFUND (DUE) – $(1927) (TW03); $(1,690) 

(Est. TW04 with $27 penalty) 

Line 32a (2003) Line 34a (2004) – Alimony Paid

John paid $3,600 in alimony to a previous wife. Her social security 

number is xxx-xx-xxxx. His previous wife, Mary Dana, lives at 2708 

Mills Drive, Your City, State and Zip Code. 

PRESS [F7]. TAX REFUND (DUE) – $(1193) (TW03); $(1,115) 

(Est. TW04 with $12 penalty) 

Line 37 (2003) Line 39 (2004 – Itemized Deductions 

Because of high medical expenses this year, John wants to itemize 

deductions and provides the following: 

Medical Insurance $1,200

Doctor Bills 1,653

Hospital Bills 3,200

Medical Mileage 1,236 Miles

Prescription drugs 965

Prescription Eye Glasses 210

Church cash donations 1,650

Misc cash donations to nonprofit orgs. 225

Contribution to Millsap Elementary School 250 

Salvation Army (FMV of clothes and TV) 350

Home mortgage interest 3,164

County Real Estate Tax 875

City Real Estate Tax 258 

Personal property tax (based on the value) 624

Gambling Losses 2,250
A-16 Appendix

APPENDIX

PRESS [F7]. TAX REFUND (DUE) – $(736) (TW03); $(683) (Est. 

TW04)

Line 45 (2003) Line 46 (2004) – Credit For Child And Dependent Care 

Expenses

John and Jane paid the Maryville Day Care Center $1,100 to watch 

Ashley after school each day. The center’s address is 128 Menio St, 

your City, State, and Zip Code. Their EIN is XX-XXXXXX. 

PRESS [F7]. TAX REFUND (DUE) – $(516) (TW03); $(463) (Est. 

TW04)

Line 47 (2003) Line 48 (2004) – Education Credits 

John and Jane paid $1,715 in tuition and fees for their daughter to 

attend the local college as a junior. 

PRESS [F7]. TAX REFUND (DUE) – $(173) (TW03); $(120) (Est. 

TW04)

Line 62 (2003) Line 64 (2004) – Estimated Tax Payments 

John and Jane made the following estimated tax payments. 

DATE PAID AMOUNT PAID

04/14 $100

09/18 $100

They also applied $200 from last year’s tax refund toward this 

year’s taxes. 

PRESS [F7]. TAX REFUND (DUE) – $227 (TW03); $280 

(Est. TW04) 

Recheck Tuition Deduction Taken On Line 26 (2003) Line 27 

(2004) – Remove Tuition and Fees deduction from line 26 (2003) 

line 27 (2004) and enter on Form 8863, Education Credits, to see if 

a lesser tax results. 

PRESS [F7]. TAX REFUND (DUE) – $238 (TW03); $292 (Est. 

TW04)

Line 70a (2003) Line 72a (2004) – Amount You Want Refunded To 

You 

John and Jane want any refund or debit deposited or withdrawn 

from their checking account. (See the first page for their bank routing and account numbers.) 

Line 71 (2003) Line 73 (2004) – Applied To next year’s Estimated 

Taxes

If John and Jane have a refund coming they want half of the refund 

applied to next year’s taxes. 

PRESS [F7]. TAX REFUND (DUE) – $119 (TW03); $146 (Est. 

TW04)
Appendix A-17

APPENDIX

Signature Line 

John and Jane want to sign their return using pins. John enters 

“45678” and Jane enters “89123”. Their last year’s AGI was 

$75,000. 
A-18 Appendix

APPENDIX

Exercise No. 1

Customer Card 

Taxpayer Name: DAVID A CHAPMAN SSN: XXX-XX-XXXX

Spouse Name: MARY E CHAPMAN SSN: XXX-XX-XXXX 

Street Address: 867 KENYON AVE

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 11/18/71 Spouse: 08/07/73 

Occupation: TP: MECHANIC SP: TEACHER 

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: NO

Other Information Provided By The Taxpayer 

■ David and Mary were married on October 11, 2004. David has 

one daughter, from his previous marriage. His daughter’s name 

is Alice and she was born on April 14, 1994, and has a Social 

Security Number of XXX-XX-XXXX. Alice lived with David all of 

last year but her mother provided almost half of her support. 

■ Mary, whose maiden name was Wilson, tells you she has not yet 

notified the Social Security Administration of her name change 

to Chapman. 

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Huron Airlines Inc

P.O. Box 6610

Your City, State and Zip Code

XXX-XX-XXXX

David A Chapman

876 Kenyon Ave

Your City, State and Zip Code

32,810.49 4,812.52

34,040.49 2,110.00

34,040.49 494.00

D 1,230.00

Your XX-XXXXXXX 32,810.49 984.00

✘
Appendix A-19

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Department of Public Schools

100 Snow Street

Your City, State and Zip Code

XXX-XX-XXXX

Mary E. Chapman

546 Berry Street

Your City, State and Zip Code

26,189.53 547.00

26,189.53 1,624.00

26,189.53 380.00

Your XX-XXXXXXX 26,189.53 526.00

✘
A-20 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Lamar Bank

5501 South Ave

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

David A. Chapman

876 Kenyon Ave

Your City, State and Zip Code

217.00

0.00

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

Quincy Savings Bank 2004

4801 W. Belmont Ave

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Mary E. Chapman

876 Kenyon Ave

Your City, State and Zip Code

237.35

237.35

120.33

24.00
Appendix A-21

APPENDIX

Exercise No. 2

Customer Card 

Taxpayer Name: ASHLEY L MADISON SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 1715 MARION DRIVE

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 04/02/1983 Spouse: 

Occupation: TP: STUDENT SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: 

Other Information Provided By The Taxpayer 

■ Ashley is not married and is a sophomore at the local college. 

She wants to earn a business degree and carried a full credit 

load six months last year. 

■ She was supported by and lived with her parents last year. 

■ She worked part time to earn some extra spending money. 

■ This is the first year Ashley has filed a tax return. 

■ If there is a refund she wants it sent to her home. If she owes 

more taxes she will pay by check. 

■ The family moved into a new house in January of this year. 

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality na

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Serv

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

Your

XX-XXXXXXX

The Rockford Steakhouse

341 1st Street

Your City, State and Zip Code

XXX-XX-XXXX

Ashley L. Madison

2715 Alma Street

Your City, State and Zip Code

4,311.68 453.00

4,311.68 267.28

4,311.68 63.48

2,672.00

XX-XXXXXXX 4,311.68 64.00
A-22 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Fisk Federal Bank

P.O. Box 319194

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Ashley L. Madison

2715 Alma Street

Your City, State and Zip Code

17.83

0.00
Appendix A-23

APPENDIX

Exercise No. 3

Customer Card 

Taxpayer Name: SUSANNE E DENISON SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 2125 HOOD DRIVE 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 07/07/1962 Spouse: 

Occupation: TP: TEACHER SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: NO SP: 

■ Susanne has not lived with her husband since September of 

2004 and he will not agree to file jointly with her. Her husband’s 

name is Charles V. Denison (SS# XXX-XX-XXXX) and he lives at 

130 N Elon Ave, Your City, State and Zip Code. 

■ Susanne has one daughter, Agnes (SS# XXX-XX-XXXX) who 

was born on February 26,1986. She is a full time student (freshman) at the local college. Susanne provided for all of Agnes’ support during last year. 

■ All year Susanne has been typing medical transcripts, at night, 

in her home to make extra money. She provided you with a 

Form 1099-MISC from the Parsons Medical Centers for the 

money she received from them. She also received $1,576.50 from 

other doctors for this service. Last year she paid $49 for paper, 

$67.87 for printer cartridges and $187 for repairs to her computer. She also paid $52 a month for high speed Internet access 

that is needed to download and send transcription data. 

■ Susanne and Charles did not itemize deductions last year. Charles 

already submitted his tax return and he did not itemize deductions 

this year. 

■ Susanne will take care of any amount due by check and wants 

any refund sent to her home address. 
A-24 Appendix

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Marion School District

1309 Ferns Street SE

Your City, State and Zip Code

XXX-XX-XXXX

Susanne Denison

2125 Hood Drive

Your City, State and Zip Code

36,240.67 6,933.87

36,240.67 2,246.92

36,240.67 525.00

Your XX-XXXXXXX 36,240.67 1,087.00

✘

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Salem Bank

PO Box 27865

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Susanne Denison

2125 Hood Drive

Your City, State and Zip Code

683.45
Appendix A-25

APPENDIX

11 12

(keep for your records)

Nonemployee compensation

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. 1 Rents OMB No. 1545-0115

$

2 Royalties

$

3 Other income

RECIPIENT’S identification

number

PAYER’S Federal identification

number

5 Fishing boat proceeds 6 Medical and health care payments

$ $

RECIPIENT’S name Substitute payments in lieu of

dividends or interest

7 8

$ $

Street address (including apt. no.) 9 10 Crop insurance proceeds

City, state, and ZIP code

Gross proceeds paid to

an attorney

Excess golden parachute 14

payments

Account number (optional) 13

$

16 State tax withheld 17 State/Payer’s state no.

$

Department of the Treasury - Internal Revenue Service

18 State income

$

$

$ $

4

$ $

Payer made direct sales of

$5,000 or more of consumer

products to a buyer

(recipient) for resale 

Form 1099-MISC

Form 1099-MISC

Miscellaneous

Income

15

$

Copy B

For Recipient

This is important tax

information and is

being furnished to

the Internal Revenue

Service. If you are

required to file a

return, a negligence

penalty or other

sanction may be

imposed on you if

this income is

taxable and the IRS

determines that it

has not been

reported.

Federal income tax withheld

2004

Parsons Medical Centers, Inc

826 Parks Ave

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Susanne E. Denison

2125 Hood Drive

Your City, State and Zip Code

0.00

5,637.00
A-26 Appendix

APPENDIX

Exercise No. 4

Customer Card 

Taxpayer Name: CLARK M. KNOX SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 516 WELLS AVE 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 10/23/1966 Spouse: 

Occupation: TP: STEEL WORKER SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: 

Other Information Provided By The Taxpayer 

■ Clark’s wife died in June 2002 and he has not remarried. He 

has a son, Frank (SS# XXX-XX-XXXX), born October 2, 1990. 

■ Clark did not itemize deductions last year. 

■ Clark sold the following stock this year: 

 100 shares of Coe. He received this stock on April 12, 2004, as 

part of an inheritance. The stock was originally purchased for 

$350 but the Fair Market Value of the stock when he inherited 

it was $1,650 and was $1,120 when he sold it on November 17, 

2004. 

 150 shares of Fullerton Motor Co. He sold the stock on June 

1, 2004 for $10,675. He bought the stock for $6,675 on July 7, 

1995. He had to pay a $25 brokerage fee to sell the stock. 

 65 shares of Alma Corp. Clark sold this stock for $5,663 on 

December 12, 2004. He bought the stock through a stock purchase plan with the earliest date being May 4, 1999, and the 

final date being June 1, 2002. The total cost basis was $7,218. 

■ Clark wants any money refunded or due handled by check. 
Appendix A-27

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Case Foundry and Machine Co

74 Harvard Ave.

Your City, State and Zip Code

XXX-XX-XXXX

Clark M. Knox

516 Wells Ave

Your City, State and Zip Code

20,986.56 1,319.00

22,765.56 1,411.46

22,765.56 330.10

D 1,779.00

Your XX-XXXXXXX 20,986.56 545.00

✘

1

Control number

Retirement

plan Third-partysick pay Statutoryemployee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Piedmont Steel Corp

1134 Martin Street

Your City, State and Zip Code

XXX-XX-XXXX

Clark M Knox

516 Wells Ave

Your City, State and Zip Code

16,765.11 1,268.23

17,923.65 1,111.27

17,923.65 259.89

D` 1,158.54

Your XX-XXXXXXX 16,765.11 503.00

✘
A-28 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Wheeling National Bank

3265 Martin Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Clark M. Knox

516 Wells

Your City, State and Zip Code

47.31
Appendix A-29

APPENDIX

Exercise No. 5

Customer Card 

Taxpayer Name: ANDREW J HOWARD SSN: XXX-XX-XXXX

Spouse Name: SARAH A HOWARD SSN: XXX-XX-XXXX 

Street Address: 2708 OAKWOOD DRIVE

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 08/12/1966 Spouse: 11/03/1968 

Occupation: TP: STORE MANAGER SP: DISPATCHER

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: YES

Other Information Provided By The Taxpayer 

■ Andrew and Sarah have been married for over 8 years and they 

would like you to file their return electronically. 

■ They have one son, Anthony, who was born on July 21, 1998, 

and has Social Security Number XXX-XX-XXXX. Anthony lived 

with his Grandparents five months last year. He lived with 

Andrew and Sarah for the rest of the year. 

■ Andrew and Sarah supported Sarah’s mother, Nancy Hinds, 

who lived with them all of last year. Nancy’s date of birth is 

March 2, 1931 (SS# XXX-XX-XXX). Although Nancy was born 

in the United States she later moved to Canada and became a 

Canadian citizen. Nancy received over $5,000 in interest and 

dividends payments last year. 

■ The Howards itemized deductions last year but still had to pay 

the state $123. They do not have enough deductions to itemize 

this year. 

■ Andrew sold some Pace stock last year and provides you with 

a Form 1099-B. He originally bought 50 shares of the stock on 

September 13, 1996, for $91.60 a share. The stock split two for 

one in November 1998. 

■ Three years ago, Andrew sold a house at 1523 North Curry Rd, 

Your City, State and Zip Code to Charles Martin (SS# XXX-XXXXXX) who is currently living there. The selling price of the 

house was $65,500 which Andrew financed himself. Last year 

Andrew received $5,764 in payments of which $4,782 was 

interest. 
A-30 Appendix

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Alma Hardware, Inc

643 Danville

Your City, State and Zip Code

XXX-XX-XXXX

Andrew J. Howard

2708 Oakwood Drive

Your City, State and Zip Code

27,510.00 1,375.50

27,510.00 1,705.62

27,510.00 399.00

Your XX-XXXXXXX 27,510.00 171.00

1

Control number

Retirement plan Third-party sick pay Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

County of Ventura

12 Marin Street

Your City, State and Zip Code

XXX-XX-XXXX

Sarah A Howard

2708 Oakwood

Your City, State and Zip Code

21,441.00 1,072.05

23,517.00 1,458.05

23,517.00 341.00

D 2,076.00

Your XX-XXXXXXX 21,441.00 177.00

✘
Appendix A-31

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Bank of Amarillo

200 E Glendale

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Andrew J Howard

2708 Oakwood Drive

Your City, State and Zip Code

42.57

911.12

91.00

Proceeds From

Broker and

Barter Exchange

Transactions

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

CORRECTED (if checked)

Form 1099-B (keep for your records) Department of the Treasury - Internal Revenue Service

PAYER’S name, street address, city, state, ZIP code, and telephone no. Date of sale or exchange 1a OMB No. 1545-0715

1b CUSIP no.

2 Stocks, bonds, etc. Reported

to IRS

Gross proceeds

$ Gross proceeds less commissions and option premiums

PAYER’S Federal identification number RECIPIENT’S identification number 3 Bartering 4 Federal income tax withheld

$ $

RECIPIENT’S name No. of shares exchanged 5

Street address (including apt. no.) Description 7

City, state, and ZIP code

Account number (optional) 2nd TIN not.



Form 1099-B

8

$

Profit or (loss) realized in

2004

9 Unrealized profit or (loss) on

open contracts—12/31/2003

10 Unrealized profit or (loss) on

open contracts–12/31/2004

11 Aggregate profit or (loss)

$

$ $

Classes of stock

exchanged

6

CORPORATION’S name, street address, city, state, and ZIP code

12 If this box is checked, you cannot take a loss on your

tax return based on the amount in box 2

2004

Fairmont Brokerage Services

82 Dartmouth Drive

Your City, State and Zip Code

xx-xxxxxxx xxx-xx-xxxx

Andrew J Howard

2708 Oakwood Drive

Your City, State, and Zip Code

3/10/2004

8,859 ✘

100

Pace
A-32 Appendix

APPENDIX

Exercise No. 6

Customer Card 

Taxpayer Name: JAMES D GORDON SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 128 BROWN LANE 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 02/11/1938 (for TW 2004)

Taxpayer: 02/11/1937 (for TW 2003)

Spouse: 

Occupation: TP: CHEMIST SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: NO SP: 

Other Information Provided By The Taxpayer 

■ After a one-year separation James received a final divorce from 

his wife, Kathy, on November 11th last year. They have three 

grown children. 

■ James itemized deductions last year and received a $171 refund 

check from his state. His taxable income was $19,200 and his 

total itemized deductions were $8,100. He filed Married Filing 

Separately last year. 

■ James’s federal tax for last year was $2,137 and he does 

not have enough itemized deductions to beat the standard 

deduction. 

■ James retired from the railroad on June 1, 2002 (2003 for 

TaxWise 2004) at the age of 65 and received his first retirement 

check on July 1 of that year. He collected $125 tax free the first 

year of his retirement and $249 the second year. 

■ If there is an underpayment penalty don’t complete Form 2210 

at this time. This will be covered as part of a supplementary 

exercise. 

■ James does not want to provide his bank account information. 
Appendix A-33

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Franklin Industrial Minerals

612 10th Ave

Your City, State and Zip Code

XXX-XX-XXXX

James D Gordon

128 Brown Lane

Your City, State and Zip Code

22,876.00 917.00

22,876.00 1,418.32

22,876.00 331.70

Your XX-XXXXXXX 22,876.00 0.00

✘

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Hope National Bank

561 14th Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

James D Gordon

128 Brown Lane

Your City, State and Zip Code

327.50
A-34 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

2004

Armstrong Brokerage

1300 10th AVE

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

James D Gordon

128 Brown Lane

Your City, State and Zip Code

123.75

123.75

68.12

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Asbury Trust Co

P O Box 254

Your City, State and Zip Code

837.55

837.55

XX-XXXXXXX XXX-XX-XXXX

James D Gordon

128 Brown Lane

0.00

Your City, State and Zip Code

7 ✘

0.00 Your State 837.55

XX-XXXXXXX
Appendix A-35

APPENDIX

PAYERS’ NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-2092

2004 ANNUITIES OR PENSIONS BY THE

RAILROAD RETIREMENT BOARD

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

FORM RRB-1099-R

COPY B -

REPORT THIS INCOME ON

YOUR FEDERAL TAX

RETURN. IF THIS FORM

SHOWS FEDERAL INCOME

TAX WITHHELD IN BOX 9

ATTACH THIS COPY TO

YOUR RETURN.

THIS INFORMATION IS BEING

FURNISHED TO THE INTERNAL

REVENUE SERVICE.

1.

2.

Claim Number and Payee Code

Recipient’s Identification Number

Recipient’s Name, Street Address, City, State, and ZIP Code

3.

4.

5.

6.

7.

8.

9.

10. 11.

Employee Contributions

Contributory Amount Paid

Vested Dual Benefit

Supplemental Annuity

Total Gross Paid

Repayments

Federal Income Tax

Withheld

Rate of Tax Country 12. Medicare Premium Total

xx-xxxxxxx

James D. Gordon

128 Brown Lane

Your City, State, and Zip 

Code

5,397.25

4,631.04

4,631.04

561.00

PAYER’S NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-2092

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

1. Claim Number and Payee Code

2. Recipient’s Identification Number

Recipient’s Name, Street Address, City, State, and Zip Code

FORM RRB-1099

2004

3.

Social Security Equivalent Benefit

Portion of Tier 1 Repaid to RRB in 2004

Net Social Security Equivalent Benefit

Portion of Tier 1 Paid in 2004

Workers’ Compensation Offset in 2004

Social Security Equivalent Benefit

Portion of Tier 1 Paid for 2003

Social Security Equivalent Benefit

Portion of Tier 1 Paid for 2002

Social Security Equivalent Benefit

Portion of Tier 1 Paid for Years

Prior to 2000

Federal Income Tax Withheld

PAYMENTS BY THE 

RAILROAD RETIREMENT BOARD

DO NOT ATTACH TO YOUR INCOME TAX RETURN

Gross Social Security Equivalent Benefit

Portion of Tier 1 Paid in 2004

4.

5.

6.

7.

8.

9.

10.

COPY C -

FOR

RECIPIENT’S

RECORDS

THIS

INFORMATION

IS BEING

FURNISHED

TO THE

INTERNAL

REVENUE

SERVICE.

11. Medicare Premium Total

xx-xxxxxxx

James D. Gordon

128 Brown Lane

Your City, State, and Zip Code

10,368.00

10,368.00

799.00

xx-xxxxxxx

xx-xxxxxxx
A-36 Appendix

APPENDIX

Exercise No. 7

Customer Card 

Taxpayer Name: TROY H McCOOK SSN: XXX-XX-XXXX

Spouse Name: YVONNE A McCOOK SSN: XXX-XX-XXXX 

Street Address: 30911 BARD ROAD 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 03/12/1933 Spouse: 10/30/1935 

Occupation: TP: RETIRED SP: HOUSEWIFE 

Give to Pres Elect Campaign Fund (Y/N): TP: NO SP: NO

Other Information Provided By The Taxpayer 

■ Troy’s wife, Yvonne, died on April 15, 2003 (2004 for TaxWise 

2004). 

■ Troy’s granddaughter Ashley Fergus (SS# XXX-XX-XXXX) 

moved in with Troy in May of last year. Troy has provided all 

of her support since that time. She was born on April 5, 1993 in 

France where her parents were stationed. 

■ Because of high medical expenses this year Troy wants to see 

if it would be to his advantage to itemized deductions this year. 

He provides these possible deductions 

Doctors Bills $4,723

Hospital Bills 5,168

Medical Mileage 1,119 miles

Prescription Drugs 1,756

Prescription eyeglasses 210

Church Donations 850

Church Raffle Ticket (Didn’t win) 25

Misc Cash Donations (non profit organizations) 201

Salvation Army (Old Clothes) 350 

Funeral Expenses 6,875

Home Mortgage Interest 2,164

Country Real Estate Tax 378

City Real Estate Tax 120

Personal Property Tax (based on vehicle value) 623

Gambling Losses 2,550

Automobile Sales Tax 840 

■ The McCooks did not itemize deductions last year. 
Appendix A-37

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

2004

Alvin Bond Fund

Suite 567

100 Wiley Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Troy H McCook

30911 Bard Road

Your City, State and Zip Code

1,564.67

874.50

737

0.00

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Harris Trust

P O Box 1389

Your City, State and Zip Code

13,223.00

13,223.00

XX-XXXXXXX XXX-XX-XXXX

Troy D McCook

30911 Bard Road

0.00

Your City, State and Zip Code

7

0.00 Your State 13,223.00

XX-XXXXXXX
A-38 Appendix

APPENDIX

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Defense Finance and Accounting Service

US Military Retirement Pay

P O Box 7139

Your City, State and Zip Code

23,919.00

23,919.00

XX-XXXXXXX XXX-XX-XXXX

Troy H McCook

30911 Bard Road

1,580.00

Your City, State and Zip Code

7

0.00 Your State 23,919.00

XX-XXXXXXX

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

Troy H. McCook xxx-xx-xxxx

12,675.00 12,675.00

Paid by check or direct 

deposit $11,876

Medicare Prem. deducted $799

Total $12,675

30911 Bard Road

Your City, State, and Zip Code
Appendix A-39

APPENDIX

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

Yvonne McCook xxx-xx-xxxx

3,645.00 3,645.00

Paid by check or direct 

deposit $3,245

Medicare Prem. deducted $400

Total $3,645

30911 Bard Road

Your City, State, and Zip Code

CORRECTED (if checked)

OMB No. 1545-0238 1 Gross winnings 2 Federal income tax withheld

3 Type of wager 4 Date won

5 Transaction 6 Race

7 Winnings from identical wagers 8 Cashier

9 Winner’s taxpayer identification no. 10 Window

11 First I.D. 12 Second I.D.

13 State/Payer’s state identification no. 14 State income tax withheld

Under penalties of perjury, I declare that, to the best of my knowledge and belief, the name, address, and taxpayer identification number that I have furnished

correctly identify me as the recipient of this payment and any payments from identical wagers, and that no other person is entitled to any part of these payments.

Signature  Date 

Form W-2G Department of the Treasury - Internal Revenue Service

PAYER’S name, address, ZIP code, Federal

identification number, and telephone number

WINNER’S name, address (including apt. no.), and ZIP code

Copy B

Report this income on your

Federal tax return. If this

form shows Federal income

tax withheld in box 2, attach

this copy to your return.

This information is

being furnished to

the Internal

Revenue Service.

Certain

Gambling

Winnings

Form W-2G

Rockhurst Casino 2004 xx-xxxxxxx

14011 Athens Road

Your City, State, and Zip Code

Yvonne McCook

30911 Bard Road

Your City, State, and Zip Code

1,200.00

25 slots 4 14 2004

2718

xxx-xx-xxxx

xx xx-xxxxxxx 120.00
A-40 Appendix

APPENDIX

Comprehensive Training Exercise B

Customer Card 

Taxpayer Name: MARY J HOOD SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 3717 E LEE STREET 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 12/12/1964 Spouse: 

Occupation: TP: OPERATOR SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: 

■ Mary has a daughter, Lauren Salem, and a son, William Hood, 

who live with her full time. Mary is divorced and provided for 

all of her children’s support.

■ Lauren’s date of birth is 05/03/1987 and her SSN is 

XXX-XX-XXXX. 

■ William’s date of birth is 02/15/1989 and his SSN is 

XXX-XX-XXXX. 

■ Mary’s mother Barbara Bates also lives with her full time and 

Mary provides over half of her support. Barbara’s date of birth 

is 03/12/1932 and her SSN# is XXX-XX-XXXX. Her only income 

is from Social Security and a small amount of bank interest. 

■ Mary is a full time resident of your state and she wants to file a 

state return. 

■ If there is a refund she wants it sent to her home. If she owes 

more taxes she will pay by check. 

■ Mary provides you with a Form W-2 that is her only tax 

document. 

■ She did not itemize deductions last year.

■ She did not have her EIC reduced or disallowed last year.
Appendix A-41

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Bluefield Telecommunications

5775 Pomona Street

Your City, State and Zip Code

XXX-XX-XXXX

Mary Jane Hood

3717 E Lee Street

Your City, State and Zip Code

24,612.00 687.00

24,612.00 1,525.94

24,612.00 356.87

1,200.00

Your XX-XXXXXXX 24,612.00 265.00
A-42 Appendix

APPENDIX

Exercise No. 8

Customer Card 

Taxpayer Name: JOHN J REED SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 108 N PHILLIPS STREET

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 06/15/1965 Spouse: 

Occupation: TP: MANAGER SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: NO SP: 

Other Information Provided By The Taxpayer 

■ John is married to Elizabeth Reed (SSN xxx-xx-xxxx). However, 

she left him a year ago last November and has not lived with 

him since. Last year John and his wife filed separate tax 

returns and neither itemized deductions. 

■ John paid the total cost of maintaining his home for himself 

and two children. One of the children is his son, Jack 

(SSN xxx-xx-xxxx), whose date of birth is September 9,1984. 

The other child is John’s nephew, Jeffery Lamar (SSN xxx-xxxxxx). Jeffery moved in with John on the first of June of last 

year when John’s sister became ill. John cared for Jeffery as if 

he were his own child. Jeffery was born on March 23, 1989. 

■ In addition to a $500 tax-free grant Jack received, John paid 

$1,238 for tuition, books and lab fees for Jack who is a junior 

and a full time student at the local college. 

■ If a refund is due he wants a check to be mailed to his house 

and he will pay any tax due by check. 
Appendix A-43

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

King Insulation, Inc

2300 E Olivet

Your City, State and Zip Code

XXX-XX-XXXX

John J Reed

108 N Phillips Street

Your City, State and Zip Code

14,713.78 1,383.57

15,609.34 967.78

15,609.34 226.34

D 895.56

Your XX-XXXXXXX 14,713.78 334.00

✘

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. Original issue discount OMB No. 1545-0117

for 2004*

1

Original Issue

2 Other periodic interest Discount

PAYER’S Federal identification number RECIPIENT’S identification number 3 Early withdrawal penalty 4 Federal income tax withheld

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Form 1099-OID Department of the Treasury - Internal Revenue Service

$

$

$ $

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a

return, a negligence

penalty or other

sanction may be

imposed on you if this

income is taxable and

the IRS determines

that it has not been

reported.

(keep for your records)

* This may not be the correct figure to report on your

income tax return. See instructions on the back.

For Recipient

Form 1099-OID

Original issue discount on U.S. Treasury obligations*

5

Investment expenses

6

Description

7

$

$

2004

Fergus Investment & Loan

175 N. Fivier

Your City, State, and Zip Code

xx-xxxxxxx xxx-xx-xxxx

John Reed

108 N. Phillips St.

Your City, State, and Zip Code

837.00

83.00
A-44 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

Adelphi Investment Service 2004

2121 N 7th Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

John J Reed

108 N Phillips

Your City, State and Zip Code

108.96

108.96

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Defense Finance and Accounting Service

US Military Retirement Pay

P O Box 7139

Your City, State and Zip Code

12,174.00

12,174.00

XX-XXXXXXX XXX-XX-XXXX

John J Reed

108 N Phillips Street

675.00

Your City, State and Zip Code

7

0.00 Your State 12,174.00

XX-XXXXXXX
Appendix A-45

APPENDIX

Exercise No. 9

Customer Card 

Taxpayer Name: HELEN E ROSEMONT SSN: XXX-XX-XXXX

Spouse Name: SSN: 

Street Address: 356 WILKES DRIVE 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 09/16/1970 Spouse: 

Occupation: TP: EDITOR SP: 

Give to Pres Elect Campaign Fund (Y/N): TP: YES SP: 

Other Information Provided By The Taxpayer 

■ Helen is a single mother who was divorced from her 

husband two years ago. They had two children, Mary 

(SSN XXX-XX-XXXX) whose date of birth is October 16, 1997, 

and Charles (SSN XXX-XX-XXXX) who was born on Christmas 

Day 1998. Both children lived with Helen all of last year and 

she provided all of their support. However the divorce settlement allows her ex-husband to claim Charles as a dependent 

on his tax return. 

■ Helen did not itemize deductions last year. 

■ She was supposed to receive $3,600 in alimony last year but 

her ex husband was out of work part of the year and she only 

received $2,400. 

■ Helen did not have her EIC reduced or disallowed last year.

■ The Global Investment Service notified Helen that she 

received $418.13 in Federal and State exempt interest on 

her investments. 

