2024 Annual Federal Income Tax PDF

2024 ANNUAL FEDERAL TAX REFRESHER COURSE (2025 AFSP) 6 HOURS  2024 Annual Federal Tax Refresher Course (2025 AFSP) Course Overview Program Content: Program content includes textual explanations of tax concepts in the context of a refresher...

2024 ANNUAL FEDERAL TAX REFRESHER COURSE (2025 AFSP) 6 HOURS  2024 Annual Federal Tax Refresher Course (2025 AFSP) Course Overview Program Content: Program content includes textual explanations of tax concepts in the context of a refresher course for tax professionals who are familiar with filing Form 1040 for individual taxpayers. The course meets require- ments for the IRS Annual Federal Tax Refresher Course (AFTR). Publication Date: June 2024. Expiration Date: This course must be successfully completed on or before midnight local time of the student December 31, 2024, to be valid for the 2025 filing season. This course expires after December 31, 2024. NASBA Field of Study: Taxes. IRS Category: Federal Tax Refresher. Program Level: Review. This course provides a general overview of the subject area from a broad perspective. It is appropriate for tax professionals at all organization levels. Recommended Participants: Tax professionals who prepare individual income tax returns are encouraged to participate in this course. Credits for this course are not available to Enrolled Agents. Prerequisites: Individuals who have prepared Form 1040 tax returns. Advance Preparation: No advance preparation is needed to complete this course. Type of Delivery Method: Interactive self-study. CPE Credit Hours: 6 Credit Hours. One 50-minute period equals one CPE Credit Hour. Testing: A 100-question test is taken online with a three-hour time limit. Passing Grade: Participants who answer a minimum of 70% correct on the final exam will receive a Certificate of Com- pletion. See the Final Examination Instructions on the next page for further information regarding passing requirements and acquiring the Certificate of Completion. Record Retention: As an IRS-approved provider of continuing education, Tax Materials, Inc. will report successful completion of this course to the IRS. You will be able to view your completed continuing education credits through your online PTIN account. Complaint Resolution Policy: Please contact our customer service department toll-free at 1-866-919-5277. Refund Policy: For information about our refund, complaint, and/or program cancellation policies, visit our website at www.thetaxbook.com/cpepolicy. Tax Materials, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints re- garding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.NASBARegistry.org. National Registry of CPE Sponsors ID Number 109322 CE Continuing In accordance with the standards set forth in Circular 230, section 10.6, CPE credits have been granted Education Approved IRS Provider based on a 50-minute hour. IRS Program Number is 7VT8K-A-00345-24-S Tax Materials, Inc. has been approved by the California Tax Education Council to offer the 2024 Annual Federal Tax Refresher Course (2025 AFSP) 6193-CE-0101, which provides 6 hours of federal credit and ® California Tax Education Council APPROVED 0 hours of state credit towards the annual “continuing education” requirement imposed by the State of California. A listing of additional requirements to register as a tax preparer may be obtained by contact- EDUCATION PROVIDER ing CTEC at P.O. Box 2890, Sacramento, CA, 95812-2890, toll-free by phone at 1-877-850-2832, or on the internet at www.ctec.org. CTEC Course ID Number 6193-CE-0106 Copyright © 2024 Tax Materials, Inc. All Rights Reserved TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP)   i  2024 Annual Federal Tax Refresher Course (2025 AFSP) Course Helpful Hint: Attempt to relate your tax preparation experience with the information you are studying. By doing so, you will increase retention and maximize your results. Also, utilize the “Notes” sections to jot down reminders Completion and information that will be helpful to you in your tax practice. Instructions Follow the instructions below: 1) Start each chapter by reading the Learning Objectives. 2) Read the course materials in the chapter. Pay close attention to: a) Key Facts: Information that is particularly pertinent to the Learning Objective. b) Examples: Review the examples to associate the information to real-world application. c) Notes: Many of the main points of the chapter are highlighted. Review the notes and try to relate the content with your experience. 3) Complete the Self-Quiz at the end of each Chapter. Review the Learning Objectives before completing each set of questions. Determine your progress by comparing your answers to the Self-Quiz Answers following the questions. 4) After all chapters have been studied, and each Self-Quiz has been taken, complete the online Final Exam. Expiration Expiration Date Reminder: This course must be successfully completed on or before midnight local time of the student December 31, 2024, to be valid for the 2025 filing season. This course expires after December 31, 2024. All Final Exams are administered online at www.thetaxbook.com. Final Follow the instructions below: 1) Go to www.thetaxbook.com. Examination 2) Click on “Login,” then click on the “Login” link for TTB Online CPE. Instructions 3) Enter your User Name in the self-study CPE login location. The email address associated with your account at Tax Materials, Inc. is your User Name. If you do not have an email address, or have not provided one, please call our toll-free number at 1-866-919-5277 to be assigned a User Name. 4) Enter your Password. The zip code associated with your account is your password. If you are having difficulty logging onto the Final Exam, please call our toll-free number at 1-866-919-5277. 5) Select the 2024 Annual Federal Tax Refresher Course (2025 AFSP) course from the Course Catalog and click the “Take Final Exam” button once you are in the course details. 6) You will be taken to the Final Exam. First confirm your First Name and Last Name are correct. This is how your name will appear on your Cer- tificate of Completion should you achieve a score of 70% or higher. Take the Final Exam. Read the questions carefully and answer them to the best of your ability. Click on “Submit Answers” when finished. You will instantly know if you have passed the test. If you failed, you are able to retake the test. If you passed, the Certificate of Completion will be available for you to print. Complete Please provide suggestions and feedback regarding this CPE course. The last page contains an Evaluation Form. After completion, please mail to: Evaluation Form Tax Materials, Inc. 15105 Minnetonka Ind. Rd., Ste. 221 Minnetonka, MN 55345 Thank you for helping us improve our CPE course offerings! ii   TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Learning Objectives / Table of Contents Suggested Chapter Time Allotment (Minutes) 1 What’s New for Individuals.......................................................... 