Line 7, the single most used line item within Form 1040’s Income section, is where most taxpayers list the majority of their earned income – whether as wages, salaries, tips, commissions, real estate profits, household employee income, and more.
Most income earned by a taxpayer is reflected on a Form W-2 (Box 1), which every employer is legally required to send to their employees by January 31st the year after the income is earned. To calculate the Line 7 value, taxpayers must gather every W-2 issued to them during the tax year and sum together each Box 1 value. This totaled value will usually be the accurate amount to list on Line 7. In the following situations, however, an income-earner may not receive a W-2 and, thus, is required to self-report the income and add it to their Line 7 totaled value:
–Tips (such as tips unreported to the employer, allocated tips shown in Box 8 of a W-2, as well as non-cash tips received through employment including tickets, passes, or other items of value)
–Scholarship and Fellowship grants (Students are often required to assess this income on their own, as universities are not legally required to report this income on a W-2. Generally, scholarship and fellowship grant income received by degree candidate students is partially taxable; only the amounts used for expenses other than tuition and course-related expenses must be included in Line 7 calculation. This means room, board, and travel expenses must be reported as income. Non degree-seeking candidates must report all scholarship and fellowship income on Line 7.)
–Household Employee Income (such as income paid to landscapers, house cleaners and maids by non-traditional employers)
Because Line 7 is an income “catch-all,” taxpayers with uncommon income sources should consult a tax professional regarding reporting options.
Photo by: Scott Waldren