■ Helen did editing work from her home for the Waldorf 

Publishing Co. and provided a Form 1099-MISC document 

showing the amount paid. She put 254 miles on her only car for 

the business and she kept a record of her mileage. She recorded 

10,000 other miles. She started doing this extra work on the 1st 

of July last year. Other expenses were $25 for paper, $47.50 for 

a printer cartridge and $101.95 for postage. 

■ She took a word processing course at the local college in the 

evenings to improve her skills on the job. The course tuition 

was $75. 

■ She prefers to receive a check if there is a refund and pay by 

check if there is an amount due. 
A-46 Appendix

APPENDIX

1

Control number

Retirement

plan

Third-party

sick pay

Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Butler, Inc.

1906 Lawrence Drive

Your City, State and Zip Code

XXX-XX-XXXX

Helen E Rosemont

12 Emory Street

Your City, State and Zip Code

2,532.00 328.00

2,532.00 156.98

2,532.00 36.71

Your XX-XXXXXXX 2,532.00 201.00

✘

1

Control number

Retirement plan Third-party sick pay Statutory

employee

6

2

Employer’s name, address, and ZIP code

7 Allocated tips

Advance EIC payment

8

9 10

Wages, tips, other compensation Federal income tax withheld

Social security wages Social security tax withheld

11 12a

Employer’s state ID number

3 4

Employer identification number

Medicare wages and tips

Social security tips

13

5

Employee’s social security number

Employee’s first name and initial Nonqualified plans

Medicare tax withheld

15

14

16 17

Other

18

Employee’s address and ZIP code

State State wages, tips, etc. State income tax Locality name

Copy B—To Be Filed With Employee’s FEDERAL Tax Return.

This information is being furnished to the Internal Revenue Service.

Department of the Treasury—Internal Revenue Service

Form

Dependent care benefits

See instructions for box 12

a

b

c

d

e

f

W-2 Wage and Tax

Statement 20 40

OMB No. 1545-0008

Last name C

o

d

e

12b

C

o

d

e

12c

C

o

d

e

Local wages, tips, etc. 19 Local income tax 20

12d

C

o

d

e

Safe, accurate,

FAST! Use

Visit the IRS website

at www.irs.gov.

XX-XXXXXXX

Oakwood World-Herald

1334 Dana Street

Your City, State and Zip Code

XXX-XX-XXXX

Helen E Rosemont

356 Wilkes

Your City, State and Zip Code

19,998.00 1,001.65

21,266.00 1,318.49

21,266.00 308.36

D 1,268.00

Your XX-XXXXXXX 19,998.00 574.50

✘
Appendix A-47

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Parks National Bank

102 Rust Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Helen E Rosemont

356 Wilkes Street

Your City, State and Zip Code

416.87

38.56

11 12

(keep for your records)

Nonemployee compensation

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. 1 Rents OMB No. 1545-0115

$

2 Royalties

$

3 Other income

RECIPIENT’S identification

number

PAYER’S Federal identification

number

5 Fishing boat proceeds 6 Medical and health care payments

$ $

RECIPIENT’S name Substitute payments in lieu of

dividends or interest

7 8

$ $

Street address (including apt. no.) 9 10 Crop insurance proceeds

City, state, and ZIP code

Gross proceeds paid to

an attorney

Excess golden parachute 14

payments

Account number (optional) 13

$

16 State tax withheld 17 State/Payer’s state no.

$

Department of the Treasury - Internal Revenue Service

18 State income

$

$

$ $

4

$ $

Payer made direct sales of

$5,000 or more of consumer

products to a buyer

(recipient) for resale 

Form 1099-MISC

Form 1099-MISC

Miscellaneous

Income

15

$

Copy B

For Recipient

This is important tax

information and is

being furnished to

the Internal Revenue

Service. If you are

required to file a

return, a negligence

penalty or other

sanction may be

imposed on you if

this income is

taxable and the IRS

determines that it

has not been

reported.

Federal income tax withheld

2004 Waldorf Publishing Co

PO Box 1765

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Helen E Rosemont

356 Wilkes

Your City, State and Zip Code

2,875.88
A-48 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0120 1 Unemployment compensation

Certain

Government

Payments

$

State or local income tax

refunds, credits, or offsets 2

$

PAYER’S Federal identification number RECIPIENT’S identification number 3 Box 2 amount is for tax year 4 Federal income tax withheld

$

RECIPIENT’S name 6 Taxable grants

$

Street address (including apt. no.) 7 Agriculture payments

$

City, state, and ZIP code

Account number (optional)

Form 1099-G Department of the Treasury - Internal Revenue Service

Copy B

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

For Recipient

Form 1099-G

5

8 Box 2 is trade or

business income 

2004

Your State Unemployment Commission

1 Stockton Street

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Helen E Rosemont

356 Wilkes Street

Your City, State and Zip Code

1,345.00

135.00
Appendix A-49

APPENDIX

Exercise No. 10

Customer Card 

Taxpayer Name: FRED P STERLING SSN: XXX-XX-XXXX

Spouse Name: CHERYL A STERLING SSN: XXX-XX-XXXX 

Street Address: 3717 BATES STREET 

City, State and Zip Code: [Your City, State and Zip Code]

Telephone Number: [Your telephone number]

Date of Birth: Taxpayer: 09/21/1938 (for TW 2004)

Taxpayer: 09/21/1937 (for TW 2003)

Spouse: 02/11/1943 

Occupation: TP: RETIRED SP: HOUSEWIFE

Give to Pres Elect Campaign Fund (Y/N): TP: NO SP: NO

Other Information Provided By The Taxpayer 

■ Fred and Cheryl have been married for over 40 years and 

each year they come into your site to have their tax returns 

completed. 

■ Fred’s sister, Louise Smith (SSN XXX-XX-XXXX) lived with 

them all year. Louise is an invalid and must rely upon Fred and 

Cheryl for her support. Louise receives $250 a month in Social 

Security disability. She was born on 01/13/1940. 

■ Fred provides you with a doctor’s certified statement that 

Cheryl has less that 20/200 vision in both eyes. 

■ The Sterlings itemized deductions last year but did not receive 

any state refund. 

■ In 1983 Fred purchased 100 shares of Chapman stock for 

$12,000. He sold the stock on March 23 for $23,789, which 

included the commission on the sale.

■ Fred retired from the International Brotherhood of Electrical 

Workers at the age of 65 and started drawing his retirement 

on January 1, 2002 (2003 for TaxWise 2004). Cheryl is not 

covered by the plan. He recovered $271 tax free each year 

since his retirement. 

■ The Sterlings would like to have any refunds or amount due 

handled by check. 
A-50 Appendix

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Chapman Federal S&L Assn.

1413 41st Ave

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Fred P Sterling

3717 Bates Street

Your City, State and Zip Code

124.73

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no. OMB No. 1545-0112 Payer’s RTN (optional)

Interest Income

PAYER’S Federal identification number RECIPIENT’S identification number 1 Interest income not included in box 3

$

Early withdrawal penalty Interest on U.S. Savings

Bonds and Treas. obligations

RECIPIENT’S name 2 3

$ $

Street address (including apt. no.) 4 Federal income tax withheld

$

Foreign country or U.S.

possession

City, state, and ZIP code 6 Foreign tax paid 7

Account number (optional)

$

Form 1099-INT Department of the Treasury - Internal Revenue Service

Copy B

For Recipient

This is important tax

information and is

being furnished to the

Internal Revenue

Service. If you are

required to file a return,

a negligence penalty or

other sanction may be

imposed on you if this

income is taxable and

the IRS determines that

it has not been

reported.

(keep for your records)

Form 1099-INT

5 Investment expenses

$

2004 Newberry City Bank

1 McCook Plaza

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Fred P Sterling

3717 Bates Street

Your City, State and Zip Code

1,863.78
Appendix A-51

APPENDIX

CORRECTED (if checked)

PAYER’S name, street address, city, state, ZIP code, and telephone no.

RECIPIENT’S identification

number

PAYER’S Federal identification

number

RECIPIENT’S name

Street address (including apt. no.)

City, state, and ZIP code

Account number (optional)

Dividends and

Distributions

Form 1099-DIV (keep for your records) Department of the Treasury - Internal Revenue Service

Copy B

This is important

tax information

and is being

furnished to the

Internal Revenue

Service. If you

are required to

file a return, a

negligence

penalty or other

sanction may be

imposed on you

if this income is

taxable and the

IRS determines

that it has not

been reported.

For Recipient

Unrecap. Sec. 1250 gain

1a Total ordinary dividends OMB No. 1545-0110

$

1b Qualified dividends

$

2a Total capital gain distr.

2c Section 1202 gain 2d Collectibles (28%) gain

$

3

5 Investment expenses

Noncash liquidation

distributions

Cash liquidation 9

distributions

8

$

$

2b

$ $

Nontaxable distributions

Form 1099-DIV

$

6 7

$

Foreign tax paid Foreign country or U.S. possession

$

$

4 Federal income tax withheld

$

Colgate Fund 2004

PO Box 5250

Your City, State and Zip Code

XX-XXXXXXX XXX-XX-XXXX

Fred P Sterling

3717 Bates Street

Your City, State and Zip Code

162.99

106.00

68.75

13.15

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Scripps Investment Partners

101 Morris Street

Your City, State and Zip Code

11,793.00

11,793.00

XX-XXXXXXX XXX-XX-XXXX

Fred P Sterling

3717 Bates Street

1,179.00

Your City, State and Zip Code

0.00 Your State 11,793.00

XX-XXXXXXX
A-52 Appendix

APPENDIX

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Averett Pension Fund

36964 Doanne Rd

Your City, State and Zip Code

18,625.00

✘

XX-XXXXXXX XXX-XX-XXXX

Fred P Sterling

3717 Bates Street

1,715.00

Your City, State and Zip Code

7

5,864.00

FORM SSA-1099 – SOCIAL SECURITY BENEFIT STATEMENT

2004 ● PART OF YOUR SOCIAL SECURITY BENEFITS SHOWN IN BOX 5 MAY BE TAXABLE INCOME.

● SEE THE REVERSE FOR MORE INFORMATION.

Box 1. Name Box 2. Beneficiary’s Social Security Number

Box 3. Benefits Paid in 2004 Box 4. Benefits Repaid to SSA in 2004 Box 5. Net Benefits for 2003 (Box 3 minus Box 4)

DESCRIPTION OF AMOUNT IN BOX 3 DESCRIPTION OF AMOUNT IN BOX 4

Box 7. Address

Box 8. Claim Number (Use this number if you need to contact SSA.)

Form SSA-1099-SM (1-2005) DO NOT RETURN THIS FORM TO SSA OR IRS

Box 6. Voluntary Federal Income Tax Withholding

Fred Sterling xxx-xx-xxxx

12,682.00 12,682.00

Paid by check or direct 

deposit

 $11,883

Medicare premium deducted

 $ 799

Total $12,682

600.00

3717 Bates

Your City, State, and Zip Code
Appendix A-53

APPENDIX

 Supplemental Exercise No. 1 

1. Open Exercise 3 (Susanne Denison) and enter the following tax 

document. 

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

1ST Oakdale IRA

P O Box 25237

Your City, State and Zip Code

11,754.52

✘

XX-XXXXXXX XXX-XX-XXXX

Susanne E Denison

2125 Hood Drive

Your City, State and Zip Code

G ✘

Susanne rolled her IRA account from 1st Oakdale IRA over into a 

Merrill Lynch IRA account. 
A-54 Appendix

APPENDIX

2. Open Exercise 4 (Clark Knox) and enter the following tax 

document.

Employee contributions

or insurance premiums

CORRECTED (if checked)

PAYER’S name, street address, city, state, and ZIP code 1 Gross distribution Distributions From

Pensions, Annuities,

Retirement or

Profit-Sharing

Plans, IRAs,

Insurance

Contracts, etc.

$

2a Taxable amount

$

Total

distribution

Taxable amount

not determined

2b

RECIPIENT’S identification

number

PAYER’S Federal identification

number

3 Capital gain (included

in box 2a)

4 Federal income tax

withheld

$ $

RECIPIENT’S name Net unrealized

appreciation in

employer’s securities

5 6

$ $

Distribution

code(s)

Street address (including apt. no.) 7 8 Other

%

City, state, and ZIP code

Account number (optional) 10 State tax withheld 11 State/Payer’s state no.

$

13 Local tax withheld 14 Name of locality

$

Form 1099-R Department of the Treasury - Internal Revenue Service

12

15

State distribution

Local distribution

$

Copy B

Report this

income on your

Federal tax

return. If this

form shows

Federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the Internal

Revenue Service.

$

$

$

$ $

$

OMB No. 1545-0119

Your percentage of total

distribution

9a

%

Form 1099-R

9b Total employee contributions

$

IRA/

SEP/

SIMPLE

2004

Newcomb Financial Services

200 Lincoln Street, 5th Floor

Your City, State and Zip Code

10,000.00

10,000.00

XX-XXXXXXX XXX-XX-XXXX

Clark M Knox

516 Wells

1,000.00

Your City, State and Zip Code

1 ✘

0.00 Your State 10,000.00

XX-XXXXXXX
Appendix A-55

APPENDIX

Supplemental Exercise No. 2 

1. Open Exercise 1 (David Chapman) and enter the following tax 

information. 

a. David put $2,000.00 into his regular IRA Account this year. 

Mary put the same amount into her ROTH IRA Account. 

b. Last year Mary paid $317.00 interest on the student loan 

she took to help pay for her teachers’ degree. 

____________________________________________________________

2. Open Exercise 5 (Andrew Howard) and enter the following tax 

information. 

 Andrew paid his first wife, Elizabeth Howard (SS#XXX-XXXXXX), $350.00 a month alimony last year 

____________________________________________________________

3. Open Exercise 3 (Susanne Denison) and enter the following tax 

information.

 Susanne paid $1473.50 last year for tuition, books and lab fees 

for her daughter Agnes. 
A-56 Appendix

APPENDIX

Supplemental Exercise No. 3 

1. Open Exercise 1 (David Chapman) and enter the following tax 

information. 

 David paid his neighbor, Betty Wells (SSN XXX-XX-XXXX) who 

lives next door at 878 Kenyon Ave, to look after Alice while he 

and Mary were at work. He paid her $1,875.

____________________________________________________________

2. Open Exercise 5 (Andrew Howard) and enter the following tax 

information. 

 Andrew paid the Salem Day Care Center (EIN XX-XXXXXX) 

located at 87 North Casper Dr, [Your city, state, and zip] to take 

care of Anthony while he and Sarah were at work. He paid the 

day care center $1,793.

____________________________________________________________
Appendix A-57

APPENDIX

Supplemental Exercise No. 4 

Open Exercise 4 (Clark M. Knox) and enter the following 

information: 

Clark made a $300.00 estimated tax payment on both 12 April 

and 16 June of last year. He reduced that value to $250.00 for the 

payments made on 10 September of last year and 8 January of 

this year. 

If Clark has a refund coming or owes more taxes he wants the 

amount either direct deposited or debited against his checking 

account. He gives you a bank card which identifies his bank’s 

routing number as 065502789 and his account number as 

XX-XXXXXXX. 
A-58 Appendix

APPENDIX

Supplemental Exercise No. 5 

Open Exercise 7 (Troy McCook) and enter the following tax 

information. 

Troy decides that he wants half of any refund applied to next year’s 

taxes with the rest being direct deposited to his checking account. 

If he owes money he would like it debited against his checking 

account. He provides you with the following information from his 

personal check. Routing number is 125106708 and the account 

number is XX-XXXXXXX. 

____________________________________________________________
Appendix A-59

APPENDIX

Supplemental Exercise No. 6 

1. Open Exercise 5 (Andrew Howard) 

A. If there is a refund, the Howards would like to receive it 

by check. However, because of the Pace stock sale they 

believe they will owe money. If there is an amount due over 

$500 they will have to make arrangements to pay by the 

IRS installment plan. If that happens they want the total 

amount due paid by installments. They can pay $100 a 

month and would like the payments due on the 15th of each 

month. They will make the payments by check. 

B. If there is any underpayment penalty they would like to 

request a waiver because of the unexpected and late sale of 

the stock. The Howard’s total federal tax for last year was 

$3,720. 

2. Open Exercise 6 (James Gordon) 

 If there is an Underpayment Penalty imposed on this return 

add last year’s tax to line 8 of Form 2210. If there is still a penalty, zero out the penalty on page 2 of form 1040. Inform the 

taxpayer that the IRS will figure any penalty. 
A-60 Appendix

APPENDIX

Supplemental Exercise No. 7 

 1. Open Exercise 4 (Clark Knox) 

 Clark wants to sign his return using the PIN System. His AGI 

for last year was $46,543.00. He enters “76541” as his PIN. 

2. Open Exercise 8 (John Reed) 

 John decides that he wants to use a PIN to sign his return. 

His AGI for last year was $32,186.00 and he will enter “76923” 

as his PIN.
Appendix B-1

SUGGESTED CLASS

SCHEDULES/SYLLABUSES

While every class is unique, we strive to have consistency in the 

training that is presented to the volunteers. To assist you in planning your class, the following pages present a variety of Suggested 

Class Schedules. The schedules cover a variety of situations and 

are divided into three basic categories: New Students, Returning 

Students and a Combination of New and Returning Students. 

There is even a suggested schedule for a Tax Law Refresher. At 

the top of each schedule, you will find information about the type 

of student and type of returns that the students will prepare. You 

should use the schedule that best fits your class.

You will note that the amount of time devoted to a Lesson will vary 

throughout the schedules. In determining the amount of time to 

devote to a Lesson, we considered the following factors:

■ Difficulty of topic presented in the lesson 

■ Amount of new tax law in the lesson

■ Experience level of the student

■ Expected frequency of the subject for the student

■ Topics that contain the most common errors on tax returns

■ Total amount of class time

Schedules 1-3, New Students

These three schedules are based on the following premises:

■ Your class is primarily composed of students who have no prior 

tax experience, and

■ The students have not participated in the VITA/TCE program in 

the past, and

■ You are not using integrated or C-VITA training for this class 

Schedules 4-5, Returning Students

These two schedules are based on the following premises:

■ Your class is primarily composed of students who have prior tax 

experience, and

■ The students have participated in the VITA/TCE program in the 

past, and

■ You are not using the integrated or C-VITA training for this 

class

Appendix B
B-2 Appendix

Schedules 6-9, Combination of New and Returning Students

These four schedules are based on the following premises:

■ You have a class that composed of both new and returning 

students, and

■ Some of the students have prior tax experience, and

■ You are not using the integrated or C-VITA training for this 

class.

Schedule 10 - Tax Law Refresher Only 

This schedule provides a condensed training schedule for a tax 

law refresher class. This schedule should not be used with new 

volunteers. 

INSTRUCTIONAL METHODS/APPROACHES

This training material is designed to provide you the flexibility you 

need to convey the information your students require to prepare 

accurate and complete tax returns. The information can be taught 

using various approaches as follows: 

Traditional Classroom Training (self-explanatory). 

Appendix B contains recommended syllabuses/class schedules for 

presenting the course materials in one to 5-days.

Self-Study. Volunteers with prior experience may be comfortable 

studying the material on their own. New volunteers may find the 

self-study approach more convenient. If you choose this training 

approach, at least one formal meeting/classroom session will be 

helpful to address specific questions and administrative requirements.

Tax Law/TaxWise Integrated Training. Integrated training 

refers to teaching tax law in harmony with teaching the students 

how to use the Service’s official volunteer e-file software - TaxWise. 

Appendix A contains extensive information on conducting a 

comprehensive integrated class. 

C-VITA – The Condensed VITA training approach is designed for 

volunteers who already possess certain skill sets. C-VITA is not 

designed as a stand alone training option. For additional information see Publication 3888, C-VITA Training Guide. 

Link & Learn Taxes – The new web-based program that allows 

the volunteers to complete their training and certification on-line. 

This method can reduce classroom time while allowing volunteers to 

complete their training anytime, anywhere. For more information, 

visit www.irs.gov and use keyword “Link & Learn” or “volunteer 

training.”
Appendix B-3

APPROXIMATE TEACHING/DISCUSSION TIMES — AT-A-GLANCE

(IN HOUR INCREMENTS OR FRACTIONS THEREOF)

Lesson/Topic New 

Students

Returning

Student

Combination

New & Returning 

Student

Tax Law 

Refresher

Introduction & Administrative 

Guidelines 1⁄21⁄2 1⁄2 3⁄4

Lesson 1

Getting Started 1⁄21⁄2 1⁄2 1⁄4

Lesson 2

Filing Status & Filing Requirements 1⁄21⁄2 1⁄2 1⁄4

Lesson 3

Income 13⁄4 3⁄4 11⁄2 1⁄2

Lesson 4

Adjustments 1 1⁄2 1⁄2-1 1⁄4

Lesson 5

Standard & Itemized Deductions

& Tax Computations

1-13⁄4 1⁄21 1⁄4

Lesson 6

Miscellaneous Credits 1⁄2-1 1⁄2 1⁄2-1 1⁄4

Lesson 7

Finishing the Return 1-11⁄4 1 1 3⁄4

Lesson 8

Credit for Child & Dependent 

Care Expenses

3⁄4 3⁄4 1 1⁄4

Lesson 9

Education Credits 1 1⁄2 11⁄4 1⁄4

Lesson 10

Earned Income Credit 21 2 1⁄2

Lesson 11

Child Tax Credit 13⁄4 3⁄4 1 1⁄4

Problem A

Wage Earner

Comprehensive Problems

11⁄4 N/A N/A N/A

Lesson 12

Sale of Stock 2 2 13⁄4 1⁄2

Lesson 13

Sale of Home 1⁄21⁄2 1⁄2 1⁄4

Lesson 14

Pension 31⁄4 11⁄4 21⁄4 3⁄4

Problem B

Pension Earner

Comprehensive Problems

3⁄4 N/A 3⁄4 N/A
B-4 Appendix

Suggested Class Schedule 1

Student experience level: No prior tax training

Prior VITA/TCE experience: No prior experience

Types of returns: Wage-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 2, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 4, Pub 678: Adjustments

2:40 Break

3:00 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

4:00 Dismiss class

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 6, Pub 678: Miscellaneous Credits

10:00 Break

10:15 Lesson 8, Pub 678: Child Care Credit

11:30 Lunch

12:30 Lesson 9, Pub 678: Education Credits

1:30 Break

1:45 Lesson 10, Pub 678: Earned Income Credit (EIC)

2:45 Break

3:00 Continue Lesson 10

4:00 Dismiss

3 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 11, Pub 678: Child Tax Credit

10:15 Break

10:30 Continue Lesson 11

11:30 Lunch

12:30 Lesson 7, Pub 678: Finishing the Return

1:30 Break

1:45 Pub 678 Wage-earner Comprehensive Problems

3:00 Break

3:15 Wrap-up

4:00 Dismiss
Appendix B-5

Suggested Class Schedule 2

Student experience level: No prior tax training

Prior VITA/TCE experience: No prior experience

Types of returns: Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 12, Pub 678: Sale of Stock

2:40 Break

3:00 Continue Lesson 12

4:00 Dismiss class

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 13, Pub 678: Sale of Home

10:00 Break

10:15 Lesson 14, Pub 678: Pensions

11:30 Lunch

12:30 Continue Lesson 14

1:30 Break

1:45 Continue Lesson 14

2:45 Break

3:00 Lesson 4, Pub 678: Adjustments

4:00 Dismiss

3 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

10:15 Break

10:30 Continue Lesson 5

11:30 Lunch

12:30 Lesson 6, Pub 678: Miscellaneous Credits

1:30 Break

1:45 Lesson 7, Pub 678: Finishing the Return

3:00 Break

3:15 Wrap-up and work Pension-earner Comprehensive problems

4:00 Dismiss
B-6 Appendix

Suggested Class Schedule 3

Student experience level: No prior tax training

Prior VITA/TCE experience: No prior experience

Types of returns: Wage earner and Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 12, Pub 678: Sale of Stock

2:40 Break

3:00 Continue Lesson 12

4:00 Dismiss 

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 13, Pub 678: Sale of Home

10:00 Break

10:15 Lesson 14, Pub 678: Pensions

11:30 Lunch

12:30 Continue Lesson 14

1:30 Break

1:45 Continue Lesson 14

2:45 Break

3:00 Lesson 4, Pub 678: Adjustments

4:00 Dismiss

3 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

10:15 Break

10:30 Continue Lesson 5

11:30 Lunch

12:30 Lesson 6, Pub 678: Miscellaneous Credits

1:00 Lesson 15, Pub 678: Credit for the Elderly and Disabled

1:30 Break

1:45 Lesson 8, Pub 678: Child and Dependent Care Credit

3:00 Break

3:15 Lesson 9, Pub 678: Education Credits

4:00 Dismiss
Appendix B-7

4 9:00 review key points from yesterday and answer any questions

9:30 Lesson 10, Pub 678: Earned Income Credit (EIC)

10:15 Break

10:30 Continue Lesson 10

11:30 Lunch

12:30 Lesson 11, Pub 678: Child Tax Credit

1:30 Break

1:45 Continue Lesson 11

2:30 Break

2:45 Lesson 7, Pub 678: Finishing the Return

3:30 Wrap-up

4:00 Dismiss

Note: This schedule does not allow any class time for working the comprehensive problems. If you want your students 

to complete the comprehensive problems during the formal 

classroom training, you will need to expand this training to a 

fi fth day.
B-8 Appendix

Suggested Class Schedule 4

Student experience level: Prior tax training

Prior VITA/TCE experience: Prior experience

Types of returns: Wage-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:00 Lesson 4, Pub 678: Adjustments

11:30 Lunch

12:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

1:00 Lesson 6, Pub 678: Miscellaneous Credits

1:30 Break

1:45 Lesson 8, Pub 678: Child Care Credit

2:30 Break

2:45 Lesson 9, Pub 678: Education Credits

3:15 Review and wrap-up

4:00 Dismiss

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 10, Pub 678: Earned Income Credit (EIC)

10:30 Break

10:45 Lesson 11, Pub 678: Child Tax Credit

11:30 Lunch

12:30 Lesson 7, Pub 678: Finishing the Return

1:30 Break

1:45 Pub 678 Wage-earner Comprehensive problems

2:45 Break

3:00 Review and wrap-up

4:00 Dismiss
Appendix B-9

Suggested Class Schedule 5

Student experience level: Prior tax training

Prior VITA/TCE experience: Prior experience

Types of returns: Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Lesson 12, Pub 678: Sale of Stock

1:30 Short break

1:40 Continue Lesson 12

2:40 Break

3:00 Lesson 13, Pub 678: Sale of Home

3:30 Review and wrap-up

4:00 Dismiss

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 14, Pub 678: Pensions

10:45 Break

11:00 Lesson 4, Pub 678: Adjustments

11:30 Lunch

12:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

1:30 Break

1:45 Lesson 6, Pub 678: Miscellaneous Credits

2:15 Lesson 15, Pub 678: Credit for the Elderly and Disabled

2:30 Lesson 7, Pub 678: Finishing the Return

3:00 Wrap up and review

4:00 Dismiss
B-10 Appendix

Suggested Class Schedule 6

Student experience level: Prior tax training

Prior VITA/TCE experience: Prior experience

Types of returns: Wage earner and Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Lesson 12, Pub 678: Sale of Stock

1:30 Short break

1:40 Continue Lesson 12

2:40 Break

3:00 Lesson 13, Pub 678: Sale of Home

3:30 Review and wrap-up

4:00 Dismiss

2 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 14, Pub 678: Pensions

10:45 Break

11:00 Lesson 4, Pub 678: Adjustments

11:30 Lunch

12:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

1:30 Break

1:45 Lesson 6, Pub 678: Miscellaneous Credits

2:30 Lesson 8, Pub 678: Child Care Credit

3:30 Lesson 9, Pub 678: Education Credits

4:00 Dismiss

3 9:00 Review key points from yesterday and answer any questions

9:30 Lesson 10, Pub 678: Earned Income Credit (EIC)

10:15 Break

10:30 Continue Lesson 10

11:30 Lunch

12:30 Lesson 11, Pub 678: Child Tax Credit

1:30 Break

1:45 Lesson 7, Pub 678: Finishing the Return

3:00 Break

3:15 Wrap-up and Review

4:00 Dismiss
Appendix B-11

Suggested Class Schedule 7

Student experience level: Mixture of experience levels

Prior VITA/TCE experience: Mixture of experience levels

Types of returns: Wage-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

Days One and Two are Designed for New Volunteers; 

Experienced Volunteers are Invited to Attend All of 

the Class, but May Choose To Only Attend Day Three

1 8:30 Registration and Introductions 

9:00 Lesson 1, Pub 678: Getting Started (Suggestion: Ask students to record key concepts as you go through days one 

and two. These key concepts could then be used on day 

three when you review the lessons with the experienced 

volunteers.)

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 4, Pub 678: Adjustments

2:40 Break

3:00 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

4:00 Lesson 6, Pub 678: Miscellaneous Credits

4:30 Dismiss class

2 8:30 Review key points from yesterday and answer any questions

9:00 Lesson 8, Pub 678: Child Care Credit

10:00 Break

10:15 Lesson 9, Pub 678: Education Credits

11:30 Lunch

12:30 Lesson 10, Pub 678: Earned Income Credit (EIC)

1:30 Break

1:45 Continue Lesson 10

2:45 Break

3:00 Lesson 11, Pub 678: Child Tax Credit

4:00 Dismiss
B-12 Appendix

3 8:30 Welcome experienced Volunteers and answer any questions

9:00 Continue Lesson 11

10:15 Break

10:30 Lesson 7, Pub 678: Finishing the Return

11:30 Lunch

12:30 Review lessons 1 - 5 

1:30 Break

1:45 Review lesson 6 - 10

3:00 Break

3:15 Wrap-up

4:00 Dismiss
Appendix B-13

Suggested Class Schedule 8

Student experience level: Mixture of experience levels

Prior VITA/TCE experience: Mixture of experience levels

Types of returns: Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

Days One and Two are Designed for New Volunteers; 

Experienced Volunteers are Invited to Attend All of 

the Class, but May Choose To Only Attend Day Three

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started (Suggestion: Ask students to record key concepts as you go through days one 

and two. These key concepts could then be used on day 

three when you review the lessons with the experienced 

volunteers.)

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 12, Pub 678: Sale of Stock (Note: This topic will be 

continued on day 3 to allow the experienced volunteers to 

receive the latest information on this topic.)

