Line 1B Through Line 1I – Income on Line 1 Not From a W-2

Note: Lines 1b through 1i on Form 1040 were new as of tax year 2022.

Income for doing household work is reported on Schedule C ONLY WHEN the taxpayer has an independent business doing that type of work.
Income for household employees (such employees are defined in Pub 926) must be reported on a Form W-2 by any employer who paid $2,600 or more in 2023 (threshold amount); this is entered as a regular W-2.

If an employer paying more than the above amount doesn’t provide a Form W-2 or provides the wrong form (a 1099-NEC or 1099-MISC), the taxpayer must ask the employer for the correct form. If the taxpayer is unable to obtain a W-2, the return cannot be prepared by Tax-Aide.

Income for household employees receiving less than the above threshold amount from a specific employer for the tax year, where no W-2 was issued, appears on Form 1040 Line 1b (starting in 2022).

Enter the amount on the Enter Household Employee Income page [Income > Other Income > Other Compensation > …].
The total reported can be from multiple employers, as long as each paid less than the threshold amount.
If the employer issued an incorrect form (a 1099-NEC or a 1099-MISC), that form should be ignored (again, assuming the amount is under the threshold requiring a W-2).

Don’t report election work as Other Income or on Schedule C (it isn’t a regular means of livelihood). It is considered earned income for purposes of EIC.
If no W-2 was received, enter the pay on the Enter Household Employee Income page [Income > Other Income > Other Compensation > …]. This results in the compensation being reported as wages (earned income) on Form 1040 Line 1b.
Only if reported on Form 1099-MISC or 1099-NEC, then also report a 1099-MISC and offset it:

Enter the 1099-MISC (box 3 amount goes to Sch 1, Line 8z), and
Enter the same amount in [Deductions > Adjustments > Other Adjustments > Adjustments Not Listed Above] as “1099 RPTD AS WAGES” to offset this 1099 entry (adjustment on Sch 1, Line 24z).

Create a TaxSlayer note (page 8) explaining “Due to TS limitations, report pollworker pay as household employee income for EIC”.

Income earned while an inmate (incarcerated), even if on work release with a private employer, is not considered earned income for purposes of EIC, Additional Child Tax Credit, or Dependent Care Credit.
Such income will have been reported on a W-2 and entered as such. To exclude this income from being considered for those credits, enter the wage amount on the Prisoner Earned Income page [Income > Other Income > Other Compensation > …].

This is not entering the same income twice – think of it as an overlay of what was entered on the W-2.

See Pub 4012 tab J regarding the tax treatment of scholarships and fellowships.
To the extent that there is reportable income [some or all of any taxable income from scholarships, fellowships, and grants can be offset by qualified expenses], the income is reportable on the tax return of the person receiving the scholarship, even if that person is the dependent of another taxpayer.

See page A-4 of Pub 4012 for filing requirements for dependents.
For 2023, if a dependent under the age of 19, or under the age of 24 and a full-time student, has more than $2,500 of unearned income, including taxable scholarship and fellowship amounts not reported on a W-2, the dependent’s return is subject to the “Kiddie Tax.

Note: Scholarships are ignored when determining dependency – they are treated as funds provided by a third party, not by the child or the parents.
CA policy: Because California rules don’t conform to the federal tax law change for 2018 and after, a dependent’s tax return remains out-of-scope if the $2,500 limit is exceeded, because the state return is still out-of-scope. So in the Bogart Education Benefits tool (cotaxaide.org/tools/), the “Funding Sources” tab, check the box to “Limit the taxable amount tested by the optimizer tab to”, and enter $2500. (Otherwise, the taxpayer needs to go to a paid tax preparer or use tax-preparation software to file the dependent’s returns.)

If box 6, “Adjustments to scholarships or grants for a prior year, has an amount in it, the return is out-of-scope.

If the scholarship is for a dependent, the parent’s return is also out-of-scope.

If the tuition on a 1098-T was paid by the Veterans Administration (VA; under the GI Bill), do not report it. See Pub 970, Tax Benefits for Education, for complete details.
For any scholarship, the taxpayer must determine if the scholarship/grant amount on the 1098-T was greater than qualified educational expenses that can be used to reduce the taxable amount of the scholarship.

The taxable scholarship amount MUST be reduced for tuition, fees, books, and/or equipment to the extent that the scholarship is awarded to cover specific expenses (the scholarship is “restricted”).
The taxable scholarship amount MAY be reduced for qualified educational expenses if the scholarship is not specific (“unrestricted”); the exact amount is a taxpayer decision, based on what is the best tax result.

Form 1098-T shows “qualified tuition and related fees” paid to the school during the tax year, not the amount billed. The amount spent for books and equipment must be determined by the taxpayer.

Important: The (net) taxable scholarship amount is reported on the return of the person receiving the scholarship, even though educational expenses (if not used as an offset to the scholarship amount) will be reported on the return of the parent, if paid by the parent. So, if the scholarship is for a dependent, any (net) scholarship amount would be reported on the dependent’s return, not on the taxpayer’s return.
Worksheet 1-1 on page J-4 of Pub 4012 can be used to determine the taxable portion of a scholarship; this requires asking the taxpayer to determine how the scholarship money was used. However, the Education Benefits Calculator at cotaxaide.org/tools/ is better because it helps optimize what’s reported as scholarship income.
To enter any scholarship amount that is not offset by qualified expenses, go to the Scholarships and Grants page [Income > Other Income > Other Compensation > ...]

Note: There is a single entry for the taxpayer (and, if MFJ, one for the spouse). If there are multiple scholarships reported as income for one person, total the scholarships, enter the total in TaxSlayer, and add a note (per page 8) documenting your calculations.
The amount entered on this TaxSlayer page will appear on Schedule 1 Line 8r.

Note: Student loans are never income. Expenses paid with borrowed funds, such as with student loans, are eligible for credit or deduction if the regular requirements are met.

Also note that borrowed money, when spent, is a type of support, and affects the determination of whether a person can be claimed as a dependent. The person liable for repaying a loan is considered to be the person providing the support from that loan.

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