1 1-A Apply certain inflation-adjusted limits for 2024....................................... 2 8 min. 1-B Determine current standard mileage rates.......................................... 5 3 min. 1-C Identify Form 1099-K reporting requirements........................................ 6 3 min. 1-D Identify taxpayers for whom the IRS is resuming balance due reminder notices........... 8 4 min. 1-E Assess qualifications for the IRS Direct File Pilot Program............................ 10 4 min. 1-F Determine changes applicable for Roth 401(k) required minimum distributions (RMDs).... 12 4 min. 1-G Recognize new law for catch-up contributions to designated Roth accounts............ 13 5 min. 2 Income............................................................................ 19 2-A Recognize the various filing statuses available to taxpayers.......................... 20 6 min. 2-B Determine the taxability of earnings............................................... 22 7 min. 2-C Recognize when Schedule B (Form 1040) must be completed......................... 25 5 min. 2-D Determine taxability of Social Security benefits and retirement income................. 27 5 min. 2-E Recognize rules applicable to individual retirement arrangements (IRAs)............... 30 4 min. 2-F Identify taxable unemployment compensation...................................... 32 4 min. 2-G Determine the taxability of alimony................................................ 34 5 min. 2-H Define a sole proprietor’s gross income and expenses............................... 36 5 min. 2-I Determine factors that differentiate a for-profit business from a hobby................. 38 6 min. 2-J Identify business use of home rules............................................... 41 6 min. 2-K Recognize Schedule C (Form 1040) recordkeeping requirements....................... 43 5 min. 2-L Identify nondeductible entertainment expenses and certain deductible meal expenses... 45 6 min. 2-M Identify Section 179 expense deduction limitations.................................. 48 3 min. 2-N Calculate the special depreciation allowance limits................................. 49 2 min. 2-O Apply the luxury auto depreciation limits........................................... 50 4 min. 2-P Identify listed property.......................................................... 53 6 min. 2-Q Recognize rules for reporting capital gains and losses on Schedule D (Form 1040) and Form 8949..................................................................... 54 6 min. 3 Itemized Deductions and Credits.................................................... 61 3-A Identify a taxpayer’s allowed standard deduction................................... 62 3 min. 3-B Determine deductible medical expenses........................................... 64 6 min. 3-C Calculate deductible state and local taxes......................................... 66 8 min. 3-D Recognize deductible home mortgage interest...................................... 69 4 min. 3-E Recognize qualifying charitable contributions...................................... 70 4 min. 3-F Apply the AGI limits for cash contributions......................................... 72 4 min. 3-G Determine the contemporaneous written acknowledgement required for contributions of $250 or more................................................................ 74 4 min. 3-H Apply the casualty loss deduction for federally-declared disaster areas................ 76 6 min. 3-I Recognize the suspension of the moving expense deduction for most taxpayers......... 78 3 min. 3-J Identify records that substantiate income and deductions............................ 80 4 min. 3-K Determine eligibility for the Child Tax Credit, Credit for Other Dependents, Child and Dependent Care Credit, education credits, or Earned Income Credit.................... 81 9 min. 3-L Identify limitations for certain home-related energy credits........................... 86 6 min. 3-M Determine Clean Vehicle Credit qualifications...................................... 89 3 min. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Table of Contents  iii Learning Objectives / Table of Contents Suggested Chapter Time Allotment (Minutes) 4 Overview Topics................................................................... 95 4-A Determine the tax rules for digital assets.......................................... 96 6 min. 4-B Identify the alternative minimum tax (AMT) exemption and phaseout amounts............. 98 3 min. 4-C Determine the qualified business income deduction (QBID) provisions................. 99 10 min. 4-D Identify children subject to the Kiddie Tax......................................... 103 5 min. 4-E Recognize limitations for IRC section 529 college savings plans...................... 105 5 min. 4-F Identify contribution and rollover limitations for Achieving a Better Life Experience (ABLE) accounts.............................................................. 107 4 min. 4-G Apply rules for exclusion of student loan debt forgiveness........................... 109 2 min. 4-H Apply the net operating loss (NOL) limitations..................................... 110 4 min. 4-I Determine the Premium Tax Credit provisions and applications....................... 112 6 min. 4-J Recognize fringe benefit requirements........................................... 115 4 min. 4-K Determine depreciation rules for residential rental property......................... 117 6 min. 5 Payments, Extensions, and Practices............................................... 123 5-A Differentiate withholding and estimated tax payment requirements for individuals...... 123 3 min. 5-B Distinguish payment and refund options available when filing Form 1040............... 125 5 min. 5-C Identify tax return due dates.................................................... 127 6 min. 5-D Recognize steps to be taken by victims of tax-related identity theft................... 129 7 min. 5-E Identify issues related to safeguarding taxpayer data............................... 131 10 min. 5-F Recognize proper usage of Individual Tax Identification Numbers (ITINs).............. 135 3 min. 6 Procedures and Rules of Professional Responsibility................................. 141 6-A Identify violations of conduct standards that may result in preparer penalties.......... 142 8 min. 6-B Recognize due diligence procedures for the Head of Household filing status, Earned Income Credit (EIC), Child Tax Credit, Credit for Other Dependents, and American Opportunity Credit............................................................. 