2:40 Break

3:00 Lesson 13, Pub 678: Sale of Home

3:30 Lesson 4, Pub 678: Adjustments

4:00 Dismiss

2 8:30 Review key points from yesterday and answer any questions

9:00 Lesson 14, Pub 678: Pensions

10:00 Break

10:15 Continue Lesson 14 (Note: This topic will be reviewed again 

on day 3 with the experienced volunteers. This will allow 

the new students to benefit from the “real life” situations 

that the experienced volunteers have encountered.)

11:30 Lunch

12:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

1:30 Break

1:45 Lesson 6 , Pub 678: Miscellaneous Credits

2:45 Break

3:00 Review and wrap-up

4:00 Dismiss
B-14 Appendix

3 8:30 Welcome experienced volunteers and answer any questions

9:00 Review Lesson 12, Sale of Stock

9:45 Break

10:00 Review Lesson 14, Pensions

11:00 Lesson 7, Pub 678: Finishing the return

12:00 Lunch

1:00 Review Lessons 1 - 5

2:00 Break

2:15 Review Lessons 6 and 13

3:00 Break

3:15 Wrap-up and work Pension-earner Comprehensive problems

4:00 Dismiss
Appendix B-15

Suggested Class Schedule 9

Student experience level: Mixture of experience levels

Prior VITA/TCE experience: Mixture of experience levels

Types of returns: Wage-earner and Pension-earner

Test: Done outside of class

The following schedule lists suggested teaching times. You may need 

to adjust the times to meet the needs of your class.

Day Time Topic

Days One and Two are Designed for New Volunteers; 

Experienced Volunteers are Invited to Attend All 

of the Class, but May Choose To Only Attend The 

Afternoon of Day Three and all of Day 4

1 8:30 Registration and Introductions

9:00 Lesson 1, Pub 678: Getting Started (Suggestion: Ask students to record key concepts as you go through days one 

and two. These key concepts could then be used on days 

three and four when you review the lessons with the experienced volunteers.)

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

10:00 Break

10:15 Lesson 3, Pub 678: Income

11:30 Lunch

12:30 Continue Lesson 3

1:30 Short break

1:40 Lesson 12, Pub 678: Sale of Stock (Note: This lesson will be 

covered again on day 3 to allow the experienced volunteers 

to review the new rules.)

2:40 Break

3:00 Lesson 13, Pub 678: Sale of Home

3:30 Lesson 4, Pub 678: Adjustments

4:30 Dismiss

2 8:00 Review key points from yesterday and answer any questions

8:30 Lesson 14, Pub 678: Pensions (Note: This lesson will be covered again on day 3 to allow the experienced volunteers to 

review the rules.)

9:30 Break

9:45 Continue Lesson 14

11:30 Lunch
B-16 Appendix

12:30 Lesson 5, Pub 678: Standard and Itemized Deductions and 

Tax Computation

1:30 Break

1:45 Continue Lesson 5

2:30 Break

2:45 Lesson 6, Pub 678: Miscellaneous Credits

3:30 Lesson 8, Pub 678: Child and Dependent Care Credit

4:30 Dismiss

3 8:00 Review key points from yesterday and answer any questions

8:30 Lesson 9, Pub 678: Education Credits

9:30 Break

9:45 Lesson 10, Pub 678: Earned Income Credit (EIC)

11:30 Lunch

12:30 Welcome experienced students and answer any questions

1:00 Review Lesson 12, Stock Sales

1:45 Break

2:00 Review Lesson 14, Pensions

3:00 Break

3:15 Review Lessons 1, 3, 13, and 4

4:30 Dismiss

4 8:00 Review key points from yesterday and answer any questions

8:30 Review Lessons 5, 6, and 8

10:15 Break

10:30 Review lessons 9 and 10

11:30 Lunch

12:30 Lesson 11, Pub 678: Child tax Credit

1:30 Break

1:45 Continue Lesson 11

2:30 Break

2:45 Lesson 7, Pub 678: Finishing the Return

3:30 Wrap-up

4:00 Dismiss

Note: This schedule does not allow any class time for working the comprehensive problems. If you want your students 

to complete the comprehensive problems during the formal 

classroom training, you will need to expand this training to a 

fifth day.
Appendix B-17

Suggested Class Schedule 10

Tax Law Refresher

This one-day class schedule should be used only with experienced 

volunteers who are willing to spend time self-studying the training 

material.

8:30 Welcome students and ask them to share an experience 

from last tax season (this will help you assess their experience level)

9:15 Review Lesson 1 – Getting Started and Administrative 

Guidelines

9:30 Lesson 2, Pub 678: Filing Status and Filing Requirements

9:45 Break

10:00 Review Lesson 3 – Income (No major changes)

Review Lesson 12 – Stock Sales (No major changes)

11:00 Review Lesson 13 – Sale of Home (No major changes)

Review Lesson 14 – Pensions (No major changes)

Noon Lunch

1:00 Review Lesson 4 – Adjustments (No major changes)

Review Lesson 5 – Itemized Deductions (No major changes)

Review Lesson 6 – Miscellaneous Credits (No major 

changes)

1:45 Break

2:00 Review Lesson 8 – Child and Dependent Care Credit (No 

major changes)

Review Lesson 9 – Education Credits (No major changes)

Review Lesson 10 – Earned Income Credit (One of the top 

10 errors on returns)

3:00 Break

3:15 Review Lesson 11 – Child Tax Credit (No major changes)

3:45 Review Lesson 7 – Finishing the return

4:30 Dismiss
B-18 Appendix

STUDENT NOTES
Appendix C C-1

APPENDIX

EIC TABLES Appendix C 

Proof as of

June 18, 2004

(subject to change)

(Continued on page 49)

2004 Earned Income Credit (EIC) Table

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Caution. This is not a tax table.

1. To find your credit, read

down the “At least – But less

than” columns and find the

line that includes the amount

you were told to look up from

your EIC Worksheet.

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

2. Then, go to the column

that includes your filing status

and the number of qualifying

children you have. Enter the

credit from that column on

your EIC Worksheet.

Example. If your filing

status is single, you have one

qualifying child, and the amount

you are looking up from your

EIC Worksheet is $2,455, you

would enter $842.

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

2,400 2,450 186 825 970

2,450 2,500 189 842 990

$1 $50 $2 $9 $10

50 100 6 26 30

100 150 10 43 50

150 200 13 60 70

200 250 17 77 90

250 300 21 94 110

300 350 25 111 130

350 400 29 128 150

400 450 33 145 170

450 500 36 162 190

500 550 40 179 210

550 600 44 196 230

600 650 48 213 250

650 700 52 230 270

700 750 55 247 290

750 800 59 264 310

800 850 63 281 330

850 900 67 298 350

900 950 71 315 370

950 1,000 75 332 390

1,000 1,050 78 349 410

1,050 1,100 82 366 430

1,100 1,150 86 383 450

1,150 1,200 90 400 470

1,200 1,250 94 417 490

1,250 1,300 98 434 510

1,300 1,350 101 451 530

1,350 1,400 105 468 550

1,400 1,450 109 485 570

1,450 1,500 113 502 590

1,500 1,550 117 519 610

1,550 1,600 120 536 630

1,600 1,650 124 553 650

1,650 1,700 128 570 670

1,700 1,750 132 587 690

1,750 1,800 136 604 710

1,800 1,850 140 621 730

1,850 1,900 143 638 750

1,900 1,950 147 655 770

1,950 2,000 151 672 790

2,000 2,050 155 689 810

2,050 2,100 159 706 830

2,100 2,150 163 723 850

2,150 2,200 166 740 870

2,200 2,250 170 757 890

2,250 2,300 174 774 910

2,300 2,350 178 791 930

2,350 2,400 182 808 950

2,400 2,450 186 825 970

2,450 2,500 189 842 990

2,500 2,550 193 859 1,010

2,550 2,600 197 876 1,030

2,600 2,650 201 893 1,050

2,650 2,700 205 910 1,070

2,700 2,750 208 927 1,090

2,750 2,800 212 944 1,110

2,800 2,850 216 961 1,130

2,850 2,900 220 978 1,150

2,900 2,950 224 995 1,170

2,950 3,000 228 1,012 1,190

3,000 3,050 231 1,029 1,210

3,050 3,100 235 1,046 1,230

3,100 3,150 239 1,063 1,250

3,150 3,200 243 1,080 1,270

3,200 3,250 247 1,097 1,290

3,250 3,300 251 1,114 1,310

3,300 3,350 254 1,131 1,330

3,350 3,400 258 1,148 1,350

3,400 3,450 262 1,165 1,370

3,450 3,500 266 1,182 1,390

3,500 3,550 270 1,199 1,410

3,550 3,600 273 1,216 1,430

3,600 3,650 277 1,233 1,450

3,650 3,700 281 1,250 1,470

3,700 3,750 285 1,267 1,490

3,750 3,800 289 1,284 1,510

3,800 3,850 293 1,301 1,530

3,850 3,900 296 1,318 1,550

3,900 3,950 300 1,335 1,570

3,950 4,000 304 1,352 1,590

4,000 4,050 308 1,369 1,610

4,050 4,100 312 1,386 1,630

4,100 4,150 316 1,403 1,650

4,150 4,200 319 1,420 1,670

4,200 4,250 323 1,437 1,690

4,250 4,300 327 1,454 1,710

4,300 4,350 331 1,471 1,730

4,350 4,400 335 1,488 1,750

4,400 4,450 339 1,505 1,770

4,450 4,500 342 1,522 1,790

4,500 4,550 346 1,539 1,810

4,550 4,600 350 1,556 1,830

4,600 4,650 354 1,573 1,850

4,650 4,700 358 1,590 1,870

4,700 4,750 361 1,607 1,890

4,750 4,800 365 1,624 1,910

4,800 4,850 369 1,641 1,930

4,850 4,900 373 1,658 1,950

4,900 4,950 377 1,675 1,970

4,950 5,000 381 1,692 1,990

5,000 5,050 384 1,709 2,010

5,050 5,100 388 1,726 2,030

5,100 5,150 390 1,743 2,050

5,150 5,200 390 1,760 2,070

5,200 5,250 390 1,777 2,090

5,250 5,300 390 1,794 2,110

5,300 5,350 390 1,811 2,130

5,350 5,400 390 1,828 2,150

5,400 5,450 390 1,845 2,170

5,450 5,500 390 1,862 2,190

$2 $9 $10

6 26 30

10 43 50

13 60 70

17 77 90

21 94 110

25 111 130

29 128 150

33 145 170

36 162 190

40 179 210

44 196 230

48 213 250

52 230 270

55 247 290

59 264 310

63 281 330

67 298 350

71 315 370

75 332 390

78 349 410

82 366 430

86 383 450

90 400 470

94 417 490

98 434 510

101 451 530

105 468 550

109 485 570

113 502 590

117 519 610

120 536 630

124 553 650

128 570 670

132 587 690

136 604 710

140 621 730

143 638 750

147 655 770

151 672 790

155 689 810

159 706 830

163 723 850

166 740 870

170 757 890

174 774 910

178 791 930

182 808 950

186 825 970

189 842 990

193 859 1,010

197 876 1,030

201 893 1,050

205 910 1,070

208 927 1,090

212 944 1,110

216 961 1,130

220 978 1,150

224 995 1,170

228 1,012 1,190

231 1,029 1,210

235 1,046 1,230

239 1,063 1,250

243 1,080 1,270

247 1,097 1,290

251 1,114 1,310

254 1,131 1,330

258 1,148 1,350

262 1,165 1,370

266 1,182 1,390

270 1,199 1,410

273 1,216 1,430

277 1,233 1,450

281 1,250 1,470

285 1,267 1,490

289 1,284 1,510

293 1,301 1,530

296 1,318 1,550

300 1,335 1,570

304 1,352 1,590

308 1,369 1,610

312 1,386 1,630

316 1,403 1,650

319 1,420 1,670

323 1,437 1,690

327 1,454 1,710

331 1,471 1,730

335 1,488 1,750

339 1,505 1,770

342 1,522 1,790

346 1,539 1,810

350 1,556 1,830

354 1,573 1,850

358 1,590 1,870

361 1,607 1,890

365 1,624 1,910

369 1,641 1,930

373 1,658 1,950

377 1,675 1,970

381 1,692 1,990

384 1,709 2,010

388 1,726 2,030

390 1,743 2,050

390 1,760 2,070

390 1,777 2,090

390 1,794 2,110

390 1,811 2,130

390 1,828 2,150

390 1,845 2,170

390 1,862 2,190
C-2 Appendix C

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Earned Income Credit (EIC) Table—Continued (Caution. This is not a tax table.)

(Continued on page 50)

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

*If the amount you are looking up from the worksheet is at least $11,450 ($12,450 if married filing jointly) but less than $11,490 ($12,490 if married filing jointly), your credit is $2. Otherwise, you cannot take the credit.

5,500 5,550 390 1,879 2,210

5,550 5,600 390 1,896 2,230

5,600 5,650 390 1,913 2,250

5,650 5,700 390 1,930 2,270

5,700 5,750 390 1,947 2,290

5,750 5,800 390 1,964 2,310

5,800 5,850 390 1,981 2,330

5,850 5,900 390 1,998 2,350

5,900 5,950 390 2,015 2,370

5,950 6,000 390 2,032 2,390

6,000 6,050 390 2,049 2,410

6,050 6,100 390 2,066 2,430

6,100 6,150 390 2,083 2,450

6,150 6,200 390 2,100 2,470

6,200 6,250 390 2,117 2,490

6,250 6,300 390 2,134 2,510

6,300 6,350 390 2,151 2,530

6,350 6,400 390 2,168 2,550

6,400 6,450 387 2,185 2,570

6,450 6,500 384 2,202 2,590

6,500 6,550 380 2,219 2,610

6,550 6,600 376 2,236 2,630

6,600 6,650 372 2,253 2,650

6,650 6,700 368 2,270 2,670

6,700 6,750 365 2,287 2,690

6,750 6,800 361 2,304 2,710

6,800 6,850 357 2,321 2,730

6,850 6,900 353 2,338 2,750

6,900 6,950 349 2,355 2,770

6,950 7,000 345 2,372 2,790

7,000 7,050 342 2,389 2,810

7,050 7,100 338 2,406 2,830

7,100 7,150 334 2,423 2,850

7,150 7,200 330 2,440 2,870

7,200 7,250 326 2,457 2,890

7,250 7,300 322 2,474 2,910

7,300 7,350 319 2,491 2,930

7,350 7,400 315 2,508 2,950

7,400 7,450 311 2,525 2,970

7,450 7,500 307 2,542 2,990

7,500 7,550 303 2,559 3,010

7,550 7,600 299 2,576 3,030

7,600 7,650 296 2,593 3,050

7,650 7,700 292 2,604 3,070

7,700 7,750 288 2,604 3,090

7,750 7,800 284 2,604 3,110

7,800 7,850 280 2,604 3,130

7,850 7,900 277 2,604 3,150

7,900 7,950 273 2,604 3,170

7,950 8,000 269 2,604 3,190

8,000 8,050 265 2,604 3,210

8,050 8,100 261 2,604 3,230

8,100 8,150 257 2,604 3,250

8,150 8,200 254 2,604 3,270

8,200 8,250 250 2,604 3,290

8,250 8,300 246 2,604 3,310

8,300 8,350 242 2,604 3,330

8,350 8,400 238 2,604 3,350

8,400 8,450 234 2,604 3,370

8,450 8,500 231 2,604 3,390

8,500 8,550 227 2,604 3,410

8,550 8,600 223 2,604 3,430

8,600 8,650 219 2,604 3,450

8,650 8,700 215 2,604 3,470

8,700 8,750 212 2,604 3,490

8,750 8,800 208 2,604 3,510

8,800 8,850 204 2,604 3,530

8,850 8,900 200 2,604 3,550

8,900 8,950 196 2,604 3,570

8,950 9,000 192 2,604 3,590

9,000 9,050 189 2,604 3,610

9,050 9,100 185 2,604 3,630

9,100 9,150 181 2,604 3,650

9,150 9,200 177 2,604 3,670

9,200 9,250 173 2,604 3,690

9,250 9,300 169 2,604 3,710

9,300 9,350 166 2,604 3,730

9,350 9,400 162 2,604 3,750

9,400 9,450 158 2,604 3,770

9,450 9,500 154 2,604 3,790

9,500 9,550 150 2,604 3,810

9,550 9,600 146 2,604 3,830

9,600 9,650 143 2,604 3,850

9,650 9,700 139 2,604 3,870

9,700 9,750 135 2,604 3,890

9,750 9,800 131 2,604 3,910

9,800 9,850 127 2,604 3,930

9,850 9,900 124 2,604 3,950

9,900 9,950 120 2,604 3,970

9,950 10,000 116 2,604 3,990

10,000 10,050 112 2,604 4,010

10,050 10,100 108 2,604 4,030

10,100 10,150 104 2,604 4,050

10,150 10,200 101 2,604 4,070

10,200 10,250 97 2,604 4,090

10,250 10,300 93 2,604 4,110

10,300 10,350 89 2,604 4,130

10,350 10,400 85 2,604 4,150

10,400 10,450 81 2,604 4,170

10,450 10,500 78 2,604 4,190

10,500 10,550 74 2,604 4,210

10,550 10,600 70 2,604 4,230

10,600 10,650 66 2,604 4,250

10,650 10,700 62 2,604 4,270

10,700 10,750 59 2,604 4,290

10,750 10,800 55 2,604 4,300

10,800 10,850 51 2,604 4,300

10,850 10,900 47 2,604 4,300

10,900 10,950 43 2,604 4,300

10,950 11,000 39 2,604 4,300

11,000 11,050 36 2,604 4,300

11,050 11,100 32 2,604 4,300

11,100 11,150 28 2,604 4,300

11,150 11,200 24 2,604 4,300

11,200 11,250 20 2,604 4,300

11,250 11,300 16 2,604 4,300

11,300 11,350 13 2,604 4,300

11,350 11,400 9 2,604 4,300

11,400 11,450 5 2,604 4,300

11,450 11,500 * 2,604 4,300

390 1,879 2,210

390 1,896 2,230

390 1,913 2,250

390 1,930 2,270

390 1,947 2,290

390 1,964 2,310

390 1,981 2,330

390 1,998 2,350

390 2,015 2,370

390 2,032 2,390

390 2,049 2,410

390 2,066 2,430

390 2,083 2,450

390 2,100 2,470

390 2,117 2,490

390 2,134 2,510

390 2,151 2,530

390 2,168 2,550

390 2,185 2,570

390 2,202 2,590

390 2,219 2,610

390 2,236 2,630

390 2,253 2,650

390 2,270 2,670

390 2,287 2,690

390 2,304 2,710

390 2,321 2,730

390 2,338 2,750

390 2,355 2,770

390 2,372 2,790

390 2,389 2,810

390 2,406 2,830

390 2,423 2,850

390 2,440 2,870

390 2,457 2,890

390 2,474 2,910

390 2,491 2,930

390 2,508 2,950

387 2,525 2,970

384 2,542 2,990

380 2,559 3,010

376 2,576 3,030

372 2,593 3,050

368 2,604 3,070

365 2,604 3,090

361 2,604 3,110

357 2,604 3,130

353 2,604 3,150

349 2,604 3,170

345 2,604 3,190

342 2,604 3,210

338 2,604 3,230

334 2,604 3,250

330 2,604 3,270

326 2,604 3,290

322 2,604 3,310

319 2,604 3,330

315 2,604 3,350

311 2,604 3,370

307 2,604 3,390

303 2,604 3,410

299 2,604 3,430

296 2,604 3,450

292 2,604 3,470

288 2,604 3,490

284 2,604 3,510

280 2,604 3,530

277 2,604 3,550

273 2,604 3,570

269 2,604 3,590

265 2,604 3,610

261 2,604 3,630

257 2,604 3,650

254 2,604 3,670

250 2,604 3,690

246 2,604 3,710

242 2,604 3,730

238 2,604 3,750

234 2,604 3,770

231 2,604 3,790

227 2,604 3,810

223 2,604 3,830

219 2,604 3,850

215 2,604 3,870

212 2,604 3,890

208 2,604 3,910

204 2,604 3,930

200 2,604 3,950

196 2,604 3,970

192 2,604 3,990

189 2,604 4,010

185 2,604 4,030

181 2,604 4,050

177 2,604 4,070

173 2,604 4,090

169 2,604 4,110

166 2,604 4,130

162 2,604 4,150

158 2,604 4,170

154 2,604 4,190

150 2,604 4,210

146 2,604 4,230

143 2,604 4,250

139 2,604 4,270

135 2,604 4,290

131 2,604 4,300

127 2,604 4,300

124 2,604 4,300

120 2,604 4,300

116 2,604 4,300

112 2,604 4,300

108 2,604 4,300

104 2,604 4,300

101 2,604 4,300

97 2,604 4,300

93 2,604 4,300

89 2,604 4,300

85 2,604 4,300

81 2,604 4,300

78 2,604 4,300
Appendix C C-3

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Earned Income Credit (EIC) Table—Continued (Caution. This is not a tax table.)

(Continued on page 51)

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

11,500 11,550 0 2,604 4,300

11,550 11,600 0 2,604 4,300

11,600 11,650 0 2,604 4,300

11,650 11,700 0 2,604 4,300

11,700 11,750 0 2,604 4,300

11,750 11,800 0 2,604 4,300

11,800 11,850 0 2,604 4,300

11,850 11,900 0 2,604 4,300

11,900 11,950 0 2,604 4,300

11,950 12,000 0 2,604 4,300

12,000 12,050 0 2,604 4,300

12,050 12,100 0 2,604 4,300

12,100 12,150 0 2,604 4,300

12,150 12,200 0 2,604 4,300

12,200 12,250 0 2,604 4,300

12,250 12,300 0 2,604 4,300

12,300 12,350 0 2,604 4,300

12,350 12,400 0 2,604 4,300

12,400 12,450 0 2,604 4,300

12,450 12,500 0 2,604 4,300

12,500 14,050 0 2,604 4,300

14,050 14,100 0 2,599 4,293

14,100 14,150 0 2,591 4,282

14,150 14,200 0 2,583 4,272

14,200 14,250 0 2,575 4,261

14,250 14,300 0 2,567 4,251

14,300 14,350 0 2,559 4,240

14,350 14,400 0 2,551 4,229

14,400 14,450 0 2,543 4,219

14,450 14,500 0 2,535 4,208

14,500 14,550 0 2,527 4,198

14,550 14,600 0 2,519 4,187

14,600 14,650 0 2,511 4,177

14,650 14,700 0 2,503 4,166

14,700 14,750 0 2,495 4,156

14,750 14,800 0 2,487 4,145

14,800 14,850 0 2,479 4,135

14,850 14,900 0 2,471 4,124

14,900 14,950 0 2,463 4,114

14,950 15,000 0 2,455 4,103

15,000 15,050 0 2,447 4,093

15,050 15,100 0 2,439 4,082

15,100 15,150 0 2,431 4,071

15,150 15,200 0 2,423 4,061

15,200 15,250 0 2,415 4,050

15,250 15,300 0 2,407 4,040

15,300 15,350 0 2,399 4,029

15,350 15,400 0 2,391 4,019

15,400 15,450 0 2,383 4,008

15,450 15,500 0 2,375 3,998

15,500 15,550 0 2,367 3,987

15,550 15,600 0 2,359 3,977

15,600 15,650 0 2,351 3,966

15,650 15,700 0 2,343 3,956

15,700 15,750 0 2,335 3,945

15,750 15,800 0 2,327 3,935

15,800 15,850 0 2,319 3,924

15,850 15,900 0 2,311 3,914

15,900 15,950 0 2,303 3,903

15,950 16,000 0 2,295 3,892

16,000 16,050 0 2,287 3,882

16,050 16,100 0 2,279 3,871

16,100 16,150 0 2,271 3,861

16,150 16,200 0 2,263 3,850

16,200 16,250 0 2,255 3,840

16,250 16,300 0 2,247 3,829

16,300 16,350 0 2,239 3,819

16,350 16,400 0 2,231 3,808

16,400 16,450 0 2,223 3,798

16,450 16,500 0 2,215 3,787

16,500 16,550 0 2,207 3,777

16,550 16,600 0 2,199 3,766

16,600 16,650 0 2,191 3,756

16,650 16,700 0 2,183 3,745

16,700 16,750 0 2,175 3,735

16,750 16,800 0 2,167 3,724

16,800 16,850 0 2,159 3,713

16,850 16,900 0 2,151 3,703

16,900 16,950 0 2,143 3,692

16,950 17,000 0 2,135 3,682

17,000 17,050 0 2,127 3,671

17,050 17,100 0 2,119 3,661

17,100 17,150 0 2,111 3,650

17,150 17,200 0 2,103 3,640

17,200 17,250 0 2,095 3,629

17,250 17,300 0 2,087 3,619

17,300 17,350 0 2,079 3,608

17,350 17,400 0 2,071 3,598

17,400 17,450 0 2,063 3,587

17,450 17,500 0 2,055 3,577

74 2,604 4,300

70 2,604 4,300

66 2,604 4,300

62 2,604 4,300

59 2,604 4,300

55 2,604 4,300

51 2,604 4,300

47 2,604 4,300

43 2,604 4,300

39 2,604 4,300

36 2,604 4,300

32 2,604 4,300

28 2,604 4,300

24 2,604 4,300

20 2,604 4,300

16 2,604 4,300

13 2,604 4,300

9 2,604 4,300

5 2,604 4,300

* 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,604 4,300

0 2,599 4,293

0 2,591 4,282

0 2,583 4,272

0 2,575 4,261

0 2,567 4,251

0 2,559 4,240

0 2,551 4,229

0 2,543 4,219

0 2,535 4,208

0 2,527 4,198

0 2,519 4,187

0 2,511 4,177

0 2,503 4,166

0 2,495 4,156

0 2,487 4,145

0 2,479 4,135

0 2,471 4,124

0 2,463 4,114

0 2,455 4,103

0 2,447 4,093

0 2,439 4,082

0 2,431 4,071

0 2,423 4,061

0 2,415 4,050

0 2,407 4,040

0 2,399 4,029

0 2,391 4,019

0 2,383 4,008

0 2,375 3,998

0 2,367 3,987

0 2,359 3,977

0 2,351 3,966

0 2,343 3,956

0 2,335 3,945

0 2,327 3,935

0 2,319 3,924

0 2,311 3,914

0 2,303 3,903

0 2,295 3,892

0 2,287 3,882

0 2,279 3,871

0 2,271 3,861

0 2,263 3,850

0 2,255 3,840

0 2,247 3,829

0 2,239 3,819

0 2,231 3,808

0 2,223 3,798

0 2,215 3,787

*If the amount you are looking up from the worksheet is at least $11,450 ($12,450 if married filing jointly) but less than $11,490 ( $12,490 if married filing jointly), your

credit is $2. Otherwise, you cannot take the credit.

17,500 17,550 0 2,047 3,566

17,550 17,600 0 2,040 3,556

17,600 17,650 0 2,032 3,545

17,650 17,700 0 2,024 3,534

17,700 17,750 0 2,016 3,524

17,750 17,800 0 2,008 3,513

17,800 17,850 0 2,000 3,503

17,850 17,900 0 1,992 3,492

17,900 17,950 0 1,984 3,482

17,950 18,000 0 1,976 3,471

18,000 18,050 0 1,968 3,461

18,050 18,100 0 1,960 3,450

18,100 18,150 0 1,952 3,440

18,150 18,200 0 1,944 3,429

18,200 18,250 0 1,936 3,419

18,250 18,300 0 1,928 3,408

18,300 18,350 0 1,920 3,398

18,350 18,400 0 1,912 3,387

18,400 18,450 0 1,904 3,377

18,450 18,500 0 1,896 3,366

18,500 18,550 0 1,888 3,355

18,550 18,600 0 1,880 3,345

18,600 18,650 0 1,872 3,334

18,650 18,700 0 1,864 3,324

18,700 18,750 0 1,856 3,313

18,750 18,800 0 1,848 3,303

18,800 18,850 0 1,840 3,292

18,850 18,900 0 1,832 3,282

18,900 18,950 0 1,824 3,271

18,950 19,000 0 1,816 3,261

0 2,207 3,777

0 2,199 3,766

0 2,191 3,756

0 2,183 3,745

0 2,175 3,735

0 2,167 3,724

0 2,159 3,713

0 2,151 3,703

0 2,143 3,692

0 2,135 3,682

0 2,127 3,671

0 2,119 3,661

0 2,111 3,650

0 2,103 3,640

0 2,095 3,629

0 2,087 3,619

0 2,079 3,608

0 2,071 3,598

0 2,063 3,587

0 2,055 3,577

0 2,047 3,566

0 2,040 3,556

0 2,032 3,545

0 2,024 3,534

0 2,016 3,524

0 2,008 3,513

0 2,000 3,503

0 1,992 3,492

0 1,984 3,482

0 1,976 3,471
C-4 Appendix C

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Earned Income Credit (EIC) Table—Continued (Caution. This is not a tax table.)