145 6 min. 6-C Recognize the steps necessary to comply with e-file procedures..................... 148 6 min. 6-D Determine Annual Filing Season Program – Record of Completion requirements........ 150 3 min. 6-E Distinguish the Circular 230 consent statement requirements........................ 152 3 min. 6-F Identify limited representation rights for AFSP participants.......................... 152 4 min. Appendix.................................................................................. 157 Index...................................................................................... 167 Course Evaluation.......................................................................... 169 iv  Table of Contents TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP)  1 What’s New for Individuals Learning Objectives CPE Successful completion of this chapter will enable the participant to: 1-A Apply certain inflation-adjusted limits for 2024. 1-B Determine current standard mileage rates. 1-C Identify Form 1099-K reporting requirements. 1-D Identify taxpayers for whom the IRS is resuming balance due reminder notices. 1-E Assess qualifications for the IRS Direct File Pilot Program. 1-F Determine changes applicable for Roth 401(k) required minimum distributions (RMDs). 1-G Recognize new law for catch-up contributions to designated Roth accounts. Glossary Terms Payment card transaction. A payment card transaction is any transaction in which a payment card, or any account number or other identifying data associ- ated with a payment card, is accepted as payment. Qualified dividends. Qualified dividends are ordinary dividends that are Qualified dividends are ordinary qualified for the same maximum tax rate that applies to net long-term capital dividends that are qualified for gains. the same maximum tax rate that applies to net long-term capital Required minimum distribution (RMD). An RMD is the minimum amount gains. that a taxpayer must withdraw from an IRA account each year upon reaching age 73 (tax years 2023-2034). Standard mileage rate. The standard mileage rate is the cost per mile that the IRS sets annually for those who claim use of a vehicle as a deductible expense. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  1  NOTES Learning Objective 1-A Apply certain inflation-adjusted limits for 2024. Inflation Adjustments Each year, the IRS typically issues a Revenue Procedure detailing inflation ad- Each year, the IRS typically issues a Revenue Procedure detailing justments for the coming year. Details on these inflation adjustments for 2024 inflation adjustments for the and others not discussed here can be found in Revenue Procedure 2023-34. An coming year. IRS Notice focuses on pension plan limitations and other retirement-related items. See Pension Plans and Other Retirement-Related Items, page 4. Individual Tax Rates For 2024, the top tax rate is 37% for a single taxpayer with taxable income great- er than $609,350 ($731,200 for married couples filing jointly). The applicable rates by filing status are listed in the chart, below. 2024 Federal Tax Rate Schedules Single Taxable Income $ 0 to 11,600 × 10.0% minus $ 0.00 = Tax 11,601 to 47,150 × 12.0% minus 232.00 = Tax 47,151 to 100,525 × 22.0% minus 4,947.00 = Tax 100,526 to 191,950 × 24.0% minus 6,957.50 = Tax 191,951 to 243,725 × 32.0% minus 22,313.50 = Tax 243,726 to 609,350 × 35.0% minus 29,625.25 = Tax 609,351 and over × 37.0% minus 41,812.25 = Tax Married Filing Jointly or Qualifying Surviving Spouse Taxable Income $ 0 to 23,200 × 10.0% minus $ 0.00 = Tax 23,201 to 94,300 × 12.0% minus 464.00 = Tax 94,301 to 201,050 × 22.0% minus 9,894.00 = Tax 201,051 to 383,900 × 24.0% minus 13,915.00 = Tax 383,901 to 487,450 × 32.0% minus 44,627.00 = Tax 487,451 to 731,200 × 35.0% minus 59,250.50 = Tax 731,201 and over × 37.0% minus 73,874.50 = Tax Married Filing Separately Taxable Income $ 0 to 11,600 × 10.0% minus $ 0.00 = Tax 11,601 to 47,150 × 12.0% minus 232.00 = Tax 47,151 to 100,525 × 22.0% minus 4,947.00 = Tax 100,526 to 191,950 × 24.0% minus 6,957.50 = Tax 191,951 to 243,725 × 32.0% minus 22,313.50 = Tax 243,726 to 365,600 × 35.0% minus 29,625.25 = Tax 365,601 and over × 37.0% minus 36,937.25 = Tax Head of Household Taxable Income $ 0 to 16,550 × 10.0% minus $ 0.00 = Tax 16,551 to 63,100 × 12.0% minus 331.00 = Tax 63,101 to 100,500 × 22.0% minus 6,641.00 = Tax 100,501 to 191,950 × 24.0% minus 8,651.00 = Tax 191,951 to 243,700 × 32.0% minus 24,007.00 = Tax 243,701 to 609,350 × 35.0% minus 31,318.00 = Tax 609,351 and over × 37.0% minus 43,505.00 = Tax 2  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Capital Gains and Qualified Dividends NOTES Tax rates that apply to long-term capital gains (asset held more than one year) and qualified dividends are generally lower than tax rates that apply to other income and are referred to as maximum capital gain rates. The applicable max- imum capital gain rate is based on taxable income and filing status. 2024 Long-Term Capital Gains and Qualified Dividends Tax Rates Maximum Capital Gain Rate 0% 15% 20% For taxpayers with taxable income of: Single $0 – $47,025 $47,026 – $518,900 $518,901 and above Married Filing Jointly, $0 – $94,050 $94,051 – $583,750 $583,751 and above Qualifying Surviving Spouse Married Filing Separately $0 – $47,025 $47,026 – $291,850 $291,851 and above Head of Household $0 – $63,000 $63,001 – $551,350 $551,351 and above Filing Requirements Taxpayers must file a federal tax return if gross income for 2024 is at least the amount shown below for his or her filing status. Tax Year 2024 Single, under age 65 $14,600 Single, age 65 or over $16,550 Head of Household, under age 65 $21,900 Head of Household, age 65 or over $23,850 Married Filing Jointly, both spouses under age 65 $29,200 Married Filing Jointly, one spouse age 65 or over $30,750 Married Filing Jointly, both spouses age 65 or over $32,300 Married Filing Separately, any age      $5 Qualifying Surviving Spouse, under age 65 $29,200 Qualifying Surviving Spouse, age 65 or over $30,750 Standard Deduction The basic standard deduction for 2024 is: Single or Married Filing Separately (MFS)............................................................ $14,600 Married Filing Jointly (MFJ) or Qualifying Surviving Spouse (QSS)...... $29,200 Head of Household (HOH)............................................................................................. $21,900 Age 65 and/or blind. The additional amounts for age 65 or over and/or blind, per person, per event in 2024 are: MFJ, QSS, or MFS................................................................................................................... $1,550 Single or HOH......................................................................................................................... $1,950 Dependent. The standard deduction in 2024 for an individual who may be claimed as a dependent by another taxpayer is the greater of $1,300, or earned If a taxpayer uses MFS filing income plus $450, not to exceed the basic standard deduction. status and his or her spouse Married Filing Separately (MFS). If a taxpayer uses MFS filing status and his itemizes deductions, the taxpayer’s standard deduction is or her spouse itemizes deductions, the taxpayer’s standard deduction is zero, zero. and the taxpayer is also eligible to itemize deductions. However, if a taxpayer TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  3  NOTES is considered unmarried for the Head of Household filing status, he or she can claim the standard deduction if his or her spouse itemizes. Personal Exemptions The deduction for personal exemptions in 2024 is zero. However, the applicable However, the applicable gross income limitation for a qualifying gross income limitation for a qualifying relative is $5,050. relative is $5,050. Pension Plans and Other Retirement-Related Items The IRS annually announces cost‑of‑living adjustments affecting dollar limita- tions for pension plans and other retirement-related items. For tax year 2024, most pension plan limitations changed. Details on these inflation adjustments for 2024 and others not discussed here can be found in Notice 2023-75. KEY FACT Retirement plan contributions are generally limited to the lesser of the annual limits, or 100% of a participant’s compensation for the year. 401(k), 403(b), 457, and government retirement plans. The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased to $23,000. Catch-up contribution. The catch-up contribution limit for employees age 50 or older who participate in 401(k), 403(b), most 457 plans, and the federal gov- ernment’s Thrift Savings Plan remained at $7,500. So, for 2024, the total limit for employees age 50 or older is $30,500. Total contribution limit. For 2024, the total of employer and employee con- tributions cannot exceed the lesser of 100% of an employee’s compensation or $69,000 ($76,500 for participants age 50 or older). IRA limit. The limit on annual contributions to an individual retirement ar- rangement (IRA) increased to $7,000. The additional catch-up contribution lim- it for individuals aged 50 or older remains at $1,000, for a total contribution limit of $8,000. 2024 IRA Phaseouts IRA Deduction Phaseout Range if Covered by an Employer Plan Married Filing Jointly $123,000 – $143,000 Single, Head of Household $77,000 – $87,000 Married Filing Separately $0 – $10,000 Spouse not covered $230,000 – $240,000 Roth IRA Phaseout Range Married Filing Jointly $230,000 – $240,000 Single, Head of Household $146,000 – $161,000 Married Filing Separately $0 – $10,000 Estate and Gift Tax Estate tax exclusion. Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, up from a total of $12,920,000 for estates of decedents who died in 2023. 4  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Gift Tax Exclusions NOTES Annual gift tax exclusion. For 2024, the annual exclusion for gifts increases For 2024, the annual exclusion for to $18,000. gifts increases to $18,000. Gifts to U.S. spouse. Gifts made to a spouse who is a U.S. citizen are not tax- able gifts regardless of the amount. Non-U.S. spouse gift tax exclusion. For 2024, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $185,000. Learning Objective 1-B Determine current standard mileage rates. Standard Mileage Rate The standard mileage rate method is an optional method that may be used for computing the deductible costs of operating an automobile for business, char- itable, medical, or moving expense purposes. KEY FACT The standard mileage rate for each year is published in a separate annual IRS Notice. 2024 Standard Mileage Rates (Notice 2024-08) Business rate per mile* 67.0¢ Medical and moving rate per mile** 21.0¢ Charitable rate per mile 14.0¢ Depreciation rate per mile 30.0¢ * A deduction for unreimbursed employee business travel is allowed only in determining adjusted gross income, such as for members of a reserve component of the Armed Forces, state or local government officials paid on a fee basis, or certain performing artists. ** A deduction for moving expenses is allowed only to members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station. For tax years 2018 through 2025, the deduction for miscellaneous itemized de- ductions subject to the 2% of AGI limitation is suspended. As a result, taxpay- ers are not permitted to claim unreimbursed employee travel expenses during this suspension period and the deduction for moving expenses is suspended, except for members of the Armed Forces. Revenue Procedure Revenue Procedure 2019-46 makes the following modifications to the rules for using the standard mileage rate method. A taxpayer may not use the business standard mileage rate to claim a miscella- neous itemized deduction for unreimbursed business miles or unreimbursed business travel during the suspension period. Expenses that are allowed in addition to the standard mileage rate such as business parking and tolls are not deductible as miscellaneous itemized de- ductions during the suspension period. A taxpayer must reduce the basis of an automobile used in business by the greater of the amount of depreciation claimed or the amount of depreciation TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  5  NOTES allowed. If a taxpayer uses the business standard mileage rate to compute the expenses of operating a business vehicle, a per-mile amount is treated as the depreciation claimed and the depreciation allowable for those years in which the taxpayer used the business standard mileage rate. If a taxpayer pays or incurs unreimbursed employee travel expenses during the suspension period that are deductible in computing adjusted gross income (AGI), then the standard mileage rate may be used to compute AGI. Qualified performing artists, fee-basis state or local government officials, eligible educa- tors, and Armed Forces reservists are examples of employees who may deduct unreimbursed travel expenses in computing AGI. Thus, these employees may still use the standard mileage rate to compute their deductible expenses. The standard mileage rate method may not be used to deduct moving expenses during the suspension period, unless the taxpayer is a member of the Armed Forces on active duty moving pursuant to a military order and incident to a permanent change of station. Amounts paid under a mileage allowance to an employee, regardless of whether the employee incurs deductible business expenses, are treated as paid under a nonaccountable plan. Learning Objective 1-C Identify Form 1099-K reporting requirements. Form 1099-K Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS in- formation return used to report certain payment transactions. A taxpayer will receive Form 1099-K by January 31 if, in the prior calendar year, he or she re- ceived payment for goods or services during the year from: Credit, debit, or stored value cards such as gift cards (payment cards), and/or Payment apps or online marketplaces, also called third party settlement or- ganizations (TPSOs). Payments from family and friends should not be reported on Form 1099-K. Reporting threshold changes. For tax year 2023, payment apps and online marketplaces were required to file a 1099-K for personal or business accounts that received over $20,000 in payments from over 200 transactions for goods or services. The reporting threshold for TPSOs was changed to in excess of $600, without any restriction relating to the number of transactions by the American Rescue Plan Act of 2021. The IRS announced a delay in implementing this change for tax year 2023 (Notice 2023-74). For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting For tax year 2024, the IRS plans for a threshold of $5,000 to phase requirements. in reporting requirements. The IRS has revised and updated the Form 1099-K frequently asked questions fact sheet (FS-2024-03). 6  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Form 1099-K Reporting NOTES Whether a taxpayer owns a business, is self-employed, works in the gig econ- omy, or is selling personal items, Form 1099-K includes the gross amount of all payment transactions. A taxpayer will receive a Form 1099-K from each payment settlement entity Third-party network transactions (PSE) from which he or she received payments in settlement of reportable pay- may include a payment through a ment transactions. Third-party network transactions may include a payment payment app. through a payment app. Reportable payment transaction. A reportable payment transaction is a pay- ment card transaction or a third-party network transaction. Payment card transaction. A payment card transaction is any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment. Third-party network transaction. A third-party network transaction is any transaction that is settled through a third-party payment network. The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. KEY FACT The minimum reporting thresholds apply only to payments settled through a third-party network as there is no threshold for payment card transactions. Information for Personal Income A taxpayer may receive Form 1099-K if he or she sold goods or provided ser- vices and used a TPSO. If income was received for services provided, including payments received through gig economy work, see Taxpayer’s Business Income Reporting, below. Generally, a taxpayer must report all income (including from sale of personal assets), unless excluded by law. Received Form 1099-K in error. If Form 1099-K is received by mistake or has incorrect information, the issuer of the Form 1099-K should be contacted for a correction. If a corrected Form 1099-K is not issued, report on Schedule 1, Form 1040, Additional Income and Adjustments to Income, with offsetting transactions. Part I, Line 8z, Other Income: – Form 1099-K Received in Error Part II, Line 24z, Other Adjustments: – Form 1099-K Received in Error Taxpayer’s Business Income Reporting Business books and records must reflect business income, including any amounts that may be reported on Form 1099-K. A taxpayer must report on his or her income tax return all income received from business activities. In most cas- es, business income will be in the form of cash, checks, and debit or credit card payments. Business income is generally referred to as gross receipts. Therefore, a taxpayer must consider the amounts shown on Form 1099-K, along with all TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  7  NOTES other amounts received, when calculating gross receipts for his or her income tax return. Learning Objective 1-D Identify taxpayers for whom the IRS is resuming balance due reminder notices. Automated Balance Due Notices for 2020 and 2021 Tax Returns Generally, a penalty applies for failure to pay tax equal to 0.5% of the unpaid tax per month up to a maximum penalty of 25% of the unpaid tax when a tax- payer does not pay the balance of tax due by the deadline. [IRC §6651(a)] On March 13, 2020, the President of the United States declared a national emer- gency in response to the ongoing COVID-19 pandemic. On February 9, 2022, the IRS announced a temporary suspension of the mailing of certain automat- ed reminder notices, including, but not limited to, balance due notices and un- filed tax return notices for taxpayers who owe additional tax. KEY FACT The IRS did not suspend the mailing of initial balance due notices, only the automated notices. The failure-to-pay penalty continued to accrue for taxpayers who did not fully pay their balance due. In 2024, the IRS will resume issuing automated reminder notices for tax years In 2024, the IRS will resume issuing automated reminder 2021 and earlier, thereby resuming the normal notice process for these tax notices for tax years 2021 and years. earlier, thereby resuming the Penalty relief. The IRS has determined that the penalty relief for the failure to normal notice process for these tax years. pay income tax with respect to certain income tax returns for 2020 and 2021 is appropriate. To the extent a penalty was previously assessed or paid, it will be abated, refunded, or credited to other outstanding tax liabilities. Taxpayers eligible for relief from the failure-to-pay penalty during the relief period include the following. Taxpayers whose assessed income tax for tax year 2020 or 2021, as of Decem- ber 7, 2023, is less than $100,000, excluding any applicable additions to tax, penalties, or interest, Taxpayers who were issued an initial balance due notice (including, but not limited to Notice CP14 or Notice CP161) on or before December 7, 2023, for tax year 2020 or 2021, and Taxpayers who are otherwise liable during the relief period for accruals of additions to tax for the failure to pay with respect to an eligible return for tax years 2020 or 2021. 8  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) This relief is available only to eligible taxpayers who have filed one of the fol- NOTES lowing eligible income tax returns. Form 1040, U.S. Individual Income Tax Return. Form 1040-C, U.S. Departing Alien Income Tax Return. Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Form 1040-PR, Declaracion de la Contribucion Federal sobre el Trabajo por Cuenta Propia. Form 1040-SR, U.S. Tax Return for Seniors. Form 1040-SS, U.S. Self-Employment Tax Return. Form 1120, U.S. Corporation Income Tax Return. Form 1120-C, U.S. Income Tax Return for Cooperative Associations. Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. Form 1120-FSC, U.S. Income Tax Return of Foreign Sales Corporation. Form 1120-H, U.S. Income Tax Return for Homeowners Associations. Form 1120-L, U.S. Life Insurance Company Income Tax Return. Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons. Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return. Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts. Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies. Form 1120-S, U.S. Income Tax Return for an S Corporation. Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B). Form 1041, U.S. Income Tax Return for Estates and Trusts. Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts. Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts. Form 990-T, Exempt Organization Business Income Tax Return. The relief period is the period that begins on the date the IRS issued an initial The relief period is the period balance due notice to the eligible taxpayer, or February 5, 2022, whichever is that begins on the date the IRS later, and ends on March 31, 2024. issued an initial balance due Eligible taxpayers will remain liable for any addition to tax for the failure to notice to the eligible taxpayer, or February 5, 2022, whichever pay tax that accrued before or after the relief period. Eligible taxpayer will also is later, and ends on March 31, remain liable for interest that accrues during the relief period as a result of any 2024. underpayment of tax for tax years 2020 or 2021. The relief does not apply for any return for which the penalty for fraudulent failure to file or if the penalty for fraud applies. The relief also does not apply to any addition to tax for the failure to pay in an offer in compromise that was accepted by the IRS. The relief also does not apply to any addition to tax that is settled in a closing agreement. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  9  NOTES Learning Objective 1-E Assess qualifications for the IRS Direct File Pilot Program. IRS Direct File Pilot Program Beginning for tax year 2023 (2024 tax filing season), the IRS developed and im- plemented a pilot program available for certain taxpayers in select states to file their federal tax returns directly with the IRS for free. KEY FACT Direct File is for federal income taxes only. Direct File does not pre-fill tax information for the taxpayer. The taxpayer must manually enter his or her tax information using the step-by-step guided program. Eligible states. The IRS Direct File Pilot Program was an option for eligible taxpayers who lived in one of these pilot states in 2023. Arizona Nevada Tennessee California New Hampshire Texas Florida New York Washington state Massachusetts South Dakota Wyoming Identification qualifications. Direct File requires the taxpayer to have certain types of identification to prevent fraud. The taxpayer must have: A Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) for themselves and any spouse or dependents claimed. If applicable, an Adoption Taxpayer Identification Number (ATIN) for adopted dependents claimed. A current driver’s license, state identification, passport, or passport card. IP PIN. If the IRS sent the taxpayer (or spouse or dependents) an Identity Pro- If the IRS sent the taxpayer (or spouse or dependents) an Identity tection (IP) PIN, they will also need that to use Direct File. Protection (IP) PIN, they will also Income qualifications. For 2023, a taxpayer could use Direct File if they had need that to use Direct File. one or more of the following types of income (tax form). Income from an employer (Form W-2). Unemployment compensation (Form 1099-G). Social Security benefits (Form SSA-1099). $1,500 or less in interest income or U.S. Savings Bonds or Treasury obligations (Forms 1099-INT, boxes 1 and 3). Taxpayers could not use Direct File if they had other types of income, listed below, for tax year 2023. Income received from payment apps, online marketplaces, or payment cards (Form 1099-K). Income from independent contractor and gig work (Form 1099-NEC). Income from rent, prizes, awards, and more (Form 1099-MISC). Income from pension and retirement account distributions (Form 1099-R). Allocated tips. Unreported tips. Alimony that is required to be included in income. 10  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Additional income limitations. Taxpayers could not use Direct File if: NOTES Wages are more than $200,000 ($162,200 if more than one employer). Filing status is Married Filing Separately and wages are more than $125,000. Filing a joint federal tax return and one of the following is true: – Spouse’s wages are more than $200,000 ($160,200 if spouse had more than one employer), or – Taxpayer’s and spouse’s total wages are more than $250,000. Deductions qualifications. When using Direct File, the taxpayer may only When using Direct File, the claim the standard deduction. Direct File does not support itemized deduc- taxpayer may only claim the tions. However, a taxpayer can still deduct student loan interest and educator standard deduction. expenses. Health insurance qualifications. Direct File works only for people with cer- tain kinds of health insurance, and for people without health insurance. A tax- payer can use Direct File if they have: No health insurance. Health insurance from an employer. Medicare. Veterans Affairs healthcare. Private health insurance paid for out of pocket. State Medicaid or Children’s Health Insurance Program (CHIP). A taxpayer cannot use Direct File if they have: Money contributed to or withdrawn from a Health Savings Account (HSA). Health insurance for the taxpayer, spouse, or dependents, bought directly through the Health Insurance Marketplace with HealthCare.gov or a state program (received Form 1095-A). Credits qualifications. Direct File supports only the following common cred- its that reduce tax. Child Tax Credit. Earned Income Credit (EIC). Credit for Other Dependents. A taxpayer cannot use Direct File to: Claim any credits other than the ones listed above. Claim these credits or other tax benefits for a child as their non-custodial parent. IRS Account — ID.me. To use Direct File, a taxpayer must create an IRS ac- count with ID.me. An ID.me account helps prevent tax fraud and keeps tax information secure. To get an ID.me account, the taxpayer needs to: Be 18 years of age or older. Prove their identity using their state or federal identification (e.g., a driver’s license or passport). Take a video selfie to match their face to the picture on their identification. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  11  NOTES Learning Objective 1-F Determine changes applicable for Roth 401(k) required minimum distributions (RMDs). Required Minimum Distribution (RMD) Taxpayers are not allowed to keep retirement funds in their account indefinitely. Generally, a taxpayer must start taking withdrawals from their Generally, a taxpayer must start taking withdrawals from their IRA, SIMPLE IRA, SIMPLE IRA, SEP IRA, or IRA, SEP IRA, or qualified retirement plan [e.g. 403(b), 401(k)] when they reach qualified retirement plan [e.g. age 73. 403(b), 401(k)] when they reach age 73. KEY FACT A required minimum distribution (RMD) is the minimum amount the taxpayer must withdraw from his or her account each year. The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s Uni- form Lifetime Table. A different table is used if the sole beneficiary is the own- er’s spouse who is ten or more years younger than the owner. A taxpayer can withdraw more than the minimum required amount. Any with- drawal is included in taxable income except for any part that was taxed before (basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts). Retirement plans. The minimum distribution rules apply to original account holders and their beneficiaries in the following types of plans. Traditional IRAs. 457(b) plans. SEP IRAs. Profit sharing plans. SIMPLE IRAs. Other defined contribution plans. 401(k) plans. Roth IRA beneficiaries. 403(b) plans. Penalty tax. If a taxpayer does not take any distributions, or if the distributions are not large enough, a 25% excise tax may apply on the amount not distributed as required. The excise tax is reported on Form 5329, Additional Taxes on Quali- fied Plans (Including IRAs) and Other Tax-Favored Accounts. Roth accounts. Unlike other IRAs and pre-tax qualified retirement plans, Roth IRAs do not require withdrawals until after the death of the owner. That is, required minimum distributions are not required for Roth IRAs. However, beneficiaries of inherited Roth IRAs are subject to RMD rules. Designated Roth accounts in an employer’s 401(k) plan or 403(b) plan are sub- ject to the required minimum distribution rules for tax years before 2024. Designated Roth Account Distributions New law (Section 325, SECURE 2.0 Act). Effective for tax years beginning after December 31, 2023, the mandatory distribution rules do not apply before death of a participant in a designated Roth account in an employer plan [e.g., Roth 401(k) or Roth 403(b) plans]. 12  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) A transition rule states that the new law does not apply to distributions which NOTES are required for years beginning before January 1, 2024, but are permitted to be paid on or after that date. Therefore, for 2024 and later years, RMDs are no longer required from desig- Therefore, for 2024 and later years, nated Roth accounts. RMDs are no longer required from Note: 2023 RMDs due by April 1, 2024, are still required. designated Roth accounts. Learning Objective 1-G Recognize new law for catch-up contributions to designated Roth accounts. Catch-Up Contributions Contributions to retirement accounts in excess of annual limits are allowed under certain circumstances. Individuals who are age 50 or older at the end of the calendar year can make annual catch-up contributions to retirement accounts. These catch-up contri- butions include elective deferrals to a 401(k) plan, 403(b) plan, governmental 457(b) plan, SARSEP, SIMPLE 401(k), and SIMPLE IRA. A catch-up contribution is an elective deferral made by a participant age 50 or older that exceeds a statutory limit, a plan-imposed limit, or the actual deferral percentage (ADP) test limit for highly-compensated employees. Statutory limit. A statutory limit is a legal limit on the amount of contribu- tions that can be made to a plan. With respect to a 401(k) plan, the relevant statutory limits are annually updated for cost-of-living adjustments. For 2024, the elective deferral limit for defined contribution plans is $23,000, and the catch-up contribution limit is $7,500. Thus, a participant that is age 50 may defer up to $30,500 of their salary to their company’s 401(k) plan. EXAMPLE Mary is a participant in a 401(k) plan that permits catch-up contributions. She is age 55 and is a catch-up eligible participant. For the 2024 plan year, she deferred $30,500 to the plan. The plan treats $7,500 of Mary’s deferrals as catch-up contributions. Plan-imposed limit. A plan-imposed limit is a limit on contributions that is set forth in the retirement plan. For example, a provision that limits elective deferrals to 10% of compensation is a plan-imposed limit. EXAMPLE Tom, age 52, is a participant in a 401(k) plan that permits catch-up contributions and limits elective deferrals to 10% of a participant’s compensation. For the 2024 plan year, his compensation is $100,000. He deferred $16,000 to the plan. The plan treats $6,000 of Tom’s deferrals as catch-up contributions. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  13  NOTES ADP limit. The ADP limit is the limit for highly-compensated employees as determined by the ADP test for the plan year. KEY FACT Elective deferrals are not treated as catch-up contributions until they exceed the regular deferral limit. Catch-up contributions must be made before the end of the plan year. Age 50. A participant is deemed to be age 50 any time during the calendar year in which he or she turns 50. Catch-Up Elective Deferrals—High-Income Employees In general, catch-up contributions to a qualified retirement plan [for example, a 401(k) or 403(b) plan] for participants age 50 or older can be made on a pre-tax or Roth basis (if a Roth option is permitted by the plan sponsor). New law (Section 603, SECURE 2.0 Act). Under new law, effective for tax years beginning after December 31, 2023, participants whose wages for the pre- ceding calendar year exceed $145,000 can make catch-up elective deferrals only as designated Roth contributions [IRC §414(v)(7)(A)]. If the plan does not provide for a designated Roth option, then participants with If the plan does not provide for a designated Roth option, then wages exceeding $145,000 cannot make additional catch-up elective deferrals. participants with wages exceeding This rule does not apply to SEPs or SIMPLE plans. $145,000 cannot make additional catch-up elective deferrals. The $145,000 threshold is indexed for inflation after 2024. Law delay (Notice 2023-62). The IRS has issued guidance delaying imple- mentation of this new law. The first two tax years beginning after December 31, 2023 are regarded as an administrative transition period with respect to the requirement that catch- up contributions be designated as Roth contributions for eligible participant whose wages exceed $145,000. This means that up until tax years beginning after December 31, 2025, catch-up contributions will be treated as satisfying the requirements for participants with wages exceeding $145,000, even if the contributions are not designated as Roth contributions. Beginning with tax year 2026, individuals with wages exceeding $145,000, and making catch-up contributions, must do so for designated Roth accounts. 