(Continued on page 52)

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

19,000 19,050 0 1,808 3,250

19,050 19,100 0 1,800 3,240

19,100 19,150 0 1,792 3,229

19,150 19,200 0 1,784 3,219

19,200 19,250 0 1,776 3,208

19,250 19,300 0 1,768 3,198

19,300 19,350 0 1,760 3,187

19,350 19,400 0 1,752 3,176

19,400 19,450 0 1,744 3,166

19,450 19,500 0 1,736 3,155

19,500 19,550 0 1,728 3,145

19,550 19,600 0 1,720 3,134

19,600 19,650 0 1,712 3,124

19,650 19,700 0 1,704 3,113

19,700 19,750 0 1,696 3,103

19,750 19,800 0 1,688 3,092

19,800 19,850 0 1,680 3,082

19,850 19,900 0 1,672 3,071

19,900 19,950 0 1,664 3,061

19,950 20,000 0 1,656 3,050

20,000 20,050 0 1,648 3,040

20,050 20,100 0 1,640 3,029

20,100 20,150 0 1,632 3,018

20,150 20,200 0 1,624 3,008

20,200 20,250 0 1,616 2,997

20,250 20,300 0 1,608 2,987

20,300 20,350 0 1,600 2,976

20,350 20,400 0 1,592 2,966

20,400 20,450 0 1,584 2,955

20,450 20,500 0 1,576 2,945

20,500 20,550 0 1,568 2,934

20,550 20,600 0 1,560 2,924

20,600 20,650 0 1,552 2,913

20,650 20,700 0 1,544 2,903

20,700 20,750 0 1,536 2,892

20,750 20,800 0 1,528 2,882

20,800 20,850 0 1,520 2,871

20,850 20,900 0 1,512 2,861

20,900 20,950 0 1,504 2,850

20,950 21,000 0 1,496 2,839

21,000 21,050 0 1,488 2,829

21,050 21,100 0 1,480 2,818

21,100 21,150 0 1,472 2,808

21,150 21,200 0 1,464 2,797

21,200 21,250 0 1,456 2,787

21,250 21,300 0 1,448 2,776

21,300 21,350 0 1,440 2,766

21,350 21,400 0 1,432 2,755

21,400 21,450 0 1,424 2,745

21,450 21,500 0 1,416 2,734

21,500 21,550 0 1,408 2,724

21,550 21,600 0 1,400 2,713

21,600 21,650 0 1,392 2,703

21,650 21,700 0 1,384 2,692

21,700 21,750 0 1,376 2,682

21,750 21,800 0 1,368 2,671

21,800 21,850 0 1,360 2,660

21,850 21,900 0 1,352 2,650

21,900 21,950 0 1,344 2,639

21,950 22,000 0 1,336 2,629

22,000 22,050 0 1,328 2,618

22,050 22,100 0 1,320 2,608

22,100 22,150 0 1,312 2,597

22,150 22,200 0 1,304 2,587

22,200 22,250 0 1,296 2,576

22,250 22,300 0 1,288 2,566

22,300 22,350 0 1,280 2,555

22,350 22,400 0 1,272 2,545

22,400 22,450 0 1,264 2,534

22,450 22,500 0 1,256 2,524

22,500 22,550 0 1,248 2,513

22,550 22,600 0 1,241 2,503

22,600 22,650 0 1,233 2,492

22,650 22,700 0 1,225 2,481

22,700 22,750 0 1,217 2,471

22,750 22,800 0 1,209 2,460

22,800 22,850 0 1,201 2,450

22,850 22,900 0 1,193 2,439

22,900 22,950 0 1,185 2,429

22,950 23,000 0 1,177 2,418

23,000 23,050 0 1,169 2,408

23,050 23,100 0 1,161 2,397

23,100 23,150 0 1,153 2,387

23,150 23,200 0 1,145 2,376

23,200 23,250 0 1,137 2,366

23,250 23,300 0 1,129 2,355

23,300 23,350 0 1,121 2,345

23,350 23,400 0 1,113 2,334

23,400 23,450 0 1,105 2,324

23,450 23,500 0 1,097 2,313

0 1,968 3,461

0 1,960 3,450

0 1,952 3,440

0 1,944 3,429

0 1,936 3,419

0 1,928 3,408

0 1,920 3,398

0 1,912 3,387

0 1,904 3,377

0 1,896 3,366

0 1,888 3,355

0 1,880 3,345

0 1,872 3,334

0 1,864 3,324

0 1,856 3,313

0 1,848 3,303

0 1,840 3,292

0 1,832 3,282

0 1,824 3,271

0 1,816 3,261

0 1,808 3,250

0 1,800 3,240

0 1,792 3,229

0 1,784 3,219

0 1,776 3,208

0 1,768 3,198

0 1,760 3,187

0 1,752 3,176

0 1,744 3,166

0 1,736 3,155

0 1,728 3,145

0 1,720 3,134

0 1,712 3,124

0 1,704 3,113

0 1,696 3,103

0 1,688 3,092

0 1,680 3,082

0 1,672 3,071

0 1,664 3,061

0 1,656 3,050

0 1,648 3,040

0 1,640 3,029

0 1,632 3,018

0 1,624 3,008

0 1,616 2,997

0 1,608 2,987

0 1,600 2,976

0 1,592 2,966

0 1,584 2,955

0 1,576 2,945

0 1,568 2,934

0 1,560 2,924

0 1,552 2,913

0 1,544 2,903

0 1,536 2,892

0 1,528 2,882

0 1,520 2,871

0 1,512 2,861

0 1,504 2,850

0 1,496 2,839

0 1,488 2,829

0 1,480 2,818

0 1,472 2,808

0 1,464 2,797

0 1,456 2,787

0 1,448 2,776

0 1,440 2,766

0 1,432 2,755

0 1,424 2,745

0 1,416 2,734

0 1,408 2,724

0 1,400 2,713

0 1,392 2,703

0 1,384 2,692

0 1,376 2,682

0 1,368 2,671

0 1,360 2,660

0 1,352 2,650

0 1,344 2,639

0 1,336 2,629

0 1,328 2,618

0 1,320 2,608

0 1,312 2,597

0 1,304 2,587

0 1,296 2,576

0 1,288 2,566

0 1,280 2,555

0 1,272 2,545

0 1,264 2,534

0 1,256 2,524

23,500 23,550 0 1,089 2,302

23,550 23,600 0 1,081 2,292

23,600 23,650 0 1,073 2,281

23,650 23,700 0 1,065 2,271

23,700 23,750 0 1,057 2,260

23,750 23,800 0 1,049 2,250

23,800 23,850 0 1,041 2,239

23,850 23,900 0 1,033 2,229

23,900 23,950 0 1,025 2,218

23,950 24,000 0 1,017 2,208

24,000 24,050 0 1,009 2,197

24,050 24,100 0 1,001 2,187

24,100 24,150 0 993 2,176

24,150 24,200 0 985 2,166

24,200 24,250 0 977 2,155

24,250 24,300 0 969 2,145

24,300 24,350 0 961 2,134

24,350 24,400 0 953 2,123

24,400 24,450 0 945 2,113

24,450 24,500 0 937 2,102

24,500 24,550 0 929 2,092

24,550 24,600 0 921 2,081

24,600 24,650 0 913 2,071

24,650 24,700 0 905 2,060

24,700 24,750 0 897 2,050

24,750 24,800 0 889 2,039

24,800 24,850 0 881 2,029

24,850 24,900 0 873 2,018

24,900 24,950 0 865 2,008

24,950 25,000 0 857 1,997

0 1,248 2,513

0 1,241 2,503

0 1,233 2,492

0 1,225 2,481

0 1,217 2,471

0 1,209 2,460

0 1,201 2,450

0 1,193 2,439

0 1,185 2,429

0 1,177 2,418

0 1,169 2,408

0 1,161 2,397

0 1,153 2,387

0 1,145 2,376

0 1,137 2,366

0 1,129 2,355

0 1,121 2,345

0 1,113 2,334

0 1,105 2,324

0 1,097 2,313

0 1,089 2,302

0 1,081 2,292

0 1,073 2,281

0 1,065 2,271

0 1,057 2,260

0 1,049 2,250

0 1,041 2,239

0 1,033 2,229

0 1,025 2,218

0 1,017 2,208
Appendix C C-5

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Earned Income Credit (EIC) Table—Continued (Caution. This is not a tax table.)

(Continued on page 53)

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

25,000 25,050 0 849 1,987

25,050 25,100 0 841 1,976

25,100 25,150 0 833 1,965

25,150 25,200 0 825 1,955

25,200 25,250 0 817 1,944

25,250 25,300 0 809 1,934

25,300 25,350 0 801 1,923

25,350 25,400 0 793 1,913

25,400 25,450 0 785 1,902

25,450 25,500 0 777 1,892

25,500 25,550 0 769 1,881

25,550 25,600 0 761 1,871

25,600 25,650 0 753 1,860

25,650 25,700 0 745 1,850

25,700 25,750 0 737 1,839

25,750 25,800 0 729 1,829

25,800 25,850 0 721 1,818

25,850 25,900 0 713 1,808

25,900 25,950 0 705 1,797

25,950 26,000 0 697 1,786

26,000 26,050 0 689 1,776

26,050 26,100 0 681 1,765

26,100 26,150 0 673 1,755

26,150 26,200 0 665 1,744

26,200 26,250 0 657 1,734

26,250 26,300 0 649 1,723

26,300 26,350 0 641 1,713

26,350 26,400 0 633 1,702

26,400 26,450 0 625 1,692

26,450 26,500 0 617 1,681

26,500 26,550 0 609 1,671

26,550 26,600 0 601 1,660

26,600 26,650 0 593 1,650

26,650 26,700 0 585 1,639

26,700 26,750 0 577 1,629

26,750 26,800 0 569 1,618

26,800 26,850 0 561 1,607

26,850 26,900 0 553 1,597

26,900 26,950 0 545 1,586

26,950 27,000 0 537 1,576

27,000 27,050 0 529 1,565

27,050 27,100 0 521 1,555

27,100 27,150 0 513 1,544

27,150 27,200 0 505 1,534

27,200 27,250 0 497 1,523

27,250 27,300 0 489 1,513

27,300 27,350 0 481 1,502

27,350 27,400 0 473 1,492

27,400 27,450 0 465 1,481

27,450 27,500 0 457 1,471

27,500 27,550 0 449 1,460

27,550 27,600 0 442 1,450

27,600 27,650 0 434 1,439

27,650 27,700 0 426 1,428

27,700 27,750 0 418 1,418

27,750 27,800 0 410 1,407

27,800 27,850 0 402 1,397

27,850 27,900 0 394 1,386

27,900 27,950 0 386 1,376

27,950 28,000 0 378 1,365

28,000 28,050 0 370 1,355

28,050 28,100 0 362 1,344

28,100 28,150 0 354 1,334

28,150 28,200 0 346 1,323

28,200 28,250 0 338 1,313

28,250 28,300 0 330 1,302

28,300 28,350 0 322 1,292

28,350 28,400 0 314 1,281

28,400 28,450 0 306 1,271

28,450 28,500 0 298 1,260

28,500 28,550 0 290 1,249

28,550 28,600 0 282 1,239

28,600 28,650 0 274 1,228

28,650 28,700 0 266 1,218

28,700 28,750 0 258 1,207

28,750 28,800 0 250 1,197

28,800 28,850 0 242 1,186

28,850 28,900 0 234 1,176

28,900 28,950 0 226 1,165

28,950 29,000 0 218 1,155

29,000 29,050 0 210 1,144

29,050 29,100 0 202 1,134

29,100 29,150 0 194 1,123

29,150 29,200 0 186 1,113

29,200 29,250 0 178 1,102

29,250 29,300 0 170 1,092

29,300 29,350 0 162 1,081

29,350 29,400 0 154 1,070

29,400 29,450 0 146 1,060

29,450 29,500 0 138 1,049

0 1,009 2,197

0 1,001 2,187

0 993 2,176

0 985 2,166

0 977 2,155

0 969 2,145

0 961 2,134

0 953 2,123

0 945 2,113

0 937 2,102

0 929 2,092

0 921 2,081

0 913 2,071

0 905 2,060

0 897 2,050

0 889 2,039

0 881 2,029

0 873 2,018

0 865 2,008

0 857 1,997

0 849 1,987

0 841 1,976

0 833 1,965

0 825 1,955

0 817 1,944

0 809 1,934

0 801 1,923

0 793 1,913

0 785 1,902

0 777 1,892

0 769 1,881

0 761 1,871

0 753 1,860

0 745 1,850

0 737 1,839

0 729 1,829

0 721 1,818

0 713 1,808

0 705 1,797

0 697 1,786

0 689 1,776

0 681 1,765

0 673 1,755

0 665 1,744

0 657 1,734

0 649 1,723

0 641 1,713

0 633 1,702

0 625 1,692

0 617 1,681

0 609 1,671

0 601 1,660

0 593 1,650

0 585 1,639

0 577 1,629

0 569 1,618

0 561 1,607

0 553 1,597

0 545 1,586

0 537 1,576

0 529 1,565

0 521 1,555

0 513 1,544

0 505 1,534

0 497 1,523

0 489 1,513

0 481 1,502

0 473 1,492

0 465 1,481

0 457 1,471

0 449 1,460

0 442 1,450

0 434 1,439

0 426 1,428

0 418 1,418

0 410 1,407

0 402 1,397

0 394 1,386

0 386 1,376

0 378 1,365

0 370 1,355

0 362 1,344

0 354 1,334

0 346 1,323

0 338 1,313

0 330 1,302

0 322 1,292

0 314 1,281

0 306 1,271

0 298 1,260

29,500 29,550 0 130 1,039

29,550 29,600 0 122 1,028

29,600 29,650 0 114 1,018

29,650 29,700 0 106 1,007

29,700 29,750 0 98 997

29,750 29,800 0 90 986

29,800 29,850 0 82 976

29,850 29,900 0 74 965

29,900 29,950 0 66 955

29,950 30,000 0 58 944

30,000 30,050 0 50 934

30,050 30,100 0 42 923

30,100 30,150 0 34 912

30,150 30,200 0 26 902

30,200 30,250 0 18 891

30,250 30,300 0 10 881

30,300 30,350 0 ** 870

30,350 30,400 0 0 860

30,400 30,450 0 0 849

30,450 30,500 0 0 839

30,500 30,550 0 0 828

30,550 30,600 0 0 818

30,600 30,650 0 0 807

30,650 30,700 0 0 797

30,700 30,750 0 0 786

30,750 30,800 0 0 776

30,800 30,850 0 0 765

30,850 30,900 0 0 755

30,900 30,950 0 0 744

30,950 31,000 0 0 733

0 290 1,249

0 282 1,239

0 274 1,228

0 266 1,218

0 258 1,207

0 250 1,197

0 242 1,186

0 234 1,176

0 226 1,165

0 218 1,155

0 210 1,144

0 202 1,134

0 194 1,123

0 186 1,113

0 178 1,102

0 170 1,092

0 162 1,081

0 154 1,070

0 146 1,060

0 138 1,049

0 130 1,039

0 122 1,028

0 114 1,018

0 106 1,007

0 98 997

0 90 986

0 82 976

0 74 965

0 66 955

0 58 944

**If the amount you are looking up from the worksheet is at least $30,300 ($31,300 if married filing jointly) but less than $30,338 ($31,338 if married filing jointly), your

credit is $3. Otherwise, you cannot take the credit.
C-6 Appendix C

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Earned Income Credit (EIC) Table—Continued (Caution. This is not a tax table.)

**If the amount you are looking up from the worksheet is at least $30,300 ($31,300 if married filing jointly) but less than $30,338 ($31,338 if married filing jointly), your

credit is $3. Otherwise, you cannot take the credit.

At least But less than

Two

children

Your credit is—

One

child

And your filing status is—

Your credit is—

No

children

If the amount you are

looking up from the

worksheet is—

At least But less than Your credit is— Your credit is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

Two

children

One

child

And your filing status is—

No

children

If the amount you are

looking up from the

worksheet is—

Single, head of household,

or qualifying widow(er) and

you have—

Married filing jointly and

you have—

Two

children

One

child

No

children

***If the amount you are looking up from the worksheet is at least $34,450 but less than $34,458, your credit is $1. Otherwise, you cannot take the credit.

31,000 31,050 0 0 723

31,050 31,100 0 0 712

31,100 31,150 0 0 702

31,150 31,200 0 0 691

31,200 31,250 0 0 681

31,250 31,300 0 0 670

31,300 31,350 0 0 660

31,350 31,400 0 0 649

31,400 31,450 0 0 639

31,450 31,500 0 0 628

31,500 31,550 0 0 618

31,550 31,600 0 0 607

31,600 31,650 0 0 597

31,650 31,700 0 0 586

31,700 31,750 0 0 576

31,750 31,800 0 0 565

31,800 31,850 0 0 554

31,850 31,900 0 0 544

31,900 31,950 0 0 533

31,950 32,000 0 0 523

32,000 32,050 0 0 512

32,050 32,100 0 0 502

32,100 32,150 0 0 491

32,150 32,200 0 0 481

32,200 32,250 0 0 470

32,250 32,300 0 0 460

32,300 32,350 0 0 449

32,350 32,400 0 0 439

32,400 32,450 0 0 428

32,450 32,500 0 0 418

32,500 32,550 0 0 407

32,550 32,600 0 0 397

32,600 32,650 0 0 386

32,650 32,700 0 0 375

32,700 32,750 0 0 365

32,750 32,800 0 0 354

32,800 32,850 0 0 344

32,850 32,900 0 0 333

32,900 32,950 0 0 323

32,950 33,000 0 0 312

33,000 33,050 0 0 302

33,050 33,100 0 0 291

33,100 33,150 0 0 281

33,150 33,200 0 0 270

33,200 33,250 0 0 260

33,250 33,300 0 0 249

33,300 33,350 0 0 239

33,350 33,400 0 0 228

33,400 33,450 0 0 218

33,450 33,500 0 0 207

33,500 33,550 0 0 196

33,550 33,600 0 0 186

33,600 33,650 0 0 175

33,650 33,700 0 0 165

33,700 33,750 0 0 154

33,750 33,800 0 0 144

33,800 33,850 0 0 133

33,850 33,900 0 0 123

33,900 33,950 0 0 112

33,950 34,000 0 0 102

34,000 34,050 0 0 91

34,050 34,100 0 0 81

34,100 34,150 0 0 70

34,150 34,200 0 0 60

34,200 34,250 0 0 49

0 0 39

0 0 28

0 0 17

00 7

0 0 ***

0 50 934

0 42 923

0 34 912

0 26 902

0 18 891

0 10 881

0 ** 870

0 0 860

0 0 849

0 0 839

0 0 828

0 0 818

0 0 807

0 0 797

0 0 786

0 0 776

0 0 765

0 0 755

0 0 744

0 0 733

0 0 723

0 0 712

0 0 702

0 0 691

0 0 681

0 0 670

0 0 660

0 0 649

0 0 639

0 0 628

0 0 618

0 0 607

0 0 597

0 0 586

0 0 576

0 0 565

0 0 554

0 0 544

0 0 533

0 0 523

0 0 512

0 0 502

0 0 491

0 0 481

0 0 470

0 0 460

0 0 449

0 0 439

0 0 428

0 0 418

0 0 407

0 0 397

0 0 386

0 0 375

0 0 365

0 0 354

0 0 344

0 0 333

0 0 323

0 0 312

0 0 302

0 0 291

0 0 281

0 0 270

0 0 260

34,250 34,300 0 0 249

34,300 34,350 0 0 239

34,350 34,400 0 0 228

34,400 34,450 0 0 218

34,450 34,500 0 0 207

34,500 34,550 0 0 196

34,550 34,600 0 0 186

34,600 34,650 0 0 175

34,650 34,700 0 0 165

34,700 34,750 0 0 154

34,750 34,800 0 0 144

34,800 34,850 0 0 133

34,850 34,900 0 0 123

34,900 34,950 0 0 112

34,950 35,000 0 0 102

35,000 35,050 0 0 91

35,050 35,100 0 0 81

35,100 35,150 0 0 70

35,150 35,200 0 0 60

35,200 35,250 0 0 49

35,250 35,300 0 0 39

35,300 35,350 0 0 28

35,350 35,400 0 0 17

35,400 35,450 00 7

35,450 35,458 00 1

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

00 0

35,458 or more 00 0 00 0
Appendix D D-1

APPENDIX

TAX TABLES Appendix D 

Proof as of

June 18, 2004

(subject to change)

2004

Tax Table

Use if your taxable income is less than $100,000.

If $100,000 or more, use the Tax Rate Schedules.

Example. Mr. and Mrs. Brown are filing a joint return. Their

taxable income on line 40 of Form 1040 is $25,300. First,

they find the $25,300–25,350 income line. Next, they find

the column for married filing jointly and read down the

column. The amount shown where the income line and filing

status column meet is $3,099. This is the tax amount they

should enter on line 41 of their Form 1040.

If line 40

(taxable

income) is— And you are—

At

least

But

less

than

Single Married

filing

jointly

*

Married

filing

separately

Head

of a

household

Your tax is—

If line 40

(taxable

income) is— And you are—

At

least

But

less

than

Single Married

filing

jointly

*

Married

filing

separately

Head

of a

household

Your tax is—

If line 40

(taxable

income) is— And you are—

At

least

But

less

than

Single Married

filing

jointly

*

Married

filing

separately

Head

of a

household

Your tax is—

* This column must also be used by a qualifying widow(er).

(Continued on page 63)

At

least

But

less

than

Single Married

filing

jointly

*

Married

filing

separately

Head

of a

household

Your tax is—

25,200

25,250

25,300

25,350

3,426

3,434

3,441

3,449

Sample Table

25,250

25,300

25,350

25,400

3,069

3,076

3,084

3,091

3,426

3,434

3,441

3,449

3,274

3,281

3,289

3,296

1,000

2,000

3,000

4,000

0 5 00 00

5 15 11 11

15 25 22 22

25 50 44 44

50 75 66 66

75 100 99 99

100 125 11 11 11 11

125 150 14 14 14 14

150 175 16 16 16 16

175 200 19 19 19 19

200 225 21 21 21 21

225 250 24 24 24 24

250 275 26 26 26 26

275 300 29 29 29 29

300 325 31 31 31 31

325 350 34 34 34 34

350 375 36 36 36 36

375 400 39 39 39 39

400 425 41 41 41 41

425 450 44 44 44 44

450 475 46 46 46 46

475 500 49 49 49 49

500 525 51 51 51 51

525 550 54 54 54 54

550 575 56 56 56 56

575 600 59 59 59 59

600 625 61 61 61 61

625 650 64 64 64 64

650 675 66 66 66 66

675 700 69 69 69 69

700 725 71 71 71 71

725 750 74 74 74 74

750 775 76 76 76 76

775 800 79 79 79 79

800 825 81 81 81 81

825 850 84 84 84 84

850 875 86 86 86 86

875 900 89 89 89 89

900 925 91 91 91 91

925 950 94 94 94 94

950 975 96 96 96 96

975 1,000 99 99 99 99

1,000 1,025 101 101 101 101

1,025 1,050 104 104 104 104

1,050 1,075 106 106 106 106

1,075 1,100 109 109 109 109

1,100 1,125 111 111 111 111

1,125 1,150 114 114 114 114

1,150 1,175 116 116 116 116

1,175 1,200 119 119 119 119

1,200 1,225 121 121 121 121

1,225 1,250 124 124 124 124

1,250 1,275 126 126 126 126

1,275 1,300 129 129 129 129

1,300 1,325 131 131 131 131

1,325 1,350 134 134 134 134

1,350 1,375 136 136 136 136

1,375 1,400 139 139 139 139

1,400 1,425 141 141 141 141

1,425 1,450 144 144 144 144

1,450 1,475 146 146 146 146

1,475 1,500 149 149 149 149

1,500 1,525 151 151 151 151

1,525 1,550 154 154 154 154

1,550 1,575 156 156 156 156

1,575 1,600 159 159 159 159

1,600 1,625 161 161 161 161

1,625 1,650 164 164 164 164

1,650 1,675 166 166 166 166

1,675 1,700 169 169 169 169

1,700 1,725 171 171 171 171

1,725 1,750 174 174 174 174

1,750 1,775 176 176 176 176

1,775 1,800 179 179 179 179

1,800 1,825 181 181 181 181

1,825 1,850 184 184 184 184

1,850 1,875 186 186 186 186

1,875 1,900 189 189 189 189

1,900 1,925 191 191 191 191

1,925 1,950 194 194 194 194

1,950 1,975 196 196 196 196

1,975 2,000 199 199 199 199

2,000 2,025 201 201 201 201

2,025 2,050 204 204 204 204

2,050 2,075 206 206 206 206

2,075 2,100 209 209 209 209

2,100 2,125 211 211 211 211

2,125 2,150 214 214 214 214

2,150 2,175 216 216 216 216

2,175 2,200 219 219 219 219

2,200 2,225 221 221 221 221

2,225 2,250 224 224 224 224

2,250 2,275 226 226 226 226

2,275 2,300 229 229 229 229

2,300 2,325 231 231 231 231

2,325 2,350 234 234 234 234

2,350 2,375 236 236 236 236

2,375 2,400 239 239 239 239

2,400 2,425 241 241 241 241

2,425 2,450 244 244 244 244

2,450 2,475 246 246 246 246

2,475 2,500 249 249 249 249

2,500 2,525 251 251 251 251

2,525 2,550 254 254 254 254

2,550 2,575 256 256 256 256

2,575 2,600 259 259 259 259

2,600 2,625 261 261 261 261

2,625 2,650 264 264 264 264

2,650 2,675 266 266 266 266

2,675 2,700 269 269 269 269

2,700 2,725 271 271 271 271

2,725 2,750 274 274 274 274

2,750 2,775 276 276 276 276

2,775 2,800 279 279 279 279

2,800 2,825 281 281 281 281

2,825 2,850 284 284 284 284

2,850 2,875 286 286 286 286

2,875 2,900 289 289 289 289

2,900 2,925 291 291 291 291

2,925 2,950 294 294 294 294

2,950 2,975 296 296 296 296

2,975 3,000 299 299 299 299

3,000 3,050 303 303 303 303

3,050 3,100 308 308 308 308

3,100 3,150 313 313 313 313

3,150 3,200 318 318 318 318

3,200 3,250 323 323 323 323

3,250 3,300 328 328 328 328

3,300 3,350 333 333 333 333

3,350 3,400 338 338 338 338

3,400 3,450 343 343 343 343

3,450 3,500 348 348 348 348

3,500 3,550 353 353 353 353

3,550 3,600 358 358 358 358

3,600 3,650 363 363 363 363

3,650 3,700 368 368 368 368

3,700 3,750 373 373 373 373

3,750 3,800 378 378 378 378

3,800 3,850 383 383 383 383

3,850 3,900 388 388 388 388

3,900 3,950 393 393 393 393

3,950 4,000 398 398 398 398

4,000 4,050 403 403 403 403

4,050 4,100 408 408 408 408

4,100 4,150 413 413 413 413

4,150 4,200 418 418 418 418

4,200 4,250 423 423 423 423

4,250 4,300 428 428 428 428

4,300 4,350 433 433 433 433

4,350 4,400 438 438 438 438

4,400 4,450 443 443 443 443

4,450 4,500 448 448 448 448

4,500 4,550 453 453 453 453

4,550 4,600 458 458 458 458

4,600 4,650 463 463 463 463

4,650 4,700 468 468 468 468

4,700 4,750 473 473 473 473

4,750 4,800 478 478 478 478

4,800 4,850 483 483 483 483

4,850 4,900 488 488 488 488

4,900 4,950 493 493 493 493

4,950 5,000 498 498 498 498
D-2 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 64)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

5,000 5,050 503 503 503 503

5,050 5,100 508 508 508 508

5,100 5,150 513 513 513 513

5,150 5,200 518 518 518 518

5,200 5,250 523 523 523 523

5,250 5,300 528 528 528 528

5,300 5,350 533 533 533 533

5,350 5,400 538 538 538 538

5,400 5,450 543 543 543 543

5,450 5,500 548 548 548 548

5,500 5,550 553 553 553 553

5,550 5,600 558 558 558 558

5,600 5,650 563 563 563 563

5,650 5,700 568 568 568 568

5,700 5,750 573 573 573 573

5,750 5,800 578 578 578 578

5,800 5,850 583 583 583 583

5,850 5,900 588 588 588 588

5,900 5,950 593 593 593 593

5,950 6,000 598 598 598 598

6,000 6,050 603 603 603 603

6,050 6,100 608 608 608 608

6,100 6,150 613 613 613 613

6,150 6,200 618 618 618 618

6,200 6,250 623 623 623 623

6,250 6,300 628 628 628 628

6,300 6,350 633 633 633 633

6,350 6,400 638 638 638 638

6,400 6,450 643 643 643 643

6,450 6,500 648 648 648 648

6,500 6,550 653 653 653 653

6,550 6,600 658 658 658 658

6,600 6,650 663 663 663 663

6,650 6,700 668 668 668 668

6,700 6,750 673 673 673 673

6,750 6,800 678 678 678 678

6,800 6,850 683 683 683 683

6,850 6,900 688 688 688 688

6,900 6,950 693 693 693 693

6,950 7,000 698 698 698 698

7,000 7,050 703 703 703 703

7,050 7,100 708 708 708 708

7,100 7,150 713 713 713 713

7,150 7,200 719 718 719 718

7,200 7,250 726 723 726 723

7,250 7,300 734 728 734 728

7,300 7,350 741 733 741 733

7,350 7,400 749 738 749 738

7,400 7,450 756 743 756 743

7,450 7,500 764 748 764 748

7,500 7,550 771 753 771 753

7,550 7,600 779 758 779 758

7,600 7,650 786 763 786 763

7,650 7,700 794 768 794 768

7,700 7,750 801 773 801 773

7,750 7,800 809 778 809 778

7,800 7,850 816 783 816 783

7,850 7,900 824 788 824 788

7,900 7,950 831 793 831 793

7,950 8,000 839 798 839 798

8,000 8,050 846 803 846 803

8,050 8,100 854 808 854 808

8,100 8,150 861 813 861 813

8,150 8,200 869 818 869 818

8,200 8,250 876 823 876 823

8,250 8,300 884 828 884 828

8,300 8,350 891 833 891 833

8,350 8,400 899 838 899 838

8,400 8,450 906 843 906 843

8,450 8,500 914 848 914 848

8,500 8,550 921 853 921 853

8,550 8,600 929 858 929 858

8,600 8,650 936 863 936 863

8,650 8,700 944 868 944 868

8,700 8,750 951 873 951 873

8,750 8,800 959 878 959 878

8,800 8,850 966 883 966 883

8,850 8,900 974 888 974 888

8,900 8,950 981 893 981 893

8,950 9,000 989 898 989 898

9,000 9,050 996 903 996 903

9,050 9,100 1,004 908 1,004 908

9,100 9,150 1,011 913 1,011 913

9,150 9,200 1,019 918 1,019 918

9,200 9,250 1,026 923 1,026 923

9,250 9,300 1,034 928 1,034 928

9,300 9,350 1,041 933 1,041 933

9,350 9,400 1,049 938 1,049 938

9,400 9,450 1,056 943 1,056 943

9,450 9,500 1,064 948 1,064 948

9,500 9,550 1,071 953 1,071 953

9,550 9,600 1,079 958 1,079 958

9,600 9,650 1,086 963 1,086 963

9,650 9,700 1,094 968 1,094 968

9,700 9,750 1,101 973 1,101 973

9,750 9,800 1,109 978 1,109 978

9,800 9,850 1,116 983 1,116 983

9,850 9,900 1,124 988 1,124 988

9,900 9,950 1,131 993 1,131 993

9,950 10,000 1,139 998 1,139 998

10,000 10,050 1,146 1,003 1,146 1,003

10,050 10,100 1,154 1,008 1,154 1,008

10,100 10,150 1,161 1,013 1,161 1,013

10,150 10,200 1,169 1,018 1,169 1,018

10,200 10,250 1,176 1,023 1,176 1,024

10,250 10,300 1,184 1,028 1,184 1,031

10,300 10,350 1,191 1,033 1,191 1,039

10,350 10,400 1,199 1,038 1,199 1,046

10,400 10,450 1,206 1,043 1,206 1,054

10,450 10,500 1,214 1,048 1,214 1,061

10,500 10,550 1,221 1,053 1,221 1,069

10,550 10,600 1,229 1,058 1,229 1,076

10,600 10,650 1,236 1,063 1,236 1,084

10,650 10,700 1,244 1,068 1,244 1,091

10,700 10,750 1,251 1,073 1,251 1,099

10,750 10,800 1,259 1,078 1,259 1,106

10,800 10,850 1,266 1,083 1,266 1,114

10,850 10,900 1,274 1,088 1,274 1,121

10,900 10,950 1,281 1,093 1,281 1,129

10,950 11,000 1,289 1,098 1,289 1,136

11,000 11,050 1,296 1,103 1,296 1,144

11,050 11,100 1,304 1,108 1,304 1,151

11,100 11,150 1,311 1,113 1,311 1,159

11,150 11,200 1,319 1,118 1,319 1,166

11,200 11,250 1,326 1,123 1,326 1,174

11,250 11,300 1,334 1,128 1,334 1,181

11,300 11,350 1,341 1,133 1,341 1,189

11,350 11,400 1,349 1,138 1,349 1,196

11,400 11,450 1,356 1,143 1,356 1,204

11,450 11,500 1,364 1,148 1,364 1,211

11,500 11,550 1,371 1,153 1,371 1,219

11,550 11,600 1,379 1,158 1,379 1,226

11,600 11,650 1,386 1,163 1,386 1,234

11,650 11,700 1,394 1,168 1,394 1,241

11,700 11,750 1,401 1,173 1,401 1,249

11,750 11,800 1,409 1,178 1,409 1,256

11,800 11,850 1,416 1,183 1,416 1,264

11,850 11,900 1,424 1,188 1,424 1,271

11,900 11,950 1,431 1,193 1,431 1,279

11,950 12,000 1,439 1,198 1,439 1,286

12,000 12,050 1,446 1,203 1,446 1,294

12,050 12,100 1,454 1,208 1,454 1,301

12,100 12,150 1,461 1,213 1,461 1,309

12,150 12,200 1,469 1,218 1,469 1,316

12,200 12,250 1,476 1,223 1,476 1,324

12,250 12,300 1,484 1,228 1,484 1,331

12,300 12,350 1,491 1,233 1,491 1,339

12,350 12,400 1,499 1,238 1,499 1,346

12,400 12,450 1,506 1,243 1,506 1,354

12,450 12,500 1,514 1,248 1,514 1,361

12,500 12,550 1,521 1,253 1,521 1,369

12,550 12,600 1,529 1,258 1,529 1,376

12,600 12,650 1,536 1,263 1,536 1,384

12,650 12,700 1,544 1,268 1,544 1,391

12,700 12,750 1,551 1,273 1,551 1,399

12,750 12,800 1,559 1,278 1,559 1,406

12,800 12,850 1,566 1,283 1,566 1,414

12,850 12,900 1,574 1,288 1,574 1,421

12,900 12,950 1,581 1,293 1,581 1,429

12,950 13,000 1,589 1,298 1,589 1,436

13,000 13,050 1,596 1,303 1,596 1,444

13,050 13,100 1,604 1,308 1,604 1,451

13,100 13,150 1,611 1,313 1,611 1,459

13,150 13,200 1,619 1,318 1,619 1,466

13,200 13,250 1,626 1,323 1,626 1,474

13,250 13,300 1,634 1,328 1,634 1,481

13,300 13,350 1,641 1,333 1,641 1,489

13,350 13,400 1,649 1,338 1,649 1,496

13,400 13,450 1,656 1,343 1,656 1,504

13,450 13,500 1,664 1,348 1,664 1,511

13,500 13,550 1,671 1,353 1,671 1,519

13,550 13,600 1,679 1,358 1,679 1,526

13,600 13,650 1,686 1,363 1,686 1,534

13,650 13,700 1,694 1,368 1,694 1,541

13,700 13,750 1,701 1,373 1,701 1,549

13,750 13,800 1,709 1,378 1,709 1,556

13,800 13,850 1,716 1,383 1,716 1,564

13,850 13,900 1,724 1,388 1,724 1,571

13,900 13,950 1,731 1,393 1,731 1,579

13,950 14,000 1,739 1,398 1,739 1,586
Appendix D D-3

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 65)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

14,000 14,050 1,746 1,403 1,746 1,594

14,050 14,100 1,754 1,408 1,754 1,601

14,100 14,150 1,761 1,413 1,761 1,609

14,150 14,200 1,769 1,418 1,769 1,616

14,200 14,250 1,776 1,423 1,776 1,624

14,250 14,300 1,784 1,428 1,784 1,631

14,300 14,350 1,791 1,434 1,791 1,639

14,350 14,400 1,799 1,441 1,799 1,646

14,400 14,450 1,806 1,449 1,806 1,654

14,450 14,500 1,814 1,456 1,814 1,661

14,500 14,550 1,821 1,464 1,821 1,669

14,550 14,600 1,829 1,471 1,829 1,676

14,600 14,650 1,836 1,479 1,836 1,684

14,650 14,700 1,844 1,486 1,844 1,691

14,700 14,750 1,851 1,494 1,851 1,699

14,750 14,800 1,859 1,501 1,859 1,706

14,800 14,850 1,866 1,509 1,866 1,714

14,850 14,900 1,874 1,516 1,874 1,721

14,900 14,950 1,881 1,524 1,881 1,729

14,950 15,000 1,889 1,531 1,889 1,736

15,000 15,050 1,896 1,539 1,896 1,744

15,050 15,100 1,904 1,546 1,904 1,751

15,100 15,150 1,911 1,554 1,911 1,759

15,150 15,200 1,919 1,561 1,919 1,766

15,200 15,250 1,926 1,569 1,926 1,774

15,250 15,300 1,934 1,576 1,934 1,781

15,300 15,350 1,941 1,584 1,941 1,789

15,350 15,400 1,949 1,591 1,949 1,796

15,400 15,450 1,956 1,599 1,956 1,804

15,450 15,500 1,964 1,606 1,964 1,811

15,500 15,550 1,971 1,614 1,971 1,819

15,550 15,600 1,979 1,621 1,979 1,826

15,600 15,650 1,986 1,629 1,986 1,834

15,650 15,700 1,994 1,636 1,994 1,841

15,700 15,750 2,001 1,644 2,001 1,849

15,750 15,800 2,009 1,651 2,009 1,856

15,800 15,850 2,016 1,659 2,016 1,864

15,850 15,900 2,024 1,666 2,024 1,871

15,900 15,950 2,031 1,674 2,031 1,879

15,950 16,000 2,039 1,681 2,039 1,886

16,000 16,050 2,046 1,689 2,046 1,894

16,050 16,100 2,054 1,696 2,054 1,901

16,100 16,150 2,061 1,704 2,061 1,909

16,150 16,200 2,069 1,711 2,069 1,916

16,200 16,250 2,076 1,719 2,076 1,924

16,250 16,300 2,084 1,726 2,084 1,931

16,300 16,350 2,091 1,734 2,091 1,939

16,350 16,400 2,099 1,741 2,099 1,946

16,400 16,450 2,106 1,749 2,106 1,954

16,450 16,500 2,114 1,756 2,114 1,961

16,500 16,550 2,121 1,764 2,121 1,969

16,550 16,600 2,129 1,771 2,129 1,976

16,600 16,650 2,136 1,779 2,136 1,984

16,650 16,700 2,144 1,786 2,144 1,991

16,700 16,750 2,151 1,794 2,151 1,999

16,750 16,800 2,159 1,801 2,159 2,006

16,800 16,850 2,166 1,809 2,166 2,014

16,850 16,900 2,174 1,816 2,174 2,021

16,900 16,950 2,181 1,824 2,181 2,029

16,950 17,000 2,189 1,831 2,189 2,036

17,000 17,050 2,196 1,839 2,196 2,044

17,050 17,100 2,204 1,846 2,204 2,051

17,100 17,150 2,211 1,854 2,211 2,059

17,150 17,200 2,219 1,861 2,219 2,066

17,200 17,250 2,226 1,869 2,226 2,074

17,250 17,300 2,234 1,876 2,234 2,081

17,300 17,350 2,241 1,884 2,241 2,089

17,350 17,400 2,249 1,891 2,249 2,096

17,400 17,450 2,256 1,899 2,256 2,104

17,450 17,500 2,264 1,906 2,264 2,111

17,500 17,550 2,271 1,914 2,271 2,119

17,550 17,600 2,279 1,921 2,279 2,126

17,600 17,650 2,286 1,929 2,286 2,134

17,650 17,700 2,294 1,936 2,294 2,141

17,700 17,750 2,301 1,944 2,301 2,149

17,750 17,800 2,309 1,951 2,309 2,156

17,800 17,850 2,316 1,959 2,316 2,164

17,850 17,900 2,324 1,966 2,324 2,171

17,900 17,950 2,331 1,974 2,331 2,179

17,950 18,000 2,339 1,981 2,339 2,186

18,000 18,050 2,346 1,989 2,346 2,194

18,050 18,100 2,354 1,996 2,354 2,201

18,100 18,150 2,361 2,004 2,361 2,209

18,150 18,200 2,369 2,011 2,369 2,216

18,200 18,250 2,376 2,019 2,376 2,224

18,250 18,300 2,384 2,026 2,384 2,231

18,300 18,350 2,391 2,034 2,391 2,239

18,350 18,400 2,399 2,041 2,399 2,246

18,400 18,450 2,406 2,049 2,406 2,254

18,450 18,500 2,414 2,056 2,414 2,261

18,500 18,550 2,421 2,064 2,421 2,269

18,550 18,600 2,429 2,071 2,429 2,276

18,600 18,650 2,436 2,079 2,436 2,284

18,650 18,700 2,444 2,086 2,444 2,291

18,700 18,750 2,451 2,094 2,451 2,299

18,750 18,800 2,459 2,101 2,459 2,306

18,800 18,850 2,466 2,109 2,466 2,314

18,850 18,900 2,474 2,116 2,474 2,321

18,900 18,950 2,481 2,124 2,481 2,329

18,950 19,000 2,489 2,131 2,489 2,336

19,000 19,050 2,496 2,139 2,496 2,344

19,050 19,100 2,504 2,146 2,504 2,351

19,100 19,150 2,511 2,154 2,511 2,359

19,150 19,200 2,519 2,161 2,519 2,366

19,200 19,250 2,526 2,169 2,526 2,374

19,250 19,300 2,534 2,176 2,534 2,381

19,300 19,350 2,541 2,184 2,541 2,389

19,350 19,400 2,549 2,191 2,549 2,396

19,400 19,450 2,556 2,199 2,556 2,404

19,450 19,500 2,564 2,206 2,564 2,411

19,500 19,550 2,571 2,214 2,571 2,419

19,550 19,600 2,579 2,221 2,579 2,426

19,600 19,650 2,586 2,229 2,586 2,434

19,650 19,700 2,594 2,236 2,594 2,441

19,700 19,750 2,601 2,244 2,601 2,449

19,750 19,800 2,609 2,251 2,609 2,456

19,800 19,850 2,616 2,259 2,616 2,464

19,850 19,900 2,624 2,266 2,624 2,471

19,900 19,950 2,631 2,274 2,631 2,479

19,950 20,000 2,639 2,281 2,639 2,486

20,000 20,050 2,646 2,289 2,646 2,494

20,050 20,100 2,654 2,296 2,654 2,501

20,100 20,150 2,661 2,304 2,661 2,509

20,150 20,200 2,669 2,311 2,669 2,516

20,200 20,250 2,676 2,319 2,676 2,524

20,250 20,300 2,684 2,326 2,684 2,531

20,300 20,350 2,691 2,334 2,691 2,539

20,350 20,400 2,699 2,341 2,699 2,546

20,400 20,450 2,706 2,349 2,706 2,554

20,450 20,500 2,714 2,356 2,714 2,561

20,500 20,550 2,721 2,364 2,721 2,569

20,550 20,600 2,729 2,371 2,729 2,576

20,600 20,650 2,736 2,379 2,736 2,584

20,650 20,700 2,744 2,386 2,744 2,591

20,700 20,750 2,751 2,394 2,751 2,599

20,750 20,800 2,759 2,401 2,759 2,606

20,800 20,850 2,766 2,409 2,766 2,614

20,850 20,900 2,774 2,416 2,774 2,621

20,900 20,950 2,781 2,424 2,781 2,629

20,950 21,000 2,789 2,431 2,789 2,636

21,000 21,050 2,796 2,439 2,796 2,644

21,050 21,100 2,804 2,446 2,804 2,651

21,100 21,150 2,811 2,454 2,811 2,659

21,150 21,200 2,819 2,461 2,819 2,666

21,200 21,250 2,826 2,469 2,826 2,674

21,250 21,300 2,834 2,476 2,834 2,681

21,300 21,350 2,841 2,484 2,841 2,689

21,350 21,400 2,849 2,491 2,849 2,696

21,400 21,450 2,856 2,499 2,856 2,704

21,450 21,500 2,864 2,506 2,864 2,711

21,500 21,550 2,871 2,514 2,871 2,719

21,550 21,600 2,879 2,521 2,879 2,726

21,600 21,650 2,886 2,529 2,886 2,734

21,650 21,700 2,894 2,536 2,894 2,741

21,700 21,750 2,901 2,544 2,901 2,749

21,750 21,800 2,909 2,551 2,909 2,756

21,800 21,850 2,916 2,559 2,916 2,764

21,850 21,900 2,924 2,566 2,924 2,771

21,900 21,950 2,931 2,574 2,931 2,779

21,950 22,000 2,939 2,581 2,939 2,786

22,000 22,050 2,946 2,589 2,946 2,794

22,050 22,100 2,954 2,596 2,954 2,801

22,100 22,150 2,961 2,604 2,961 2,809

22,150 22,200 2,969 2,611 2,969 2,816

22,200 22,250 2,976 2,619 2,976 2,824

22,250 22,300 2,984 2,626 2,984 2,831

22,300 22,350 2,991 2,634 2,991 2,839

22,350 22,400 2,999 2,641 2,999 2,846

22,400 22,450 3,006 2,649 3,006 2,854

22,450 22,500 3,014 2,656 3,014 2,861

22,500 22,550 3,021 2,664 3,021 2,869

22,550 22,600 3,029 2,671 3,029 2,876

22,600 22,650 3,036 2,679 3,036 2,884

22,650 22,700 3,044 2,686 3,044 2,891

22,700 22,750 3,051 2,694 3,051 2,899

22,750 22,800 3,059 2,701 3,059 2,906

22,800 22,850 3,066 2,709 3,066 2,914

22,850 22,900 3,074 2,716 3,074 2,921

22,900 22,950 3,081 2,724 3,081 2,929

22,950 23,000 3,089 2,731 3,089 2,936
D-4 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 66)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

23,000

24,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

23,000 23,050 3,096 2,739 3,096 2,944

23,050 23,100 3,104 2,746 3,104 2,951

23,100 23,150 3,111 2,754 3,111 2,959

23,150 23,200 3,119 2,761 3,119 2,966

23,200 23,250 3,126 2,769 3,126 2,974

23,250 23,300 3,134 2,776 3,134 2,981

23,300 23,350 3,141 2,784 3,141 2,989

23,350 23,400 3,149 2,791 3,149 2,996

23,400 23,450 3,156 2,799 3,156 3,004

23,450 23,500 3,164 2,806 3,164 3,011

23,500 23,550 3,171 2,814 3,171 3,019

23,550 23,600 3,179 2,821 3,179 3,026

23,600 23,650 3,186 2,829 3,186 3,034

23,650 23,700 3,194 2,836 3,194 3,041

23,700 23,750 3,201 2,844 3,201 3,049

23,750 23,800 3,209 2,851 3,209 3,056

23,800 23,850 3,216 2,859 3,216 3,064

23,850 23,900 3,224 2,866 3,224 3,071

23,900 23,950 3,231 2,874 3,231 3,079

23,950 24,000 3,239 2,881 3,239 3,086

24,000 24,050 3,246 2,889 3,246 3,094

24,050 24,100 3,254 2,896 3,254 3,101

24,100 24,150 3,261 2,904 3,261 3,109

24,150 24,200 3,269 2,911 3,269 3,116

24,200 24,250 3,276 2,919 3,276 3,124

24,250 24,300 3,284 2,926 3,284 3,131

24,300 24,350 3,291 2,934 3,291 3,139

24,350 24,400 3,299 2,941 3,299 3,146

24,400 24,450 3,306 2,949 3,306 3,154

24,450 24,500 3,314 2,956 3,314 3,161

24,500 24,550 3,321 2,964 3,321 3,169

24,550 24,600 3,329 2,971 3,329 3,176

24,600 24,650 3,336 2,979 3,336 3,184

24,650 24,700 3,344 2,986 3,344 3,191

24,700 24,750 3,351 2,994 3,351 3,199

24,750 24,800 3,359 3,001 3,359 3,206

24,800 24,850 3,366 3,009 3,366 3,214

24,850 24,900 3,374 3,016 3,374 3,221

24,900 24,950 3,381 3,024 3,381 3,229

24,950 25,000 3,389 3,031 3,389 3,236

25,000 25,050 3,396 3,039 3,396 3,244

25,050 25,100 3,404 3,046 3,404 3,251

25,100 25,150 3,411 3,054 3,411 3,259

25,150 25,200 3,419 3,061 3,419 3,266

25,200 25,250 3,426 3,069 3,426 3,274

25,250 25,300 3,434 3,076 3,434 3,281

25,300 25,350 3,441 3,084 3,441 3,289

25,350 25,400 3,449 3,091 3,449 3,296

25,400 25,450 3,456 3,099 3,456 3,304

25,450 25,500 3,464 3,106 3,464 3,311

25,500 25,550 3,471 3,114 3,471 3,319

25,550 25,600 3,479 3,121 3,479 3,326

25,600 25,650 3,486 3,129 3,486 3,334

25,650 25,700 3,494 3,136 3,494 3,341

25,700 25,750 3,501 3,144 3,501 3,349

25,750 25,800 3,509 3,151 3,509 3,356

25,800 25,850 3,516 3,159 3,516 3,364

25,850 25,900 3,524 3,166 3,524 3,371

25,900 25,950 3,531 3,174 3,531 3,379

25,950 26,000 3,539 3,181 3,539 3,386

26,000 26,050 3,546 3,189 3,546 3,394

26,050 26,100 3,554 3,196 3,554 3,401

26,100 26,150 3,561 3,204 3,561 3,409

26,150 26,200 3,569 3,211 3,569 3,416

26,200 26,250 3,576 3,219 3,576 3,424

26,250 26,300 3,584 3,226 3,584 3,431

26,300 26,350 3,591 3,234 3,591 3,439

26,350 26,400 3,599 3,241 3,599 3,446

26,400 26,450 3,606 3,249 3,606 3,454

26,450 26,500 3,614 3,256 3,614 3,461

26,500 26,550 3,621 3,264 3,621 3,469

26,550 26,600 3,629 3,271 3,629 3,476

26,600 26,650 3,636 3,279 3,636 3,484

26,650 26,700 3,644 3,286 3,644 3,491

26,700 26,750 3,651 3,294 3,651 3,499

26,750 26,800 3,659 3,301 3,659 3,506

26,800 26,850 3,666 3,309 3,666 3,514

26,850 26,900 3,674 3,316 3,674 3,521

26,900 26,950 3,681 3,324 3,681 3,529

26,950 27,000 3,689 3,331 3,689 3,536

27,000 27,050 3,696 3,339 3,696 3,544

27,050 27,100 3,704 3,346 3,704 3,551

27,100 27,150 3,711 3,354 3,711 3,559

27,150 27,200 3,719 3,361 3,719 3,566

27,200 27,250 3,726 3,369 3,726 3,574

27,250 27,300 3,734 3,376 3,734 3,581

27,300 27,350 3,741 3,384 3,741 3,589

27,350 27,400 3,749 3,391 3,749 3,596

27,400 27,450 3,756 3,399 3,756 3,604

27,450 27,500 3,764 3,406 3,764 3,611

27,500 27,550 3,771 3,414 3,771 3,619

27,550 27,600 3,779 3,421 3,779 3,626

27,600 27,650 3,786 3,429 3,786 3,634

27,650 27,700 3,794 3,436 3,794 3,641

27,700 27,750 3,801 3,444 3,801 3,649

27,750 27,800 3,809 3,451 3,809 3,656

27,800 27,850 3,816 3,459 3,816 3,664

27,850 27,900 3,824 3,466 3,824 3,671

27,900 27,950 3,831 3,474 3,831 3,679

27,950 28,000 3,839 3,481 3,839 3,686

28,000 28,050 3,846 3,489 3,846 3,694

28,050 28,100 3,854 3,496 3,854 3,701

28,100 28,150 3,861 3,504 3,861 3,709

28,150 28,200 3,869 3,511 3,869 3,716

28,200 28,250 3,876 3,519 3,876 3,724

28,250 28,300 3,884 3,526 3,884 3,731

28,300 28,350 3,891 3,534 3,891 3,739

28,350 28,400 3,899 3,541 3,899 3,746

28,400 28,450 3,906 3,549 3,906 3,754

28,450 28,500 3,914 3,556 3,914 3,761

28,500 28,550 3,921 3,564 3,921 3,769

28,550 28,600 3,929 3,571 3,929 3,776

28,600 28,650 3,936 3,579 3,936 3,784

28,650 28,700 3,944 3,586 3,944 3,791

28,700 28,750 3,951 3,594 3,951 3,799

28,750 28,800 3,959 3,601 3,959 3,806

28,800 28,850 3,966 3,609 3,966 3,814

28,850 28,900 3,974 3,616 3,974 3,821

28,900 28,950 3,981 3,624 3,981 3,829

28,950 29,000 3,989 3,631 3,989 3,836

29,000 29,050 3,996 3,639 3,996 3,844

29,050 29,100 4,006 3,646 4,006 3,851

29,100 29,150 4,019 3,654 4,019 3,859

29,150 29,200 4,031 3,661 4,031 3,866

29,200 29,250 4,044 3,669 4,044 3,874

29,250 29,300 4,056 3,676 4,056 3,881

29,300 29,350 4,069 3,684 4,069 3,889

29,350 29,400 4,081 3,691 4,081 3,896

29,400 29,450 4,094 3,699 4,094 3,904

29,450 29,500 4,106 3,706 4,106 3,911

29,500 29,550 4,119 3,714 4,119 3,919

29,550 29,600 4,131 3,721 4,131 3,926

29,600 29,650 4,144 3,729 4,144 3,934

29,650 29,700 4,156 3,736 4,156 3,941

29,700 29,750 4,169 3,744 4,169 3,949

29,750 29,800 4,181 3,751 4,181 3,956

29,800 29,850 4,194 3,759 4,194 3,964

29,850 29,900 4,206 3,766 4,206 3,971

29,900 29,950 4,219 3,774 4,219 3,979

29,950 30,000 4,231 3,781 4,231 3,986

30,000 30,050 4,244 3,789 4,244 3,994

30,050 30,100 4,256 3,796 4,256 4,001

30,100 30,150 4,269 3,804 4,269 4,009

30,150 30,200 4,281 3,811 4,281 4,016

30,200 30,250 4,294 3,819 4,294 4,024

30,250 30,300 4,306 3,826 4,306 4,031

30,300 30,350 4,319 3,834 4,319 4,039

30,350 30,400 4,331 3,841 4,331 4,046

30,400 30,450 4,344 3,849 4,344 4,054

30,450 30,500 4,356 3,856 4,356 4,061

30,500 30,550 4,369 3,864 4,369 4,069

30,550 30,600 4,381 3,871 4,381 4,076

30,600 30,650 4,394 3,879 4,394 4,084

30,650 30,700 4,406 3,886 4,406 4,091

30,700 30,750 4,419 3,894 4,419 4,099

30,750 30,800 4,431 3,901 4,431 4,106

30,800 30,850 4,444 3,909 4,444 4,114

30,850 30,900 4,456 3,916 4,456 4,121

30,900 30,950 4,469 3,924 4,469 4,129

30,950 31,000 4,481 3,931 4,481 4,136

31,000 31,050 4,494 3,939 4,494 4,144

31,050 31,100 4,506 3,946 4,506 4,151

31,100 31,150 4,519 3,954 4,519 4,159

31,150 31,200 4,531 3,961 4,531 4,166

31,200 31,250 4,544 3,969 4,544 4,174

31,250 31,300 4,556 3,976 4,556 4,181

31,300 31,350 4,569 3,984 4,569 4,189

31,350 31,400 4,581 3,991 4,581 4,196

31,400 31,450 4,594 3,999 4,594 4,204

31,450 31,500 4,606 4,006 4,606 4,211

31,500 31,550 4,619 4,014 4,619 4,219

31,550 31,600 4,631 4,021 4,631 4,226

31,600 31,650 4,644 4,029 4,644 4,234

31,650 31,700 4,656 4,036 4,656 4,241

31,700 31,750 4,669 4,044 4,669 4,249

31,750 31,800 4,681 4,051 4,681 4,256

31,800 31,850 4,694 4,059 4,694 4,264

31,850 31,900 4,706 4,066 4,706 4,271

31,900 31,950 4,719 4,074 4,719 4,279

31,950 32,000 4,731 4,081 4,731 4,286
Appendix D D-5

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 67)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

32,000 32,050 4,744 4,089 4,744 4,294

32,050 32,100 4,756 4,096 4,756 4,301

32,100 32,150 4,769 4,104 4,769 4,309

32,150 32,200 4,781 4,111 4,781 4,316

32,200 32,250 4,794 4,119 4,794 4,324

32,250 32,300 4,806 4,126 4,806 4,331

32,300 32,350 4,819 4,134 4,819 4,339

32,350 32,400 4,831 4,141 4,831 4,346

32,400 32,450 4,844 4,149 4,844 4,354

32,450 32,500 4,856 4,156 4,856 4,361

32,500 32,550 4,869 4,164 4,869 4,369

32,550 32,600 4,881 4,171 4,881 4,376

32,600 32,650 4,894 4,179 4,894 4,384

32,650 32,700 4,906 4,186 4,906 4,391

32,700 32,750 4,919 4,194 4,919 4,399

32,750 32,800 4,931 4,201 4,931 4,406

32,800 32,850 4,944 4,209 4,944 4,414

32,850 32,900 4,956 4,216 4,956 4,421

32,900 32,950 4,969 4,224 4,969 4,429

32,950 33,000 4,981 4,231 4,981 4,436

33,000 33,050 4,994 4,239 4,994 4,444

33,050 33,100 5,006 4,246 5,006 4,451

33,100 33,150 5,019 4,254 5,019 4,459

33,150 33,200 5,031 4,261 5,031 4,466

33,200 33,250 5,044 4,269 5,044 4,474

33,250 33,300 5,056 4,276 5,056 4,481

33,300 33,350 5,069 4,284 5,069 4,489

33,350 33,400 5,081 4,291 5,081 4,496

33,400 33,450 5,094 4,299 5,094 4,504

33,450 33,500 5,106 4,306 5,106 4,511

33,500 33,550 5,119 4,314 5,119 4,519

33,550 33,600 5,131 4,321 5,131 4,526

33,600 33,650 5,144 4,329 5,144 4,534

33,650 33,700 5,156 4,336 5,156 4,541

33,700 33,750 5,169 4,344 5,169 4,549

33,750 33,800 5,181 4,351 5,181 4,556

33,800 33,850 5,194 4,359 5,194 4,564

33,850 33,900 5,206 4,366 5,206 4,571

33,900 33,950 5,219 4,374 5,219 4,579

33,950 34,000 5,231 4,381 5,231 4,586

34,000 34,050 5,244 4,389 5,244 4,594

34,050 34,100 5,256 4,396 5,256 4,601

34,100 34,150 5,269 4,404 5,269 4,609

34,150 34,200 5,281 4,411 5,281 4,616

34,200 34,250 5,294 4,419 5,294 4,624

34,250 34,300 5,306 4,426 5,306 4,631

34,300 34,350 5,319 4,434 5,319 4,639

34,350 34,400 5,331 4,441 5,331 4,646

34,400 34,450 5,344 4,449 5,344 4,654

34,450 34,500 5,356 4,456 5,356 4,661

34,500 34,550 5,369 4,464 5,369 4,669

34,550 34,600 5,381 4,471 5,381 4,676

34,600 34,650 5,394 4,479 5,394 4,684

34,650 34,700 5,406 4,486 5,406 4,691

34,700 34,750 5,419 4,494 5,419 4,699

34,750 34,800 5,431 4,501 5,431 4,706

34,800 34,850 5,444 4,509 5,444 4,714

34,850 34,900 5,456 4,516 5,456 4,721

34,900 34,950 5,469 4,524 5,469 4,729

34,950 35,000 5,481 4,531 5,481 4,736

35,000 35,050 5,494 4,539 5,494 4,744

35,050 35,100 5,506 4,546 5,506 4,751

35,100 35,150 5,519 4,554 5,519 4,759

35,150 35,200 5,531 4,561 5,531 4,766

35,200 35,250 5,544 4,569 5,544 4,774

35,250 35,300 5,556 4,576 5,556 4,781

35,300 35,350 5,569 4,584 5,569 4,789

35,350 35,400 5,581 4,591 5,581 4,796

35,400 35,450 5,594 4,599 5,594 4,804

35,450 35,500 5,606 4,606 5,606 4,811

35,500 35,550 5,619 4,614 5,619 4,819

35,550 35,600 5,631 4,621 5,631 4,826

35,600 35,650 5,644 4,629 5,644 4,834

35,650 35,700 5,656 4,636 5,656 4,841

35,700 35,750 5,669 4,644 5,669 4,849

35,750 35,800 5,681 4,651 5,681 4,856

35,800 35,850 5,694 4,659 5,694 4,864

35,850 35,900 5,706 4,666 5,706 4,871

35,900 35,950 5,719 4,674 5,719 4,879

35,950 36,000 5,731 4,681 5,731 4,886

36,000 36,050 5,744 4,689 5,744 4,894

36,050 36,100 5,756 4,696 5,756 4,901

36,100 36,150 5,769 4,704 5,769 4,909

36,150 36,200 5,781 4,711 5,781 4,916

36,200 36,250 5,794 4,719 5,794 4,924

36,250 36,300 5,806 4,726 5,806 4,931

36,300 36,350 5,819 4,734 5,819 4,939

36,350 36,400 5,831 4,741 5,831 4,946

36,400 36,450 5,844 4,749 5,844 4,954

36,450 36,500 5,856 4,756 5,856 4,961

36,500 36,550 5,869 4,764 5,869 4,969

36,550 36,600 5,881 4,771 5,881 4,976

36,600 36,650 5,894 4,779 5,894 4,984

36,650 36,700 5,906 4,786 5,906 4,991

36,700 36,750 5,919 4,794 5,919 4,999

36,750 36,800 5,931 4,801 5,931 5,006

36,800 36,850 5,944 4,809 5,944 5,014

36,850 36,900 5,956 4,816 5,956 5,021

36,900 36,950 5,969 4,824 5,969 5,029

36,950 37,000 5,981 4,831 5,981 5,036

37,000 37,050 5,994 4,839 5,994 5,044

37,050 37,100 6,006 4,846 6,006 5,051

37,100 37,150 6,019 4,854 6,019 5,059

37,150 37,200 6,031 4,861 6,031 5,066

37,200 37,250 6,044 4,869 6,044 5,074

37,250 37,300 6,056 4,876 6,056 5,081

37,300 37,350 6,069 4,884 6,069 5,089

37,350 37,400 6,081 4,891 6,081 5,096

37,400 37,450 6,094 4,899 6,094 5,104

37,450 37,500 6,106 4,906 6,106 5,111

37,500 37,550 6,119 4,914 6,119 5,119

37,550 37,600 6,131 4,921 6,131 5,126

37,600 37,650 6,144 4,929 6,144 5,134

37,650 37,700 6,156 4,936 6,156 5,141

37,700 37,750 6,169 4,944 6,169 5,149

37,750 37,800 6,181 4,951 6,181 5,156

37,800 37,850 6,194 4,959 6,194 5,164

37,850 37,900 6,206 4,966 6,206 5,171

37,900 37,950 6,219 4,974 6,219 5,179

37,950 38,000 6,231 4,981 6,231 5,186

38,000 38,050 6,244 4,989 6,244 5,194

38,050 38,100 6,256 4,996 6,256 5,201

38,100 38,150 6,269 5,004 6,269 5,209

38,150 38,200 6,281 5,011 6,281 5,216

38,200 38,250 6,294 5,019 6,294 5,224

38,250 38,300 6,306 5,026 6,306 5,231

38,300 38,350 6,319 5,034 6,319 5,239

38,350 38,400 6,331 5,041 6,331 5,246

38,400 38,450 6,344 5,049 6,344 5,254

38,450 38,500 6,356 5,056 6,356 5,261

38,500 38,550 6,369 5,064 6,369 5,269

38,550 38,600 6,381 5,071 6,381 5,276

38,600 38,650 6,394 5,079 6,394 5,284

38,650 38,700 6,406 5,086 6,406 5,291

38,700 38,750 6,419 5,094 6,419 5,299

38,750 38,800 6,431 5,101 6,431 5,306

38,800 38,850 6,444 5,109 6,444 5,314

38,850 38,900 6,456 5,116 6,456 5,321

38,900 38,950 6,469 5,124 6,469 5,331

38,950 39,000 6,481 5,131 6,481 5,344

39,000 39,050 6,494 5,139 6,494 5,356

39,050 39,100 6,506 5,146 6,506 5,369

39,100 39,150 6,519 5,154 6,519 5,381

39,150 39,200 6,531 5,161 6,531 5,394

39,200 39,250 6,544 5,169 6,544 5,406

39,250 39,300 6,556 5,176 6,556 5,419

39,300 39,350 6,569 5,184 6,569 5,431

39,350 39,400 6,581 5,191 6,581 5,444

39,400 39,450 6,594 5,199 6,594 5,456

39,450 39,500 6,606 5,206 6,606 5,469

39,500 39,550 6,619 5,214 6,619 5,481

39,550 39,600 6,631 5,221 6,631 5,494

39,600 39,650 6,644 5,229 6,644 5,506

39,650 39,700 6,656 5,236 6,656 5,519

39,700 39,750 6,669 5,244 6,669 5,531

39,750 39,800 6,681 5,251 6,681 5,544

39,800 39,850 6,694 5,259 6,694 5,556

39,850 39,900 6,706 5,266 6,706 5,569

39,900 39,950 6,719 5,274 6,719 5,581

39,950 40,000 6,731 5,281 6,731 5,594

40,000 40,050 6,744 5,289 6,744 5,606

40,050 40,100 6,756 5,296 6,756 5,619

40,100 40,150 6,769 5,304 6,769 5,631

40,150 40,200 6,781 5,311 6,781 5,644

40,200 40,250 6,794 5,319 6,794 5,656

40,250 40,300 6,806 5,326 6,806 5,669

40,300 40,350 6,819 5,334 6,819 5,681

40,350 40,400 6,831 5,341 6,831 5,694

40,400 40,450 6,844 5,349 6,844 5,706

40,450 40,500 6,856 5,356 6,856 5,719

40,500 40,550 6,869 5,364 6,869 5,731

40,550 40,600 6,881 5,371 6,881 5,744

40,600 40,650 6,894 5,379 6,894 5,756

40,650 40,700 6,906 5,386 6,906 5,769

40,700 40,750 6,919 5,394 6,919 5,781

40,750 40,800 6,931 5,401 6,931 5,794

40,800 40,850 6,944 5,409 6,944 5,806

40,850 40,900 6,956 5,416 6,956 5,819

40,900 40,950 6,969 5,424 6,969 5,831

40,950 41,000 6,981 5,431 6,981 5,844
D-6 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 68)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

41,000

42,000

43,000

44,000

45,000

46,000

47,000

48,000

49,000

41,000 41,050 6,994 5,439 6,994 5,856

41,050 41,100 7,006 5,446 7,006 5,869

41,100 41,150 7,019 5,454 7,019 5,881

41,150 41,200 7,031 5,461 7,031 5,894

41,200 41,250 7,044 5,469 7,044 5,906

41,250 41,300 7,056 5,476 7,056 5,919

41,300 41,350 7,069 5,484 7,069 5,931

41,350 41,400 7,081 5,491 7,081 5,944

41,400 41,450 7,094 5,499 7,094 5,956

41,450 41,500 7,106 5,506 7,106 5,969

41,500 41,550 7,119 5,514 7,119 5,981

41,550 41,600 7,131 5,521 7,131 5,994

41,600 41,650 7,144 5,529 7,144 6,006

41,650 41,700 7,156 5,536 7,156 6,019

41,700 41,750 7,169 5,544 7,169 6,031

41,750 41,800 7,181 5,551 7,181 6,044

41,800 41,850 7,194 5,559 7,194 6,056

41,850 41,900 7,206 5,566 7,206 6,069

41,900 41,950 7,219 5,574 7,219 6,081

41,950 42,000 7,231 5,581 7,231 6,094

42,000 42,050 7,244 5,589 7,244 6,106

42,050 42,100 7,256 5,596 7,256 6,119

42,100 42,150 7,269 5,604 7,269 6,131

42,150 42,200 7,281 5,611 7,281 6,144

42,200 42,250 7,294 5,619 7,294 6,156

42,250 42,300 7,306 5,626 7,306 6,169

42,300 42,350 7,319 5,634 7,319 6,181

42,350 42,400 7,331 5,641 7,331 6,194

42,400 42,450 7,344 5,649 7,344 6,206

42,450 42,500 7,356 5,656 7,356 6,219

42,500 42,550 7,369 5,664 7,369 6,231

42,550 42,600 7,381 5,671 7,381 6,244

42,600 42,650 7,394 5,679 7,394 6,256

42,650 42,700 7,406 5,686 7,406 6,269

42,700 42,750 7,419 5,694 7,419 6,281

42,750 42,800 7,431 5,701 7,431 6,294

42,800 42,850 7,444 5,709 7,444 6,306

42,850 42,900 7,456 5,716 7,456 6,319

42,900 42,950 7,469 5,724 7,469 6,331

42,950 43,000 7,481 5,731 7,481 6,344

43,000 43,050 7,494 5,739 7,494 6,356

43,050 43,100 7,506 5,746 7,506 6,369

43,100 43,150 7,519 5,754 7,519 6,381

43,150 43,200 7,531 5,761 7,531 6,394

43,200 43,250 7,544 5,769 7,544 6,406

43,250 43,300 7,556 5,776 7,556 6,419

43,300 43,350 7,569 5,784 7,569 6,431

43,350 43,400 7,581 5,791 7,581 6,444

43,400 43,450 7,594 5,799 7,594 6,456

43,450 43,500 7,606 5,806 7,606 6,469

43,500 43,550 7,619 5,814 7,619 6,481

43,550 43,600 7,631 5,821 7,631 6,494

43,600 43,650 7,644 5,829 7,644 6,506

43,650 43,700 7,656 5,836 7,656 6,519

43,700 43,750 7,669 5,844 7,669 6,531

43,750 43,800 7,681 5,851 7,681 6,544

43,800 43,850 7,694 5,859 7,694 6,556

43,850 43,900 7,706 5,866 7,706 6,569

43,900 43,950 7,719 5,874 7,719 6,581

43,950 44,000 7,731 5,881 7,731 6,594

44,000 44,050 7,744 5,889 7,744 6,606

44,050 44,100 7,756 5,896 7,756 6,619

44,100 44,150 7,769 5,904 7,769 6,631

44,150 44,200 7,781 5,911 7,781 6,644

44,200 44,250 7,794 5,919 7,794 6,656

44,250 44,300 7,806 5,926 7,806 6,669

44,300 44,350 7,819 5,934 7,819 6,681

44,350 44,400 7,831 5,941 7,831 6,694

44,400 44,450 7,844 5,949 7,844 6,706

44,450 44,500 7,856 5,956 7,856 6,719

44,500 44,550 7,869 5,964 7,869 6,731

44,550 44,600 7,881 5,971 7,881 6,744

44,600 44,650 7,894 5,979 7,894 6,756

44,650 44,700 7,906 5,986 7,906 6,769

44,700 44,750 7,919 5,994 7,919 6,781

44,750 44,800 7,931 6,001 7,931 6,794

44,800 44,850 7,944 6,009 7,944 6,806

44,850 44,900 7,956 6,016 7,956 6,819

44,900 44,950 7,969 6,024 7,969 6,831

44,950 45,000 7,981 6,031 7,981 6,844

45,000 45,050 7,994 6,039 7,994 6,856

45,050 45,100 8,006 6,046 8,006 6,869

45,100 45,150 8,019 6,054 8,019 6,881

45,150 45,200 8,031 6,061 8,031 6,894

45,200 45,250 8,044 6,069 8,044 6,906

45,250 45,300 8,056 6,076 8,056 6,919

45,300 45,350 8,069 6,084 8,069 6,931

45,350 45,400 8,081 6,091 8,081 6,944

45,400 45,450 8,094 6,099 8,094 6,956

45,450 45,500 8,106 6,106 8,106 6,969

45,500 45,550 8,119 6,114 8,119 6,981

45,550 45,600 8,131 6,121 8,131 6,994

45,600 45,650 8,144 6,129 8,144 7,006

45,650 45,700 8,156 6,136 8,156 7,019

45,700 45,750 8,169 6,144 8,169 7,031

45,750 45,800 8,181 6,151 8,181 7,044

45,800 45,850 8,194 6,159 8,194 7,056

45,850 45,900 8,206 6,166 8,206 7,069

45,900 45,950 8,219 6,174 8,219 7,081

45,950 46,000 8,231 6,181 8,231 7,094

46,000 46,050 8,244 6,189 8,244 7,106

46,050 46,100 8,256 6,196 8,256 7,119

46,100 46,150 8,269 6,204 8,269 7,131

46,150 46,200 8,281 6,211 8,281 7,144

46,200 46,250 8,294 6,219 8,294 7,156

46,250 46,300 8,306 6,226 8,306 7,169

46,300 46,350 8,319 6,234 8,319 7,181

46,350 46,400 8,331 6,241 8,331 7,194

46,400 46,450 8,344 6,249 8,344 7,206

46,450 46,500 8,356 6,256 8,356 7,219

46,500 46,550 8,369 6,264 8,369 7,231

46,550 46,600 8,381 6,271 8,381 7,244

46,600 46,650 8,394 6,279 8,394 7,256

46,650 46,700 8,406 6,286 8,406 7,269

46,700 46,750 8,419 6,294 8,419 7,281

46,750 46,800 8,431 6,301 8,431 7,294

46,800 46,850 8,444 6,309 8,444 7,306

46,850 46,900 8,456 6,316 8,456 7,319

46,900 46,950 8,469 6,324 8,469 7,331

46,950 47,000 8,481 6,331 8,481 7,344

47,000 47,050 8,494 6,339 8,494 7,356

47,050 47,100 8,506 6,346 8,506 7,369

47,100 47,150 8,519 6,354 8,519 7,381

47,150 47,200 8,531 6,361 8,531 7,394

47,200 47,250 8,544 6,369 8,544 7,406

47,250 47,300 8,556 6,376 8,556 7,419

47,300 47,350 8,569 6,384 8,569 7,431

47,350 47,400 8,581 6,391 8,581 7,444

47,400 47,450 8,594 6,399 8,594 7,456

47,450 47,500 8,606 6,406 8,606 7,469

47,500 47,550 8,619 6,414 8,619 7,481

47,550 47,600 8,631 6,421 8,631 7,494

47,600 47,650 8,644 6,429 8,644 7,506

47,650 47,700 8,656 6,436 8,656 7,519

47,700 47,750 8,669 6,444 8,669 7,531

47,750 47,800 8,681 6,451 8,681 7,544

47,800 47,850 8,694 6,459 8,694 7,556

47,850 47,900 8,706 6,466 8,706 7,569

47,900 47,950 8,719 6,474 8,719 7,581

47,950 48,000 8,731 6,481 8,731 7,594

48,000 48,050 8,744 6,489 8,744 7,606

48,050 48,100 8,756 6,496 8,756 7,619

48,100 48,150 8,769 6,504 8,769 7,631

48,150 48,200 8,781 6,511 8,781 7,644

48,200 48,250 8,794 6,519 8,794 7,656

48,250 48,300 8,806 6,526 8,806 7,669

48,300 48,350 8,819 6,534 8,819 7,681

48,350 48,400 8,831 6,541 8,831 7,694

48,400 48,450 8,844 6,549 8,844 7,706

48,450 48,500 8,856 6,556 8,856 7,719

48,500 48,550 8,869 6,564 8,869 7,731

48,550 48,600 8,881 6,571 8,881 7,744

48,600 48,650 8,894 6,579 8,894 7,756

48,650 48,700 8,906 6,586 8,906 7,769

48,700 48,750 8,919 6,594 8,919 7,781

48,750 48,800 8,931 6,601 8,931 7,794

48,800 48,850 8,944 6,609 8,944 7,806

48,850 48,900 8,956 6,616 8,956 7,819

48,900 48,950 8,969 6,624 8,969 7,831

48,950 49,000 8,981 6,631 8,981 7,844

49,000 49,050 8,994 6,639 8,994 7,856

49,050 49,100 9,006 6,646 9,006 7,869

49,100 49,150 9,019 6,654 9,019 7,881

49,150 49,200 9,031 6,661 9,031 7,894

49,200 49,250 9,044 6,669 9,044 7,906

49,250 49,300 9,056 6,676 9,056 7,919

49,300 49,350 9,069 6,684 9,069 7,931

49,350 49,400 9,081 6,691 9,081 7,944

49,400 49,450 9,094 6,699 9,094 7,956

49,450 49,500 9,106 6,706 9,106 7,969

49,500 49,550 9,119 6,714 9,119 7,981

49,550 49,600 9,131 6,721 9,131 7,994

49,600 49,650 9,144 6,729 9,144 8,006

49,650 49,700 9,156 6,736 9,156 8,019

49,700 49,750 9,169 6,744 9,169 8,031

49,750 49,800 9,181 6,751 9,181 8,044

49,800 49,850 9,194 6,759 9,194 8,056

49,850 49,900 9,206 6,766 9,206 8,069

49,900 49,950 9,219 6,774 9,219 8,081

49,950 50,000 9,231 6,781 9,231 8,094
Appendix D D-7

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 69)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

50,000

51,000

52,000

53,000

54,000

55,000

56,000

57,000

58,000

50,000 50,050 9,244 6,789 9,244 8,106

50,050 50,100 9,256 6,796 9,256 8,119

50,100 50,150 9,269 6,804 9,269 8,131

50,150 50,200 9,281 6,811 9,281 8,144

50,200 50,250 9,294 6,819 9,294 8,156

50,250 50,300 9,306 6,826 9,306 8,169

50,300 50,350 9,319 6,834 9,319 8,181

50,350 50,400 9,331 6,841 9,331 8,194

50,400 50,450 9,344 6,849 9,344 8,206

50,450 50,500 9,356 6,856 9,356 8,219

50,500 50,550 9,369 6,864 9,369 8,231

50,550 50,600 9,381 6,871 9,381 8,244

50,600 50,650 9,394 6,879 9,394 8,256

50,650 50,700 9,406 6,886 9,406 8,269

50,700 50,750 9,419 6,894 9,419 8,281

50,750 50,800 9,431 6,901 9,431 8,294

50,800 50,850 9,444 6,909 9,444 8,306

50,850 50,900 9,456 6,916 9,456 8,319

50,900 50,950 9,469 6,924 9,469 8,331

50,950 51,000 9,481 6,931 9,481 8,344

51,000 51,050 9,494 6,939 9,494 8,356

51,050 51,100 9,506 6,946 9,506 8,369

51,100 51,150 9,519 6,954 9,519 8,381

51,150 51,200 9,531 6,961 9,531 8,394

51,200 51,250 9,544 6,969 9,544 8,406

51,250 51,300 9,556 6,976 9,556 8,419

51,300 51,350 9,569 6,984 9,569 8,431

51,350 51,400 9,581 6,991 9,581 8,444

51,400 51,450 9,594 6,999 9,594 8,456

51,450 51,500 9,606 7,006 9,606 8,469

51,500 51,550 9,619 7,014 9,619 8,481

51,550 51,600 9,631 7,021 9,631 8,494

51,600 51,650 9,644 7,029 9,644 8,506

51,650 51,700 9,656 7,036 9,656 8,519

51,700 51,750 9,669 7,044 9,669 8,531

51,750 51,800 9,681 7,051 9,681 8,544

51,800 51,850 9,694 7,059 9,694 8,556

51,850 51,900 9,706 7,066 9,706 8,569

51,900 51,950 9,719 7,074 9,719 8,581

51,950 52,000 9,731 7,081 9,731 8,594

52,000 52,050 9,744 7,089 9,744 8,606

52,050 52,100 9,756 7,096 9,756 8,619

52,100 52,150 9,769 7,104 9,769 8,631

52,150 52,200 9,781 7,111 9,781 8,644

52,200 52,250 9,794 7,119 9,794 8,656

52,250 52,300 9,806 7,126 9,806 8,669

52,300 52,350 9,819 7,134 9,819 8,681

52,350 52,400 9,831 7,141 9,831 8,694

52,400 52,450 9,844 7,149 9,844 8,706

52,450 52,500 9,856 7,156 9,856 8,719

52,500 52,550 9,869 7,164 9,869 8,731

52,550 52,600 9,881 7,171 9,881 8,744

52,600 52,650 9,894 7,179 9,894 8,756

52,650 52,700 9,906 7,186 9,906 8,769

52,700 52,750 9,919 7,194 9,919 8,781

52,750 52,800 9,931 7,201 9,931 8,794

52,800 52,850 9,944 7,209 9,944 8,806

52,850 52,900 9,956 7,216 9,956 8,819

52,900 52,950 9,969 7,224 9,969 8,831

52,950 53,000 9,981 7,231 9,981 8,844

53,000 53,050 9,994 7,239 9,994 8,856

53,050 53,100 10,006 7,246 10,006 8,869

53,100 53,150 10,019 7,254 10,019 8,881

53,150 53,200 10,031 7,261 10,031 8,894

53,200 53,250 10,044 7,269 10,044 8,906

53,250 53,300 10,056 7,276 10,056 8,919

53,300 53,350 10,069 7,284 10,069 8,931

53,350 53,400 10,081 7,291 10,081 8,944

53,400 53,450 10,094 7,299 10,094 8,956

53,450 53,500 10,106 7,306 10,106 8,969

53,500 53,550 10,119 7,314 10,119 8,981

53,550 53,600 10,131 7,321 10,131 8,994

53,600 53,650 10,144 7,329 10,144 9,006

53,650 53,700 10,156 7,336 10,156 9,019

53,700 53,750 10,169 7,344 10,169 9,031

53,750 53,800 10,181 7,351 10,181 9,044

53,800 53,850 10,194 7,359 10,194 9,056

53,850 53,900 10,206 7,366 10,206 9,069

53,900 53,950 10,219 7,374 10,219 9,081

53,950 54,000 10,231 7,381 10,231 9,094

54,000 54,050 10,244 7,389 10,244 9,106

54,050 54,100 10,256 7,396 10,256 9,119

54,100 54,150 10,269 7,404 10,269 9,131

54,150 54,200 10,281 7,411 10,281 9,144

54,200 54,250 10,294 7,419 10,294 9,156

54,250 54,300 10,306 7,426 10,306 9,169

54,300 54,350 10,319 7,434 10,319 9,181

54,350 54,400 10,331 7,441 10,331 9,194

54,400 54,450 10,344 7,449 10,344 9,206

54,450 54,500 10,356 7,456 10,356 9,219

54,500 54,550 10,369 7,464 10,369 9,231

54,550 54,600 10,381 7,471 10,381 9,244

54,600 54,650 10,394 7,479 10,394 9,256

54,650 54,700 10,406 7,486 10,406 9,269

54,700 54,750 10,419 7,494 10,419 9,281

54,750 54,800 10,431 7,501 10,431 9,294

54,800 54,850 10,444 7,509 10,444 9,306

54,850 54,900 10,456 7,516 10,456 9,319

54,900 54,950 10,469 7,524 10,469 9,331

54,950 55,000 10,481 7,531 10,481 9,344

55,000 55,050 10,494 7,539 10,494 9,356

55,050 55,100 10,506 7,546 10,506 9,369

55,100 55,150 10,519 7,554 10,519 9,381

55,150 55,200 10,531 7,561 10,531 9,394

55,200 55,250 10,544 7,569 10,544 9,406

55,250 55,300 10,556 7,576 10,556 9,419

55,300 55,350 10,569 7,584 10,569 9,431

55,350 55,400 10,581 7,591 10,581 9,444

55,400 55,450 10,594 7,599 10,594 9,456

55,450 55,500 10,606 7,606 10,606 9,469

55,500 55,550 10,619 7,614 10,619 9,481

55,550 55,600 10,631 7,621 10,631 9,494

55,600 55,650 10,644 7,629 10,644 9,506

55,650 55,700 10,656 7,636 10,656 9,519

55,700 55,750 10,669 7,644 10,669 9,531

55,750 55,800 10,681 7,651 10,681 9,544

55,800 55,850 10,694 7,659 10,694 9,556

55,850 55,900 10,706 7,666 10,706 9,569

55,900 55,950 10,719 7,674 10,719 9,581

55,950 56,000 10,731 7,681 10,731 9,594

56,000 56,050 10,744 7,689 10,744 9,606

56,050 56,100 10,756 7,696 10,756 9,619

56,100 56,150 10,769 7,704 10,769 9,631

56,150 56,200 10,781 7,711 10,781 9,644

56,200 56,250 10,794 7,719 10,794 9,656

56,250 56,300 10,806 7,726 10,806 9,669

56,300 56,350 10,819 7,734 10,819 9,681

56,350 56,400 10,831 7,741 10,831 9,694

56,400 56,450 10,844 7,749 10,844 9,706

56,450 56,500 10,856 7,756 10,856 9,719

56,500 56,550 10,869 7,764 10,869 9,731

56,550 56,600 10,881 7,771 10,881 9,744

56,600 56,650 10,894 7,779 10,894 9,756

56,650 56,700 10,906 7,786 10,906 9,769

56,700 56,750 10,919 7,794 10,919 9,781

56,750 56,800 10,931 7,801 10,931 9,794

56,800 56,850 10,944 7,809 10,944 9,806

56,850 56,900 10,956 7,816 10,956 9,819

56,900 56,950 10,969 7,824 10,969 9,831

56,950 57,000 10,981 7,831 10,981 9,844

57,000 57,050 10,994 7,839 10,994 9,856

57,050 57,100 11,006 7,846 11,006 9,869

57,100 57,150 11,019 7,854 11,019 9,881

57,150 57,200 11,031 7,861 11,031 9,894

57,200 57,250 11,044 7,869 11,044 9,906

57,250 57,300 11,056 7,876 11,056 9,919

57,300 57,350 11,069 7,884 11,069 9,931

57,350 57,400 11,081 7,891 11,081 9,944

57,400 57,450 11,094 7,899 11,094 9,956

57,450 57,500 11,106 7,906 11,106 9,969

57,500 57,550 11,119 7,914 11,119 9,981

57,550 57,600 11,131 7,921 11,131 9,994

57,600 57,650 11,144 7,929 11,144 10,006

57,650 57,700 11,156 7,936 11,156 10,019

57,700 57,750 11,169 7,944 11,169 10,031

57,750 57,800 11,181 7,951 11,181 10,044

57,800 57,850 11,194 7,959 11,194 10,056

57,850 57,900 11,206 7,966 11,206 10,069

57,900 57,950 11,219 7,974 11,219 10,081

57,950 58,000 11,231 7,981 11,231 10,094

58,000 58,050 11,244 7,989 11,244 10,106

58,050 58,100 11,256 7,996 11,256 10,119

58,100 58,150 11,269 8,006 11,269 10,131

58,150 58,200 11,281 8,019 11,281 10,144

58,200 58,250 11,294 8,031 11,294 10,156

58,250 58,300 11,306 8,044 11,306 10,169

58,300 58,350 11,319 8,056 11,319 10,181

58,350 58,400 11,331 8,069 11,331 10,194

58,400 58,450 11,344 8,081 11,344 10,206

58,450 58,500 11,356 8,094 11,356 10,219

58,500 58,550 11,369 8,106 11,369 10,231

58,550 58,600 11,381 8,119 11,381 10,244

58,600 58,650 11,394 8,131 11,394 10,256

58,650 58,700 11,406 8,144 11,408 10,269

58,700 58,750 11,419 8,156 11,422 10,281

58,750 58,800 11,431 8,169 11,436 10,294

58,800 58,850 11,444 8,181 11,450 10,306

58,850 58,900 11,456 8,194 11,464 10,319

58,900 58,950 11,469 8,206 11,478 10,331

58,950 59,000 11,481 8,219 11,492 10,344
D-8 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 70)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

59,000

60,000

61,000

62,000

63,000

64,000

65,000

66,000

67,000

59,000 59,050 11,494 8,231 11,506 10,356

59,050 59,100 11,506 8,244 11,520 10,369

59,100 59,150 11,519 8,256 11,534 10,381

59,150 59,200 11,531 8,269 11,548 10,394

59,200 59,250 11,544 8,281 11,562 10,406

59,250 59,300 11,556 8,294 11,576 10,419

59,300 59,350 11,569 8,306 11,590 10,431

59,350 59,400 11,581 8,319 11,604 10,444

59,400 59,450 11,594 8,331 11,618 10,456

59,450 59,500 11,606 8,344 11,632 10,469

59,500 59,550 11,619 8,356 11,646 10,481

59,550 59,600 11,631 8,369 11,660 10,494

59,600 59,650 11,644 8,381 11,674 10,506

59,650 59,700 11,656 8,394 11,688 10,519

59,700 59,750 11,669 8,406 11,702 10,531

59,750 59,800 11,681 8,419 11,716 10,544

59,800 59,850 11,694 8,431 11,730 10,556

59,850 59,900 11,706 8,444 11,744 10,569

59,900 59,950 11,719 8,456 11,758 10,581

59,950 60,000 11,731 8,469 11,772 10,594

60,000 60,050 11,744 8,481 11,786 10,606

60,050 60,100 11,756 8,494 11,800 10,619

60,100 60,150 11,769 8,506 11,814 10,631

60,150 60,200 11,781 8,519 11,828 10,644

60,200 60,250 11,794 8,531 11,842 10,656

60,250 60,300 11,806 8,544 11,856 10,669

60,300 60,350 11,819 8,556 11,870 10,681

60,350 60,400 11,831 8,569 11,884 10,694

60,400 60,450 11,844 8,581 11,898 10,706

60,450 60,500 11,856 8,594 11,912 10,719

60,500 60,550 11,869 8,606 11,926 10,731

60,550 60,600 11,881 8,619 11,940 10,744

60,600 60,650 11,894 8,631 11,954 10,756

60,650 60,700 11,906 8,644 11,968 10,769

60,700 60,750 11,919 8,656 11,982 10,781

60,750 60,800 11,931 8,669 11,996 10,794

60,800 60,850 11,944 8,681 12,010 10,806

60,850 60,900 11,956 8,694 12,024 10,819

60,900 60,950 11,969 8,706 12,038 10,831

60,950 61,000 11,981 8,719 12,052 10,844

61,000 61,050 11,994 8,731 12,066 10,856

61,050 61,100 12,006 8,744 12,080 10,869

61,100 61,150 12,019 8,756 12,094 10,881

61,150 61,200 12,031 8,769 12,108 10,894

61,200 61,250 12,044 8,781 12,122 10,906

61,250 61,300 12,056 8,794 12,136 10,919

61,300 61,350 12,069 8,806 12,150 10,931

61,350 61,400 12,081 8,819 12,164 10,944

61,400 61,450 12,094 8,831 12,178 10,956

61,450 61,500 12,106 8,844 12,192 10,969

61,500 61,550 12,119 8,856 12,206 10,981

61,550 61,600 12,131 8,869 12,220 10,994

61,600 61,650 12,144 8,881 12,234 11,006

61,650 61,700 12,156 8,894 12,248 11,019

61,700 61,750 12,169 8,906 12,262 11,031

61,750 61,800 12,181 8,919 12,276 11,044

61,800 61,850 12,194 8,931 12,290 11,056

61,850 61,900 12,206 8,944 12,304 11,069

61,900 61,950 12,219 8,956 12,318 11,081

61,950 62,000 12,231 8,969 12,332 11,094

62,000 62,050 12,244 8,981 12,346 11,106

62,050 62,100 12,256 8,994 12,360 11,119

62,100 62,150 12,269 9,006 12,374 11,131

62,150 62,200 12,281 9,019 12,388 11,144

62,200 62,250 12,294 9,031 12,402 11,156

62,250 62,300 12,306 9,044 12,416 11,169

62,300 62,350 12,319 9,056 12,430 11,181

62,350 62,400 12,331 9,069 12,444 11,194

62,400 62,450 12,344 9,081 12,458 11,206

62,450 62,500 12,356 9,094 12,472 11,219

62,500 62,550 12,369 9,106 12,486 11,231

62,550 62,600 12,381 9,119 12,500 11,244

62,600 62,650 12,394 9,131 12,514 11,256

62,650 62,700 12,406 9,144 12,528 11,269

62,700 62,750 12,419 9,156 12,542 11,281

62,750 62,800 12,431 9,169 12,556 11,294

62,800 62,850 12,444 9,181 12,570 11,306

62,850 62,900 12,456 9,194 12,584 11,319

62,900 62,950 12,469 9,206 12,598 11,331

62,950 63,000 12,481 9,219 12,612 11,344

63,000 63,050 12,494 9,231 12,626 11,356

63,050 63,100 12,506 9,244 12,640 11,369

63,100 63,150 12,519 9,256 12,654 11,381

63,150 63,200 12,531 9,269 12,668 11,394

63,200 63,250 12,544 9,281 12,682 11,406

63,250 63,300 12,556 9,294 12,696 11,419

63,300 63,350 12,569 9,306 12,710 11,431

63,350 63,400 12,581 9,319 12,724 11,444

63,400 63,450 12,594 9,331 12,738 11,456

63,450 63,500 12,606 9,344 12,752 11,469

63,500 63,550 12,619 9,356 12,766 11,481

63,550 63,600 12,631 9,369 12,780 11,494

63,600 63,650 12,644 9,381 12,794 11,506

63,650 63,700 12,656 9,394 12,808 11,519

63,700 63,750 12,669 9,406 12,822 11,531

63,750 63,800 12,681 9,419 12,836 11,544

63,800 63,850 12,694 9,431 12,850 11,556

63,850 63,900 12,706 9,444 12,864 11,569

63,900 63,950 12,719 9,456 12,878 11,581

63,950 64,000 12,731 9,469 12,892 11,594

64,000 64,050 12,744 9,481 12,906 11,606

64,050 64,100 12,756 9,494 12,920 11,619

64,100 64,150 12,769 9,506 12,934 11,631

64,150 64,200 12,781 9,519 12,948 11,644

64,200 64,250 12,794 9,531 12,962 11,656

64,250 64,300 12,806 9,544 12,976 11,669

64,300 64,350 12,819 9,556 12,990 11,681

64,350 64,400 12,831 9,569 13,004 11,694

64,400 64,450 12,844 9,581 13,018 11,706

64,450 64,500 12,856 9,594 13,032 11,719

64,500 64,550 12,869 9,606 13,046 11,731

64,550 64,600 12,881 9,619 13,060 11,744

64,600 64,650 12,894 9,631 13,074 11,756

64,650 64,700 12,906 9,644 13,088 11,769

64,700 64,750 12,919 9,656 13,102 11,781

64,750 64,800 12,931 9,669 13,116 11,794

64,800 64,850 12,944 9,681 13,130 11,806

64,850 64,900 12,956 9,694 13,144 11,819

64,900 64,950 12,969 9,706 13,158 11,831

64,950 65,000 12,981 9,719 13,172 11,844

65,000 65,050 12,994 9,731 13,186 11,856

65,050 65,100 13,006 9,744 13,200 11,869

65,100 65,150 13,019 9,756 13,214 11,881

65,150 65,200 13,031 9,769 13,228 11,894

65,200 65,250 13,044 9,781 13,242 11,906

65,250 65,300 13,056 9,794 13,256 11,919

65,300 65,350 13,069 9,806 13,270 11,931

65,350 65,400 13,081 9,819 13,284 11,944

65,400 65,450 13,094 9,831 13,298 11,956

65,450 65,500 13,106 9,844 13,312 11,969

65,500 65,550 13,119 9,856 13,326 11,981

65,550 65,600 13,131 9,869 13,340 11,994

65,600 65,650 13,144 9,881 13,354 12,006

65,650 65,700 13,156 9,894 13,368 12,019

65,700 65,750 13,169 9,906 13,382 12,031

65,750 65,800 13,181 9,919 13,396 12,044

65,800 65,850 13,194 9,931 13,410 12,056

65,850 65,900 13,206 9,944 13,424 12,069

65,900 65,950 13,219 9,956 13,438 12,081

65,950 66,000 13,231 9,969 13,452 12,094

66,000 66,050 13,244 9,981 13,466 12,106

66,050 66,100 13,256 9,994 13,480 12,119

66,100 66,150 13,269 10,006 13,494 12,131

66,150 66,200 13,281 10,019 13,508 12,144

66,200 66,250 13,294 10,031 13,522 12,156

66,250 66,300 13,306 10,044 13,536 12,169

66,300 66,350 13,319 10,056 13,550 12,181

66,350 66,400 13,331 10,069 13,564 12,194

66,400 66,450 13,344 10,081 13,578 12,206

66,450 66,500 13,356 10,094 13,592 12,219

66,500 66,550 13,369 10,106 13,606 12,231

66,550 66,600 13,381 10,119 13,620 12,244

66,600 66,650 13,394 10,131 13,634 12,256

66,650 66,700 13,406 10,144 13,648 12,269

66,700 66,750 13,419 10,156 13,662 12,281

66,750 66,800 13,431 10,169 13,676 12,294

66,800 66,850 13,444 10,181 13,690 12,306

66,850 66,900 13,456 10,194 13,704 12,319

66,900 66,950 13,469 10,206 13,718 12,331

66,950 67,000 13,481 10,219 13,732 12,344

67,000 67,050 13,494 10,231 13,746 12,356

67,050 67,100 13,506 10,244 13,760 12,369

67,100 67,150 13,519 10,256 13,774 12,381

67,150 67,200 13,531 10,269 13,788 12,394

67,200 67,250 13,544 10,281 13,802 12,406

67,250 67,300 13,556 10,294 13,816 12,419

67,300 67,350 13,569 10,306 13,830 12,431

67,350 67,400 13,581 10,319 13,844 12,444

67,400 67,450 13,594 10,331 13,858 12,456

67,450 67,500 13,606 10,344 13,872 12,469

67,500 67,550 13,619 10,356 13,886 12,481

67,550 67,600 13,631 10,369 13,900 12,494

67,600 67,650 13,644 10,381 13,914 12,506

67,650 67,700 13,656 10,394 13,928 12,519

67,700 67,750 13,669 10,406 13,942 12,531

67,750 67,800 13,681 10,419 13,956 12,544

67,800 67,850 13,694 10,431 13,970 12,556

67,850 67,900 13,706 10,444 13,984 12,569

67,900 67,950 13,719 10,456 13,998 12,581

67,950 68,000 13,731 10,469 14,012 12,594
Appendix D D-9

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 71)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

68,000

69,000

70,000

71,000

72,000

73,000

74,000

75,000

76,000

68,000 68,050 13,744 10,481 14,026 12,606

68,050 68,100 13,756 10,494 14,040 12,619

68,100 68,150 13,769 10,506 14,054 12,631

68,150 68,200 13,781 10,519 14,068 12,644

68,200 68,250 13,794 10,531 14,082 12,656

68,250 68,300 13,806 10,544 14,096 12,669

68,300 68,350 13,819 10,556 14,110 12,681

68,350 68,400 13,831 10,569 14,124 12,694

68,400 68,450 13,844 10,581 14,138 12,706

68,450 68,500 13,856 10,594 14,152 12,719

68,500 68,550 13,869 10,606 14,166 12,731

68,550 68,600 13,881 10,619 14,180 12,744

68,600 68,650 13,894 10,631 14,194 12,756

68,650 68,700 13,906 10,644 14,208 12,769

68,700 68,750 13,919 10,656 14,222 12,781

68,750 68,800 13,931 10,669 14,236 12,794

68,800 68,850 13,944 10,681 14,250 12,806

68,850 68,900 13,956 10,694 14,264 12,819

68,900 68,950 13,969 10,706 14,278 12,831

68,950 69,000 13,981 10,719 14,292 12,844

69,000 69,050 13,994 10,731 14,306 12,856

69,050 69,100 14,006 10,744 14,320 12,869

69,100 69,150 14,019 10,756 14,334 12,881

69,150 69,200 14,031 10,769 14,348 12,894

69,200 69,250 14,044 10,781 14,362 12,906

69,250 69,300 14,056 10,794 14,376 12,919

69,300 69,350 14,069 10,806 14,390 12,931

69,350 69,400 14,081 10,819 14,404 12,944

69,400 69,450 14,094 10,831 14,418 12,956

69,450 69,500 14,106 10,844 14,432 12,969

69,500 69,550 14,119 10,856 14,446 12,981

69,550 69,600 14,131 10,869 14,460 12,994

69,600 69,650 14,144 10,881 14,474 13,006

69,650 69,700 14,156 10,894 14,488 13,019

69,700 69,750 14,169 10,906 14,502 13,031

69,750 69,800 14,181 10,919 14,516 13,044

69,800 69,850 14,194 10,931 14,530 13,056

69,850 69,900 14,206 10,944 14,544 13,069

69,900 69,950 14,219 10,956 14,558 13,081

69,950 70,000 14,231 10,969 14,572 13,094

70,000 70,050 14,244 10,981 14,586 13,106

70,050 70,100 14,256 10,994 14,600 13,119

70,100 70,150 14,269 11,006 14,614 13,131

70,150 70,200 14,281 11,019 14,628 13,144

70,200 70,250 14,294 11,031 14,642 13,156

70,250 70,300 14,306 11,044 14,656 13,169

70,300 70,350 14,319 11,056 14,670 13,181

70,350 70,400 14,332 11,069 14,684 13,194

70,400 70,450 14,346 11,081 14,698 13,206

70,450 70,500 14,360 11,094 14,712 13,219

70,500 70,550 14,374 11,106 14,726 13,231

70,550 70,600 14,388 11,119 14,740 13,244

70,600 70,650 14,402 11,131 14,754 13,256

70,650 70,700 14,416 11,144 14,768 13,269

70,700 70,750 14,430 11,156 14,782 13,281

70,750 70,800 14,444 11,169 14,796 13,294

70,800 70,850 14,458 11,181 14,810 13,306

70,850 70,900 14,472 11,194 14,824 13,319

70,900 70,950 14,486 11,206 14,838 13,331

70,950 71,000 14,500 11,219 14,852 13,344

71,000 71,050 14,514 11,231 14,866 13,356

71,050 71,100 14,528 11,244 14,880 13,369

71,100 71,150 14,542 11,256 14,894 13,381

71,150 71,200 14,556 11,269 14,908 13,394

71,200 71,250 14,570 11,281 14,922 13,406

71,250 71,300 14,584 11,294 14,936 13,419

71,300 71,350 14,598 11,306 14,950 13,431

71,350 71,400 14,612 11,319 14,964 13,444

71,400 71,450 14,626 11,331 14,978 13,456

71,450 71,500 14,640 11,344 14,992 13,469

71,500 71,550 14,654 11,356 15,006 13,481

71,550 71,600 14,668 11,369 15,020 13,494

71,600 71,650 14,682 11,381 15,034 13,506

71,650 71,700 14,696 11,394 15,048 13,519

71,700 71,750 14,710 11,406 15,062 13,531

71,750 71,800 14,724 11,419 15,076 13,544

71,800 71,850 14,738 11,431 15,090 13,556

71,850 71,900 14,752 11,444 15,104 13,569

71,900 71,950 14,766 11,456 15,118 13,581

71,950 72,000 14,780 11,469 15,132 13,594

72,000 72,050 14,794 11,481 15,146 13,606

72,050 72,100 14,808 11,494 15,160 13,619

72,100 72,150 14,822 11,506 15,174 13,631

72,150 72,200 14,836 11,519 15,188 13,644

72,200 72,250 14,850 11,531 15,202 13,656

72,250 72,300 14,864 11,544 15,216 13,669

72,300 72,350 14,878 11,556 15,230 13,681

72,350 72,400 14,892 11,569 15,244 13,694

72,400 72,450 14,906 11,581 15,258 13,706

72,450 72,500 14,920 11,594 15,272 13,719

72,500 72,550 14,934 11,606 15,286 13,731

72,550 72,600 14,948 11,619 15,300 13,744

72,600 72,650 14,962 11,631 15,314 13,756

72,650 72,700 14,976 11,644 15,328 13,769

72,700 72,750 14,990 11,656 15,342 13,781

72,750 72,800 15,004 11,669 15,356 13,794

72,800 72,850 15,018 11,681 15,370 13,806

72,850 72,900 15,032 11,694 15,384 13,819

72,900 72,950 15,046 11,706 15,398 13,831

72,950 73,000 15,060 11,719 15,412 13,844

73,000 73,050 15,074 11,731 15,426 13,856

73,050 73,100 15,088 11,744 15,440 13,869

73,100 73,150 15,102 11,756 15,454 13,881

73,150 73,200 15,116 11,769 15,468 13,894

73,200 73,250 15,130 11,781 15,482 13,906

73,250 73,300 15,144 11,794 15,496 13,919

73,300 73,350 15,158 11,806 15,510 13,931

73,350 73,400 15,172 11,819 15,524 13,944

73,400 73,450 15,186 11,831 15,538 13,956

73,450 73,500 15,200 11,844 15,552 13,969

73,500 73,550 15,214 11,856 15,566 13,981

73,550 73,600 15,228 11,869 15,580 13,994

73,600 73,650 15,242 11,881 15,594 14,006

73,650 73,700 15,256 11,894 15,608 14,019

73,700 73,750 15,270 11,906 15,622 14,031

73,750 73,800 15,284 11,919 15,636 14,044

73,800 73,850 15,298 11,931 15,650 14,056

73,850 73,900 15,312 11,944 15,664 14,069

73,900 73,950 15,326 11,956 15,678 14,081

73,950 74,000 15,340 11,969 15,692 14,094

74,000 74,050 15,354 11,981 15,706 14,106

74,050 74,100 15,368 11,994 15,720 14,119

74,100 74,150 15,382 12,006 15,734 14,131

74,150 74,200 15,396 12,019 15,748 14,144

74,200 74,250 15,410 12,031 15,762 14,156

74,250 74,300 15,424 12,044 15,776 14,169

74,300 74,350 15,438 12,056 15,790 14,181

74,350 74,400 15,452 12,069 15,804 14,194

74,400 74,450 15,466 12,081 15,818 14,206

74,450 74,500 15,480 12,094 15,832 14,219

74,500 74,550 15,494 12,106 15,846 14,231

74,550 74,600 15,508 12,119 15,860 14,244

74,600 74,650 15,522 12,131 15,874 14,256

74,650 74,700 15,536 12,144 15,888 14,269

74,700 74,750 15,550 12,156 15,902 14,281

74,750 74,800 15,564 12,169 15,916 14,294

74,800 74,850 15,578 12,181 15,930 14,306

74,850 74,900 15,592 12,194 15,944 14,319

74,900 74,950 15,606 12,206 15,958 14,331

74,950 75,000 15,620 12,219 15,972 14,344

75,000 75,050 15,634 12,231 15,986 14,356

75,050 75,100 15,648 12,244 16,000 14,369

75,100 75,150 15,662 12,256 16,014 14,381

75,150 75,200 15,676 12,269 16,028 14,394

75,200 75,250 15,690 12,281 16,042 14,406

75,250 75,300 15,704 12,294 16,056 14,419

75,300 75,350 15,718 12,306 16,070 14,431

75,350 75,400 15,732 12,319 16,084 14,444

75,400 75,450 15,746 12,331 16,098 14,456

75,450 75,500 15,760 12,344 16,112 14,469

75,500 75,550 15,774 12,356 16,126 14,481

75,550 75,600 15,788 12,369 16,140 14,494

75,600 75,650 15,802 12,381 16,154 14,506

75,650 75,700 15,816 12,394 16,168 14,519

75,700 75,750 15,830 12,406 16,182 14,531

75,750 75,800 15,844 12,419 16,196 14,544

75,800 75,850 15,858 12,431 16,210 14,556

75,850 75,900 15,872 12,444 16,224 14,569

75,900 75,950 15,886 12,456 16,238 14,581

75,950 76,000 15,900 12,469 16,252 14,594

76,000 76,050 15,914 12,481 16,266 14,606

76,050 76,100 15,928 12,494 16,280 14,619

76,100 76,150 15,942 12,506 16,294 14,631

76,150 76,200 15,956 12,519 16,308 14,644

76,200 76,250 15,970 12,531 16,322 14,656

76,250 76,300 15,984 12,544 16,336 14,669

76,300 76,350 15,998 12,556 16,350 14,681

76,350 76,400 16,012 12,569 16,364 14,694

76,400 76,450 16,026 12,581 16,378 14,706

76,450 76,500 16,040 12,594 16,392 14,719

76,500 76,550 16,054 12,606 16,406 14,731

76,550 76,600 16,068 12,619 16,420 14,744

76,600 76,650 16,082 12,631 16,434 14,756

76,650 76,700 16,096 12,644 16,448 14,769

76,700 76,750 16,110 12,656 16,462 14,781

76,750 76,800 16,124 12,669 16,476 14,794

76,800 76,850 16,138 12,681 16,490 14,806

76,850 76,900 16,152 12,694 16,504 14,819

76,900 76,950 16,166 12,706 16,518 14,831

76,950 77,000 16,180 12,719 16,532 14,844
D-10 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 72)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

77,000

78,000

79,000

80,000

81,000

82,000

83,000

84,000

85,000

77,000 77,050 16,194 12,731 16,546 14,856

77,050 77,100 16,208 12,744 16,560 14,869

77,100 77,150 16,222 12,756 16,574 14,881

77,150 77,200 16,236 12,769 16,588 14,894

77,200 77,250 16,250 12,781 16,602 14,906

77,250 77,300 16,264 12,794 16,616 14,919

77,300 77,350 16,278 12,806 16,630 14,931

77,350 77,400 16,292 12,819 16,644 14,944

77,400 77,450 16,306 12,831 16,658 14,956

77,450 77,500 16,320 12,844 16,672 14,969

77,500 77,550 16,334 12,856 16,686 14,981

77,550 77,600 16,348 12,869 16,700 14,994

77,600 77,650 16,362 12,881 16,714 15,006

77,650 77,700 16,376 12,894 16,728 15,019

77,700 77,750 16,390 12,906 16,742 15,031

77,750 77,800 16,404 12,919 16,756 15,044

77,800 77,850 16,418 12,931 16,770 15,056

77,850 77,900 16,432 12,944 16,784 15,069

77,900 77,950 16,446 12,956 16,798 15,081

77,950 78,000 16,460 12,969 16,812 15,094

78,000 78,050 16,474 12,981 16,826 15,106

78,050 78,100 16,488 12,994 16,840 15,119

78,100 78,150 16,502 13,006 16,854 15,131

78,150 78,200 16,516 13,019 16,868 15,144

78,200 78,250 16,530 13,031 16,882 15,156

78,250 78,300 16,544 13,044 16,896 15,169

78,300 78,350 16,558 13,056 16,910 15,181

78,350 78,400 16,572 13,069 16,924 15,194

78,400 78,450 16,586 13,081 16,938 15,206

78,450 78,500 16,600 13,094 16,952 15,219

78,500 78,550 16,614 13,106 16,966 15,231

78,550 78,600 16,628 13,119 16,980 15,244

78,600 78,650 16,642 13,131 16,994 15,256

78,650 78,700 16,656 13,144 17,008 15,269

78,700 78,750 16,670 13,156 17,022 15,281

78,750 78,800 16,684 13,169 17,036 15,294

78,800 78,850 16,698 13,181 17,050 15,306

78,850 78,900 16,712 13,194 17,064 15,319

78,900 78,950 16,726 13,206 17,078 15,331

78,950 79,000 16,740 13,219 17,092 15,344

79,000 79,050 16,754 13,231 17,106 15,356

79,050 79,100 16,768 13,244 17,120 15,369

79,100 79,150 16,782 13,256 17,134 15,381

79,150 79,200 16,796 13,269 17,148 15,394

79,200 79,250 16,810 13,281 17,162 15,406

79,250 79,300 16,824 13,294 17,176 15,419

79,300 79,350 16,838 13,306 17,190 15,431

79,350 79,400 16,852 13,319 17,204 15,444

79,400 79,450 16,866 13,331 17,218 15,456

79,450 79,500 16,880 13,344 17,232 15,469

79,500 79,550 16,894 13,356 17,246 15,481

79,550 79,600 16,908 13,369 17,260 15,494

79,600 79,650 16,922 13,381 17,274 15,506

79,650 79,700 16,936 13,394 17,288 15,519

79,700 79,750 16,950 13,406 17,302 15,531

79,750 79,800 16,964 13,419 17,316 15,544

79,800 79,850 16,978 13,431 17,330 15,556

79,850 79,900 16,992 13,444 17,344 15,569

79,900 79,950 17,006 13,456 17,358 15,581

79,950 80,000 17,020 13,469 17,372 15,594

80,000 80,050 17,034 13,481 17,386 15,606

80,050 80,100 17,048 13,494 17,400 15,619

80,100 80,150 17,062 13,506 17,414 15,631

80,150 80,200 17,076 13,519 17,428 15,644

80,200 80,250 17,090 13,531 17,442 15,656

80,250 80,300 17,104 13,544 17,456 15,669

80,300 80,350 17,118 13,556 17,470 15,681

80,350 80,400 17,132 13,569 17,484 15,694

80,400 80,450 17,146 13,581 17,498 15,706

80,450 80,500 17,160 13,594 17,512 15,719

80,500 80,550 17,174 13,606 17,526 15,731

80,550 80,600 17,188 13,619 17,540 15,744

80,600 80,650 17,202 13,631 17,554 15,756

80,650 80,700 17,216 13,644 17,568 15,769

80,700 80,750 17,230 13,656 17,582 15,781

80,750 80,800 17,244 13,669 17,596 15,794

80,800 80,850 17,258 13,681 17,610 15,806

80,850 80,900 17,272 13,694 17,624 15,819

80,900 80,950 17,286 13,706 17,638 15,831

80,950 81,000 17,300 13,719 17,652 15,844

81,000 81,050 17,314 13,731 17,666 15,856

81,050 81,100 17,328 13,744 17,680 15,869

81,100 81,150 17,342 13,756 17,694 15,881

81,150 81,200 17,356 13,769 17,708 15,894

81,200 81,250 17,370 13,781 17,722 15,906

81,250 81,300 17,384 13,794 17,736 15,919

81,300 81,350 17,398 13,806 17,750 15,931

81,350 81,400 17,412 13,819 17,764 15,944

81,400 81,450 17,426 13,831 17,778 15,956

81,450 81,500 17,440 13,844 17,792 15,969

81,500 81,550 17,454 13,856 17,806 15,981

81,550 81,600 17,468 13,869 17,820 15,994

81,600 81,650 17,482 13,881 17,834 16,006

81,650 81,700 17,496 13,894 17,848 16,019

81,700 81,750 17,510 13,906 17,862 16,031

81,750 81,800 17,524 13,919 17,876 16,044

81,800 81,850 17,538 13,931 17,890 16,056

81,850 81,900 17,552 13,944 17,904 16,069

81,900 81,950 17,566 13,956 17,918 16,081

81,950 82,000 17,580 13,969 17,932 16,094

82,000 82,050 17,594 13,981 17,946 16,106

82,050 82,100 17,608 13,994 17,960 16,119

82,100 82,150 17,622 14,006 17,974 16,131

82,150 82,200 17,636 14,019 17,988 16,144

82,200 82,250 17,650 14,031 18,002 16,156

82,250 82,300 17,664 14,044 18,016 16,169

82,300 82,350 17,678 14,056 18,030 16,181

82,350 82,400 17,692 14,069 18,044 16,194

82,400 82,450 17,706 14,081 18,058 16,206

82,450 82,500 17,720 14,094 18,072 16,219

82,500 82,550 17,734 14,106 18,086 16,231

82,550 82,600 17,748 14,119 18,100 16,244

82,600 82,650 17,762 14,131 18,114 16,256

82,650 82,700 17,776 14,144 18,128 16,269

82,700 82,750 17,790 14,156 18,142 16,281

82,750 82,800 17,804 14,169 18,156 16,294

82,800 82,850 17,818 14,181 18,170 16,306

82,850 82,900 17,832 14,194 18,184 16,319

82,900 82,950 17,846 14,206 18,198 16,331

82,950 83,000 17,860 14,219 18,212 16,344

83,000 83,050 17,874 14,231 18,226 16,356

83,050 83,100 17,888 14,244 18,240 16,369

83,100 83,150 17,902 14,256 18,254 16,381

83,150 83,200 17,916 14,269 18,268 16,394

83,200 83,250 17,930 14,281 18,282 16,406

83,250 83,300 17,944 14,294 18,296 16,419

83,300 83,350 17,958 14,306 18,310 16,431

83,350 83,400 17,972 14,319 18,324 16,444

83,400 83,450 17,986 14,331 18,338 16,456

83,450 83,500 18,000 14,344 18,352 16,469

83,500 83,550 18,014 14,356 18,366 16,481

83,550 83,600 18,028 14,369 18,380 16,494

83,600 83,650 18,042 14,381 18,394 16,506

83,650 83,700 18,056 14,394 18,408 16,519

83,700 83,750 18,070 14,406 18,422 16,531

83,750 83,800 18,084 14,419 18,436 16,544

83,800 83,850 18,098 14,431 18,450 16,556

83,850 83,900 18,112 14,444 18,464 16,569

83,900 83,950 18,126 14,456 18,478 16,581

83,950 84,000 18,140 14,469 18,492 16,594

84,000 84,050 18,154 14,481 18,506 16,606

84,050 84,100 18,168 14,494 18,520 16,619

84,100 84,150 18,182 14,506 18,534 16,631

84,150 84,200 18,196 14,519 18,548 16,644

84,200 84,250 18,210 14,531 18,562 16,656

84,250 84,300 18,224 14,544 18,576 16,669

84,300 84,350 18,238 14,556 18,590 16,681

84,350 84,400 18,252 14,569 18,604 16,694

84,400 84,450 18,266 14,581 18,618 16,706

84,450 84,500 18,280 14,594 18,632 16,719

84,500 84,550 18,294 14,606 18,646 16,731

84,550 84,600 18,308 14,619 18,660 16,744

84,600 84,650 18,322 14,631 18,674 16,756

84,650 84,700 18,336 14,644 18,688 16,769

84,700 84,750 18,350 14,656 18,702 16,781

84,750 84,800 18,364 14,669 18,716 16,794

84,800 84,850 18,378 14,681 18,730 16,806

84,850 84,900 18,392 14,694 18,744 16,819

84,900 84,950 18,406 14,706 18,758 16,831

84,950 85,000 18,420 14,719 18,772 16,844

85,000 85,050 18,434 14,731 18,786 16,856

85,050 85,100 18,448 14,744 18,800 16,869

85,100 85,150 18,462 14,756 18,814 16,881

85,150 85,200 18,476 14,769 18,828 16,894

85,200 85,250 18,490 14,781 18,842 16,906

85,250 85,300 18,504 14,794 18,856 16,919

85,300 85,350 18,518 14,806 18,870 16,931

85,350 85,400 18,532 14,819 18,884 16,944

85,400 85,450 18,546 14,831 18,898 16,956

85,450 85,500 18,560 14,844 18,912 16,969

85,500 85,550 18,574 14,856 18,926 16,981

85,550 85,600 18,588 14,869 18,940 16,994

85,600 85,650 18,602 14,881 18,954 17,006

85,650 85,700 18,616 14,894 18,968 17,019

85,700 85,750 18,630 14,906 18,982 17,031

85,750 85,800 18,644 14,919 18,996 17,044

85,800 85,850 18,658 14,931 19,010 17,056

85,850 85,900 18,672 14,944 19,024 17,069

85,900 85,950 18,686 14,956 19,038 17,081

85,950 86,000 18,700 14,969 19,052 17,094
Appendix D D-11

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is— Your tax is—

* This column must also be used by a qualifying widow(er). (Continued on page 73)

If line 40

(taxable

income) is—

If line 40

(taxable

income) is—

86,000

87,000

88,000

89,000

90,000

91,000

92,000

93,000

94,000

86,000 86,050 18,714 14,981 19,066 17,106

86,050 86,100 18,728 14,994 19,080 17,119

86,100 86,150 18,742 15,006 19,094 17,131

86,150 86,200 18,756 15,019 19,108 17,144

86,200 86,250 18,770 15,031 19,122 17,156

86,250 86,300 18,784 15,044 19,136 17,169

86,300 86,350 18,798 15,056 19,150 17,181

86,350 86,400 18,812 15,069 19,164 17,194

86,400 86,450 18,826 15,081 19,178 17,206

86,450 86,500 18,840 15,094 19,192 17,219

86,500 86,550 18,854 15,106 19,206 17,231

86,550 86,600 18,868 15,119 19,220 17,244

86,600 86,650 18,882 15,131 19,234 17,256

86,650 86,700 18,896 15,144 19,248 17,269

86,700 86,750 18,910 15,156 19,262 17,281

86,750 86,800 18,924 15,169 19,276 17,294

86,800 86,850 18,938 15,181 19,290 17,306

86,850 86,900 18,952 15,194 19,304 17,319

86,900 86,950 18,966 15,206 19,318 17,331

86,950 87,000 18,980 15,219 19,332 17,344

87,000 87,050 18,994 15,231 19,346 17,356

87,050 87,100 19,008 15,244 19,360 17,369

87,100 87,150 19,022 15,256 19,374 17,381

87,150 87,200 19,036 15,269 19,388 17,394

87,200 87,250 19,050 15,281 19,402 17,406

87,250 87,300 19,064 15,294 19,416 17,419

87,300 87,350 19,078 15,306 19,430 17,431

87,350 87,400 19,092 15,319 19,444 17,444

87,400 87,450 19,106 15,331 19,458 17,456

87,450 87,500 19,120 15,344 19,472 17,469

87,500 87,550 19,134 15,356 19,486 17,481

87,550 87,600 19,148 15,369 19,500 17,494

87,600 87,650 19,162 15,381 19,514 17,506

87,650 87,700 19,176 15,394 19,528 17,519

87,700 87,750 19,190 15,406 19,542 17,531

87,750 87,800 19,204 15,419 19,556 17,544

87,800 87,850 19,218 15,431 19,570 17,556

87,850 87,900 19,232 15,444 19,584 17,569

87,900 87,950 19,246 15,456 19,598 17,581

87,950 88,000 19,260 15,469 19,612 17,594

88,000 88,050 19,274 15,481 19,626 17,606

88,050 88,100 19,288 15,494 19,640 17,619

88,100 88,150 19,302 15,506 19,654 17,631

88,150 88,200 19,316 15,519 19,668 17,644

88,200 88,250 19,330 15,531 19,682 17,656

88,250 88,300 19,344 15,544 19,696 17,669

88,300 88,350 19,358 15,556 19,710 17,681

88,350 88,400 19,372 15,569 19,724 17,694

88,400 88,450 19,386 15,581 19,738 17,706

88,450 88,500 19,400 15,594 19,752 17,719

88,500 88,550 19,414 15,606 19,766 17,731

88,550 88,600 19,428 15,619 19,780 17,744

88,600 88,650 19,442 15,631 19,794 17,756

88,650 88,700 19,456 15,644 19,808 17,769

88,700 88,750 19,470 15,656 19,822 17,781

88,750 88,800 19,484 15,669 19,836 17,794

88,800 88,850 19,498 15,681 19,850 17,806

88,850 88,900 19,512 15,694 19,864 17,819

88,900 88,950 19,526 15,706 19,878 17,831

88,950 89,000 19,540 15,719 19,892 17,844

89,000 89,050 19,554 15,731 19,906 17,856

89,050 89,100 19,568 15,744 19,920 17,869

89,100 89,150 19,582 15,756 19,934 17,881

89,150 89,200 19,596 15,769 19,948 17,894

89,200 89,250 19,610 15,781 19,962 17,906

89,250 89,300 19,624 15,794 19,976 17,919

89,300 89,350 19,638 15,806 19,990 17,931

89,350 89,400 19,652 15,819 20,006 17,944

89,400 89,450 19,666 15,831 20,023 17,956

89,450 89,500 19,680 15,844 20,039 17,969

89,500 89,550 19,694 15,856 20,056 17,981

89,550 89,600 19,708 15,869 20,072 17,994

89,600 89,650 19,722 15,881 20,089 18,006

89,650 89,700 19,736 15,894 20,105 18,019

89,700 89,750 19,750 15,906 20,122 18,031

89,750 89,800 19,764 15,919 20,138 18,044

89,800 89,850 19,778 15,931 20,155 18,056

89,850 89,900 19,792 15,944 20,171 18,069

89,900 89,950 19,806 15,956 20,188 18,081

89,950 90,000 19,820 15,969 20,204 18,094

90,000 90,050 19,834 15,981 20,221 18,106

90,050 90,100 19,848 15,994 20,237 18,119

90,100 90,150 19,862 16,006 20,254 18,131

90,150 90,200 19,876 16,019 20,270 18,144

90,200 90,250 19,890 16,031 20,287 18,156

90,250 90,300 19,904 16,044 20,303 18,169

90,300 90,350 19,918 16,056 20,320 18,181

90,350 90,400 19,932 16,069 20,336 18,194

90,400 90,450 19,946 16,081 20,353 18,206

90,450 90,500 19,960 16,094 20,369 18,219

90,500 90,550 19,974 16,106 20,386 18,231

90,550 90,600 19,988 16,119 20,402 18,244

90,600 90,650 20,002 16,131 20,419 18,256

90,650 90,700 20,016 16,144 20,435 18,269

90,700 90,750 20,030 16,156 20,452 18,281

90,750 90,800 20,044 16,169 20,468 18,294

90,800 90,850 20,058 16,181 20,485 18,306

90,850 90,900 20,072 16,194 20,501 18,319

90,900 90,950 20,086 16,206 20,518 18,331

90,950 91,000 20,100 16,219 20,534 18,344

91,000 91,050 20,114 16,231 20,551 18,356

91,050 91,100 20,128 16,244 20,567 18,369

91,100 91,150 20,142 16,256 20,584 18,381

91,150 91,200 20,156 16,269 20,600 18,394

91,200 91,250 20,170 16,281 20,617 18,406

91,250 91,300 20,184 16,294 20,633 18,419

91,300 91,350 20,198 16,306 20,650 18,431

91,350 91,400 20,212 16,319 20,666 18,444

91,400 91,450 20,226 16,331 20,683 18,456

91,450 91,500 20,240 16,344 20,699 18,469

91,500 91,550 20,254 16,356 20,716 18,481

91,550 91,600 20,268 16,369 20,732 18,494

91,600 91,650 20,282 16,381 20,749 18,506

91,650 91,700 20,296 16,394 20,765 18,519

91,700 91,750 20,310 16,406 20,782 18,531

91,750 91,800 20,324 16,419 20,798 18,544

91,800 91,850 20,338 16,431 20,815 18,556

91,850 91,900 20,352 16,444 20,831 18,569

91,900 91,950 20,366 16,456 20,848 18,581

91,950 92,000 20,380 16,469 20,864 18,594

92,000 92,050 20,394 16,481 20,881 18,606

92,050 92,100 20,408 16,494 20,897 18,619

92,100 92,150 20,422 16,506 20,914 18,631

92,150 92,200 20,436 16,519 20,930 18,644

92,200 92,250 20,450 16,531 20,947 18,656

92,250 92,300 20,464 16,544 20,963 18,669

92,300 92,350 20,478 16,556 20,980 18,681

92,350 92,400 20,492 16,569 20,996 18,694

92,400 92,450 20,506 16,581 21,013 18,706

92,450 92,500 20,520 16,594 21,029 18,719

92,500 92,550 20,534 16,606 21,046 18,731

92,550 92,600 20,548 16,619 21,062 18,744

92,600 92,650 20,562 16,631 21,079 18,756

92,650 92,700 20,576 16,644 21,095 18,769

92,700 92,750 20,590 16,656 21,112 18,781

92,750 92,800 20,604 16,669 21,128 18,794

92,800 92,850 20,618 16,681 21,145 18,806

92,850 92,900 20,632 16,694 21,161 18,819

92,900 92,950 20,646 16,706 21,178 18,831

92,950 93,000 20,660 16,719 21,194 18,844

93,000 93,050 20,674 16,731 21,211 18,856

93,050 93,100 20,688 16,744 21,227 18,869

93,100 93,150 20,702 16,756 21,244 18,881

93,150 93,200 20,716 16,769 21,260 18,894

93,200 93,250 20,730 16,781 21,277 18,906

93,250 93,300 20,744 16,794 21,293 18,919

93,300 93,350 20,758 16,806 21,310 18,931

93,350 93,400 20,772 16,819 21,326 18,944

93,400 93,450 20,786 16,831 21,343 18,956

93,450 93,500 20,800 16,844 21,359 18,969

93,500 93,550 20,814 16,856 21,376 18,981

93,550 93,600 20,828 16,869 21,392 18,994

93,600 93,650 20,842 16,881 21,409 19,006

93,650 93,700 20,856 16,894 21,425 19,019

93,700 93,750 20,870 16,906 21,442 19,031

93,750 93,800 20,884 16,919 21,458 19,044

93,800 93,850 20,898 16,931 21,475 19,056

93,850 93,900 20,912 16,944 21,491 19,069

93,900 93,950 20,926 16,956 21,508 19,081

93,950 94,000 20,940 16,969 21,524 19,094

94,000 94,050 20,954 16,981 21,541 19,106

94,050 94,100 20,968 16,994 21,557 19,119

94,100 94,150 20,982 17,006 21,574 19,131

94,150 94,200 20,996 17,019 21,590 19,144

94,200 94,250 21,010 17,031 21,607 19,156

94,250 94,300 21,024 17,044 21,623 19,169

94,300 94,350 21,038 17,056 21,640 19,181

94,350 94,400 21,052 17,069 21,656 19,194

94,400 94,450 21,066 17,081 21,673 19,206

94,450 94,500 21,080 17,094 21,689 19,219

94,500 94,550 21,094 17,106 21,706 19,231

94,550 94,600 21,108 17,119 21,722 19,244

94,600 94,650 21,122 17,131 21,739 19,256

94,650 94,700 21,136 17,144 21,755 19,269

94,700 94,750 21,150 17,156 21,772 19,281

94,750 94,800 21,164 17,169 21,788 19,294

94,800 94,850 21,178 17,181 21,805 19,306

94,850 94,900 21,192 17,194 21,821 19,319

94,900 94,950 21,206 17,206 21,838 19,331

94,950 95,000 21,220 17,219 21,854 19,344
D-12 Appendix D

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004 Tax Table—Continued

If line 40

(taxable

income) is—

And you are— And you are—

Married

filing

jointly

*

Married Single

filing

jointly

*

Single Head

of a

household

Married

filing

separately

But

less

than

At

least

Head

of a

household

Married

filing

separately

But

less

than

At

least

Your tax is— Your tax is—

If line 40

(taxable

income) is—

* This column must also be used by a qualifying widow(er).

95,000

96,000

97,000

98,000

99,000

$100,000

or over —

use the

Tax Rate

Schedules

on page 74

95,000 95,050 21,234 17,231 21,871 19,356

95,050 95,100 21,248 17,244 21,887 19,369

95,100 95,150 21,262 17,256 21,904 19,381

95,150 95,200 21,276 17,269 21,920 19,394

95,200 95,250 21,290 17,281 21,937 19,406

95,250 95,300 21,304 17,294 21,953 19,419

95,300 95,350 21,318 17,306 21,970 19,431

95,350 95,400 21,332 17,319 21,986 19,444

95,400 95,450 21,346 17,331 22,003 19,456

95,450 95,500 21,360 17,344 22,019 19,469

95,500 95,550 21,374 17,356 22,036 19,481

95,550 95,600 21,388 17,369 22,052 19,494

95,600 95,650 21,402 17,381 22,069 19,506

95,650 95,700 21,416 17,394 22,085 19,519

95,700 95,750 21,430 17,406 22,102 19,531

95,750 95,800 21,444 17,419 22,118 19,544

95,800 95,850 21,458 17,431 22,135 19,556

95,850 95,900 21,472 17,444 22,151 19,569

95,900 95,950 21,486 17,456 22,168 19,581

95,950 96,000 21,500 17,469 22,184 19,594

96,000 96,050 21,514 17,481 22,201 19,606

96,050 96,100 21,528 17,494 22,217 19,619

96,100 96,150 21,542 17,506 22,234 19,631

96,150 96,200 21,556 17,519 22,250 19,644

96,200 96,250 21,570 17,531 22,267 19,656

96,250 96,300 21,584 17,544 22,283 19,669

96,300 96,350 21,598 17,556 22,300 19,681

96,350 96,400 21,612 17,569 22,316 19,694

96,400 96,450 21,626 17,581 22,333 19,706

96,450 96,500 21,640 17,594 22,349 19,719

96,500 96,550 21,654 17,606 22,366 19,731

96,550 96,600 21,668 17,619 22,382 19,744

96,600 96,650 21,682 17,631 22,399 19,756

96,650 96,700 21,696 17,644 22,415 19,769

96,700 96,750 21,710 17,656 22,432 19,781

96,750 96,800 21,724 17,669 22,448 19,794

96,800 96,850 21,738 17,681 22,465 19,806

96,850 96,900 21,752 17,694 22,481 19,819

96,900 96,950 21,766 17,706 22,498 19,831

96,950 97,000 21,780 17,719 22,514 19,844

97,000 97,050 21,794 17,731 22,531 19,856

97,050 97,100 21,808 17,744 22,547 19,869

97,100 97,150 21,822 17,756 22,564 19,881

97,150 97,200 21,836 17,769 22,580 19,894

97,200 97,250 21,850 17,781 22,597 19,906

97,250 97,300 21,864 17,794 22,613 19,919

97,300 97,350 21,878 17,806 22,630 19,931

97,350 97,400 21,892 17,819 22,646 19,944

97,400 97,450 21,906 17,831 22,663 19,956

97,450 97,500 21,920 17,844 22,679 19,969

97,500 97,550 21,934 17,856 22,696 19,981

97,550 97,600 21,948 17,869 22,712 19,994

97,600 97,650 21,962 17,881 22,729 20,006

97,650 97,700 21,976 17,894 22,745 20,019

97,700 97,750 21,990 17,906 22,762 20,031

97,750 97,800 22,004 17,919 22,778 20,044

97,800 97,850 22,018 17,931 22,795 20,056

97,850 97,900 22,032 17,944 22,811 20,069

97,900 97,950 22,046 17,956 22,828 20,081

97,950 98,000 22,060 17,969 22,844 20,094

98,000 98,050 22,074 17,981 22,861 20,106

98,050 98,100 22,088 17,994 22,877 20,119

98,100 98,150 22,102 18,006 22,894 20,131

98,150 98,200 22,116 18,019 22,910 20,144

98,200 98,250 22,130 18,031 22,927 20,156

98,250 98,300 22,144 18,044 22,943 20,169

98,300 98,350 22,158 18,056 22,960 20,181

98,350 98,400 22,172 18,069 22,976 20,194

98,400 98,450 22,186 18,081 22,993 20,206

98,450 98,500 22,200 18,094 23,009 20,219

98,500 98,550 22,214 18,106 23,026 20,231

98,550 98,600 22,228 18,119 23,042 20,244

98,600 98,650 22,242 18,131 23,059 20,256

98,650 98,700 22,256 18,144 23,075 20,269

98,700 98,750 22,270 18,156 23,092 20,281

98,750 98,800 22,284 18,169 23,108 20,294

98,800 98,850 22,298 18,181 23,125 20,306

98,850 98,900 22,312 18,194 23,141 20,319

98,900 98,950 22,326 18,206 23,158 20,331

98,950 99,000 22,340 18,219 23,174 20,344

99,000 99,050 22,354 18,231 23,191 20,356

99,050 99,100 22,368 18,244 23,207 20,369

99,100 99,150 22,382 18,256 23,224 20,381

99,150 99,200 22,396 18,269 23,240 20,394

99,200 99,250 22,410 18,281 23,257 20,406

99,250 99,300 22,424 18,294 23,273 20,419

99,300 99,350 22,438 18,306 23,290 20,431

99,350 99,400 22,452 18,319 23,306 20,444

99,400 99,450 22,466 18,331 23,323 20,456

99,450 99,500 22,480 18,344 23,339 20,469

99,500 99,550 22,494 18,356 23,356 20,481

99,550 99,600 22,508 18,369 23,372 20,494

99,600 99,650 22,522 18,381 23,389 20,506

99,650 99,700 22,536 18,394 23,405 20,519

99,700 99,750 22,550 18,406 23,422 20,531

99,750 99,800 22,564 18,419 23,438 20,544

99,800 99,850 22,578 18,431 23,455 20,556

99,850 99,900 22,592 18,444 23,471 20,569

99,900 99,950 22,606 18,456 23,488 20,581

99,950 100,000 22,620 18,469 23,504 20,594
Appendix D D-13

APPENDIX

Proof as of

June 18, 2004

(subject to change)

2004

Tax Rate

Schedules

Use only if your taxable income (Form 1040, line 40) is $100,000 or more.

If less, use the Tax Table. Even though you cannot use the Tax Rate Schedules

below if your taxable income is less than $100,000, all levels of taxable

income are shown so taxpayers can see the tax rate that applies to each level.

Schedule Z—Use if your filing status is Head of household

Schedule X—Use if your filing status is Single

Enter on

Form 1040,

line 41

If the amount on

Form 1040, line

40, is: of the

amount

over—

But not

Over— over—

10,200 38,900 10,200

7,150 29,050 15% 7,150

29,050

38,900 100,500 38,900

70,350 4,000.00 + 29,050

70,350 14,325.00 +

100,500 100,500

70,350

Schedule Y-2—Use if your filing status is Married filing separately

Schedule Y-1—Use if your filing status is Married filing jointly or Qualifying widow(er)

14,300 58,100 14,300

7,150 29,050 7,150

29,050 29,050

58,100 117,250 58,100

58,625

58,625 58,625

117,250 117,250

146,750

178,650

162,700

89,325

Enter on

Form 1040,

line 41

If the amount on

Form 1040, line

40, is: of the

amount

over—

But not

Over— over—

Enter on

Form 1040,

line 41

If the amount on

Form 1040, line

40, is: of the

amount

over—

But not

Over— over—

Enter on

Form 1040,

line 41

If the amount on

Form 1040, line

40, is: of the

amount

over—

But not

Over— over—

146,750

319,100

319,100 35,717.00 +

92,592.50 +

146,750

319,100

178,650

319,100

319,100 178,650

319,100

89,325

159,550

159,550 89,325

159,550

162,700

319,100

319,100 162,700

319,100

25%

28%

33%

35%

$0 $7,150 10% $0

$0 $14,300 10% $0

$0 $7,150 $0

$0 $10,200 $0

$715.00 +

15%

8,000.00 +

22,787.50 +

39,979.50 +

86,328.00 +

25%

28%

33%

35%

$1,430.00 +

10%

15%

4,000.00 +

11,393.75 +

19,989.75 +

43,164.00 +

25%

28%

33%

35%

$715.00 +

10%

15%

5,325.00 +

20,725.00 +

38,141.00 +

89,753.00 +

25%

28%

33%

35%

$1,020.00 +

CAUTION
D-14 Appendix D

APPENDIX

STUDENT NOTES
Appendix E E-1

A

Additional child tax credit 11-5

Adjusted basis 12-3

Adjusted basis 13-3

Adjusted gross income (AGI) 4-1

Adjustments – definition 4-1

Adjustments – Other 4-26

Adjustments – Tax Wise Hints 4-26

Adjustments to qualified expenses – 

education credits 9-9

Adopted children – exemption 1-13

Advance Earned Income Credit 

(AEIC) 10-31

AEIC 10-31

AGI 4-1

Alimony payments 3-22

Alimony payments – income 

adjustments 4-25

Allocated tips 3-8

Annuity – definition 14-2

Annuity payments 14-2

B

Basis 13-3

Basis of property 12-2

Birth of a child – EIC 10-7

Birth of child – exemption 1-12

Bonds – Savings 3-10, 3-11

Broker fees 13-3

Business income or loss 3-22

Business use of home 13-4

C

Capital asset – definition 12-2

Capital gain distributions 12-2

Capital gains distributions 3-17, 3-18

Capital loss carryover worksheet 12-26

Capital loss carryovers 12-23

Casualty and theft losses 5-13

Certificates of deposits 3-12

Change of Address 13

Chart A – Who must file “Most People” 

2-16

Chart B – Who must file “Children” 2-17

Chart B – Who must file “Other 

Dependents” 2-17

Chart C – Who must file “Other” 2-19

Who should file 2-19

Which form to use 2-22

Child Support – interview tips 1-20

Child support payments 3-22

Child tax credit (CTC) – definition 11-1

Child tax credit (see CTC) 11-1; 11-2

Children of divorced or separated 

parents – credit for child and dependent 

care expenses 8-2

Common filing errors – deductions 5-20

Contributions – itemized deductions 5-11

Contributions – non-qualifying 

organizations 5-11

Course Evaluation 6

Credit for child and dependent care 

expenses 8-1

Credit for child and dependent care 

expenses – expense limits 8-5

Credit for child and dependent care 

expenses – six tests 8-1

Credits – definition 6-1

Critical intake data 3

CTC – effect of welfare benefits 

CTC – Interview TIPS 11-10

CTC – limits 11-5

CTC – modified AGI 11-2

CTC – qualifying child 11-1

CTC – withholding certificate 

(Form W-4) 11-5

CTC – Worksheet 11-6; 11-7

D

Death of a spouse 2-7

Who must file 2-15

Death of a spouse – filing status 2-8

Deductible contributions 5-12

Deductible medical expenses 5-5

Demutualization 12-4

Dependency exemption – defined 1-9

Dependency exemption – interview tips 

1-12, 1-13, 1-14 

Dependency exemption – the five test 1-11

Dependent – defined 1-11

Disability pension income 14-8

Dividends 3-17

Dividends – Ordinary 3-17

Dividends – reinvestment 3-17

Divorced or separated parents 1-18

Double benefits – education credits 9-9

INDEX TOPICS Appendix E
E-2 Appendix E

Due diligence – credit for child and 

dependent care expenses 8-5

E

Earned income 3-4, 10-5

Earned Income Credit (EIC) – defined 

10-1

Earned Income Credit (see EIC) 10-1

Earned Income Tax Credit (EITC) 10-1

Earned income test – credit for child and 

dependent care expenses 8-3

Education credits 9-1

Education credits – who can claim 9-3

Educator expenses 4-1

e-file “quick and easy filing” 2-23

EIC – adopted child 10-8

EIC – common errors 10-30

EIC – disability benefits 10-4

EIC – disallowed 10-30

EIC – eligibility summary chart 10-12

EIC – eligibility tools 10-30

EIC – eligible foster child 10-7

EIC – income limitations 10-2

EIC – inmates 10-4

EIC – investment limitations 10-2

EIC – general eligibility rules 10-2

EIC – general requirements 10-1

EIC – household employees 10-4

EIC – qualifying child tests 10-7

EIC – same qualifying child 10-8

EIC – Tie Breaker Rule 10-8

EIC – worksheets 10-14

EIC – worksheet Form 1040 10-14

EIC – worksheet Form 1040A 10-14

EIC – worksheet Form 1040EZ 10-14

EITC (see EIC) 10-1

Electing to itemized 5-20

Eligible educational institution – education 

credits 9-4

Eligible educator – definition 4-2

Eligible student – education credits 9-3

Employer provided dependent care 

benefit 8-5

Exemption amount 1-9, 1-13

Exemptions – defined 1-9, 1-24

Exemptions – how to claim 1-23

F

401 (k) plan – defined 14-2

Farm income 3-28

Filing status – Charts 2-15

Filing status – five types 2-1

Filing status – interview tips 2-9

Foreign Tax Credit 6-10

Form 1040 and 1040A, Schedule EIC 

10-30

Form 1040 – Lesson References 20

Form 1040 – when to use 2-22

Form 1040, Schedule A – Itemized 

Deductions 5-17

Form 1040, Schedule C, Profit or Loss from 

Business 3-22

Form 1040, Schedule C-EZ, Net Profit from 

Business 3-22, 3-25

Form 1040, Schedule D - 12-17

Form 1040, Schedule D, Capital Gains and 

Losses 13-1

Form 1040, Schedule SE – Self Employment 

Tax 3-26, 3-27

Form 1040A – Lesson References 18

Form 1040A – when to use 2-22

Form 1040EZ – Lesson References 17

Form 1040EZ – when to use 2-22

Form 1040EZ Worksheet – standard 

deduction 5-3

Form 1099-B, Proceeds from Broker and 

Barter Exchange Transactions 12-5

Form 1099-DIV, Dividends and 

Distributions 3-18, 3-20

Form 1099-DIV, Dividends and 

Distributions 12-14

Form 1099-INT, Interest Income 3-14, 

3-15

Form 1099-MISC, Miscellaneous 

Income 3-6, 3-7

Form 1099-OID, Original Issue 

Discount 3-15

Form 1099-R, Distributions From Pensions, 

Annuities, Retirement or Profit-sharing 

plans, etc. 14-2

Form 1099-S, Proceeds from Real Estate 

Transactions 13-2

Form 13614, Critical Intake Data 1, 3

Form 13615, Volunteer Standards of 

Conduct 2

Form 2120, Multiple Support 

Declaration 1-17

Form 2441, Child & Dependent Care 

Expenses 8-8

Form 8332, Release of Claim to Exemption 

For Child of Divorced or Separated 

Parents 1-18, 1-19

Form 8606, Nondeductible IRAs 4-15
Appendix E E-3

Form 8812, Additional Child Tax 

Credit 11-8; 11-9 

Form 8815, Exclusion of Interest – 

Series EE and I U.S. Savings Bonds 

Issued After 1989 3-11

Form 8863, Education Credits 9-6

Form 8880, Credit for Qualified, etc. 6-9

Form SS-5, Social Security Number 

Application 1-1

Form SSA-1099, Social Security Benefit 

Statement 14-14

Form W-2, Wages and Tax Statement 3-5, 

3-6

Form W-4, Employee’s Withholding 

Allowance Certificate 11-5

Form W-4P, Withholding Certificate for 

Pension or Annuity 14-18

Form W-7, Application for IRS Individual 

Taxpayer Identification Number 1-2, 1-3

Foster children – exemption 1-12

Fully taxable pensions 14-2

G

Gain rates 12-18

Gains and Losses 13-3

General requirements – education 

credits 9-1

H

HCTC 14-18 through 14-19

Head of Household – when to use 2-3

Health Coverage Tax Credit (HCTC) 

14-18 through 14-19

Holding period 12-3

Home mortgage interest – defined 5-8

Home sales (see sale of home) 13-1

Hope credit 9-5

Household employee 3-5

I

Income 3-1

Income – IRA (see lesson 14) 3-1

Income – Social Security (See lesson 14) 

3-2

Income from wages 3-4

Income requirements – education 

credits 9-4

Individual Retirement Arrangements 

(IRAs) 4-2

Individual taxpayer identification number 

(ITIN) 1-2

How to obtain – Form W-7 1-3

Who Needs an ITIN 1-2

Interest – itemized deductions 5-8

Interest income 3-9

Interview tips – dependency 

exemptions 1-12

Interview tips – filing status 2-9

Interview tips – EIC general eligibility 

10-6

Interview tips – EIC no qualifying 

child 10-11

Interview tips – EIC qualifying child 10-10

Interview tips – personal exemptions 1-10

Investment interest 5-10

IRA contributions 4-3

IRA deduction worksheet 4-14

Itemized deductions 5-4

ITIN 1-2

ITIN/Military Overseas 1-6

ITIN/SSN 1-3

J

Joint return test – credit for child and 

dependent care expenses 8-4

Jury duty pay 4-25

K

Keeping up a home – head of household 

2-5

Keeping up a home test – credit for child 

and dependent care expenses 8-3

L

Life Insurance proceeds 3-13

Lifetime Learning Credit 9-7

Loan origination fees 5-9

Local tax refunds 3-21

Long-term capital gains 12-9

Long-term care premiums 5-6

Lump-sum distributions 14-8

Lump-sum Social Security benefit 

payment 14-15

M

Main home – definition 13-1

Married filing a joint return – 

when to use 2-2

Married filing a separate return – 

when to use 2-3

Married persons living apart 2-6

Medical and dental expenses – itemized 

deductions 5-5

Military Thrift Savings Plan 14-3
E-4 Appendix E

Minimum distributions 14-9

Miscellaneous itemized deductions 5-13

Miscellaneous itemized deductions not 

subject to 2% limit 5-14

Miscellaneous itemized deductions subject 

to 2% limit 5-14

Modified adjusted gross income – education 

credits 9-4

Mortgage Interest Credit 6-10

Moving expenses – other adjustments 

4-26

N

Non-deductible contributions 5-12

Non-deductible interest 5-10

Non-deductible medical expenses 5-5

Non-deductible miscellaneous itemized 

deductions 5-14

Non-deductible taxes 5-8

Nonrefundable credits 6-1

Nontaxable income 3-2

O

Order forms/publications 12

Ordinary Dividends 3-17

P

Partially taxable pensions 14-3

Pension – definition 14-2

Personal exemption – interview tips 1-10

Personal exemptions – defined 1-9

Personal property taxes 5-8

Points 5-9

Points – exception 5-9

Prior year returns 13

Privacy Act of 1974 5

Product Information 15

Provider identification test – credit for child 

and dependent care expenses 8-4

Q

Qualified Dividends and Capital Gain Tax 

Worksheet 5-18

Qualified employee plan – defined 14-2

Qualified expenses – education credits 9-2

Qualified retirement savings 

contributions 6-6

Qualifying person test – credit for child and 

dependent care expenses 8-1

Qualifying relatives – head of 

household 2-5

Qualifying widow(er) – filing status 2-7

Quality of Service 9, 10

R

Railroad retirement benefits 14-10 

through 14-12

Real estate investment trusts (REITS) 

3-17

Real estate taxes 5-8

Record retention 13

Refundable credits 6-1

Refunds – education credits 9-10

Relationship test 1-11

Rents, royalties, trusts, etc. 3-28

Reporting gain or loss 12-8

Reporting interest income 3-16

Retirement income – reporting 14-8

Return of capital 3-18

Roth IRA 14-16

S

Sale of business property 3-28

Sale of home – adjusted basis 13-3

Sale of home – amount realized 13-3

Sale of home – business use 13-4

Sale of home – exclusion 13-1, 13-4, 13-5

Sale of home – Reduced exclusion 13-5

Sale of home – selling price 13-2

Savings bonds 3-10

Savings Incentive Match Plans for 

Employees 14-16

Savings withdrawal penalty 4-25

Schedule 2, Child & Dependent Care 

Expenses 8-1

Scholarships and fellowships 3-8, 3-9

Self employment tax 3-26

Series HH bonds 3-11

Short-term capital gains 12-9

SIDN 3

Simplified method worksheet 14-4–14-7

Single filing status – when to use 2-2

Social security benefits worksheets 14-15

Social Security Numbers – EIC 10-2

Social security numbers (SSNs) 1-1

How to obtain – Form SS 5 1-1

Must match IRS records 1-1

SSN/ITIN 1-3

SSNs 1-1

Standard deductions – charts 5-2

Standard deductions – definition 5-1

Standard deductions – Form 1040EZ 5-3

Standards of Conduct 2

State and local taxes 5-7
Appendix E E-5

State tax refunds 3-21

Stock Dividends 3-18

Student loan interest deduction 4-18

Student loan interest deduction 

worksheet 4-21

T

Tax Tables Appendix D

Taxable income 3-1

Taxable income computation 5-18

Taxation of Traditional IRA 

Distributions 14-17

Taxes – itemized deductions 5-7

Tax-exempt interest 3-14

Taxpayer identification 5

Taxpayer identification numbers (TIN) 

Required for volunteer assistance 1-1

Testing and Certification 6

Thrift Savings Plan – Military 14-3

Tier 1 Railroad Retirement Board 14-13

Time deposits 4-25

Tip income 3-7

Traditional IRA 14-16

Tuition and fees deduction 4-23

Tuition and fees deduction worksheet 4-24

Types of income 3-1

U

Unemployment compensation 3-28

Unmarried for tax purposes 2-6

V

Volunteer Hotlines 10

W

Wash sales 12-5

Work-related expense test – credit for child 

and dependent care expenses 8-3

Worksheet – tuition and fees deduction 

4-24

Worksheet capital loss carryover 12-26

Worksheet for determining support 1-15, 

1-16

Worksheet social security benefits 14-15

Worksheets – EIC 10-14
STUDENT NOTES
STUDENT NOTES
STUDENT NOTES

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