14  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1 Self-Quiz NOTES For answers, see Chapter 1 Self-Quiz Answers, page 16. Test your knowledge and comprehension of information presented in Chapter 1. Learning Objective 1-A. Which one of the following is not required to file a return in 2024? a) Alana is 35, single, with gross income of $18,000. b) Bert files Married Filing Separately with investment income of $20,000. c) Charlie is 67, married to Deana, 62, filing jointly with gross income of $30,000. d) Eleanor is 45, filing as Head of Household, and has gross income of $22,000. Learning Objective 1-F. A taxpayer must begin taking distributions from their traditional IRA at what point? a) Never. b) Age 72. c) Age 73. d) RMDs are not required for traditional IRAs. Learning Objective 1-G. Under SECURE 2.0, what is the new rule for taxpay- ers making eligible catch-up contributions to 401(k) plan with wages exceeding $145,000? a) No catch-up contributions allowed. b) Catch-up contributions allowed at 50% of statutory limit. c) Catch-up contributions allowed to pre-tax accounts. d) Catch-up contributions must be made to designated Roth accounts. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  15  NOTES Chapter 1 Self-Quiz Answers Learning Objective 1-A. Which one of the following is not required to file a return in 2024? a) Alana is 35, single, with gross income of $18,000. Incorrect. Alana must file a return because her filing status is Single and she has gross income more than $14,600. b) Bert files Married Filing Separately with investment income of $20,000. Incorrect. Bert is required to file a return because his filing status is Mar- ried Filing Separately and he has gross income over $5. c) Charlie is 67, married to Deana, 62, filing jointly with gross income of $30,000. Correct. The filing requirement for Married Filing Jointly, with one spouse over age 65, is $30,750. Charlie and Deana are not re- quired to file a return because their gross income is under the filing requirement. (pg. 3) d) Eleanor is 45, filing as Head of Household, and has gross income of $22,000. Incorrect. The filing requirement for Head of Household, under age 65, is $21,900. Therefore, Eleanor is required to file a tax return be- cause her gross income exceeds that filing threshold. Learning Objective 1-F. A taxpayer must begin taking distributions from their traditional IRA at what point? a) Never. Incorrect. A taxpayer must start taking withdrawals from their traditional IRA when they reach age 73, and every year thereafter. b) Age 72. Incorrect. Prior to 2023, the age an individual was required to begin re- ceiving distributions was age 72. However, currently, the age a taxpayer must begin taking distributions is age 73. c) Age 73. Correct. A taxpayer must begin taking withdrawals from their traditional IRA when they reach age 73. (pg. 12) d) RMDs are not required for traditional IRAs. Incorrect. RMDs are not required for Roth IRAs, but withdrawals must be taken for pre-tax retirement accounts once a taxpayer reaches age 73. 16  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Learning Objective 1-G. Under SECURE 2.0 (not accounting for law delay), NOTES what is the new rule for taxpayers making eligible catch-up contributions to 401(k) plan with wages exceeding $145,000? a) No catch-up contributions allowed. Incorrect. Catch-up contributions are still allowed. However, certain tax- payers that have wages exceeding $145,000 must make those catch-up contributions to designated Roth accounts. b) Catch-up contributions allowed at 50% of statutory limit. Incorrect. Taxpayers may make catch-up contributions to the full statutory catch-up limit. However, taxpayers with wages exceeding $145,000 must make catch-up contributions to designated Roth accounts. c) Catch-up contributions allowed to pre-tax accounts. Incorrect. Prior to SECURE 2.0, all taxpayers eligible to make catch-up con- tributions could do so on a pre-tax or Roth basis. After SECURE 2.0, taxpayers with wages exceeding $145,000 must make catch- up contributions to designated Roth accounts. d) Catch-up contributions must be made to designated Roth accounts. Correct. Under SECURE 2.0, participants whose wages for the preced- ing calendar year exceed $145,000 can only make catch-up elec- tive deferral contributions as designated Roth contributions. (pg. 14) TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 1  17 18  Chapter 1 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP)  2 Income Learning Objectives CPE Successful completion of this course will enable the participant to: 2-A Recognize the various filing statuses available to taxpayers. 2-B Determine the taxability of earnings. 2-C Recognize when Schedule B (Form 1040) must be completed. 2-D Determine taxability of Social Security benefits and retirement income. 2-E Recognize rules applicable to individual retirement arrangements (IRAs). 2-F Identify taxable unemployment compensation. 2-G Determine the taxability of alimony. 2-H Define a sole proprietor’s gross income and expenses. 2-I Determine factors that differentiate a for-profit business from a hobby. 2-J Identify business use of home rules. 2-K Recognize Schedule C (Form 1040) recordkeeping requirements. 2-L Identify nondeductible entertainment expenses and certain deductible meal expenses. 2-M Identify Section 179 expense deduction limitations. 2-N Calculate the special depreciation allowance limits. 2-O Apply the luxury auto depreciation limits. 2-P Identify listed property. 2-Q Recognize rules for reporting capital gains and losses on Schedule D (Form 1040) and Form 8949. Glossary Terms Basis. Basis is the measure of a taxpayer’s investment in property for tax purposes. Capital gain or loss. A capital gain or loss is the difference between the ad- justed basis in the asset and the amount realized from the sale when a capital asset is sold. Class life. Class life refers to the number of years that is the established recov- ery period for most types of property. Cost of goods sold (COGS). Cost of goods sold are the direct costs attribut- able to the production of goods sold during the year. Fringe benefit. A fringe benefit is a form of payment, other than money, for the A fringe benefit is a form of performance of services. payment, other than money, for Gross receipts. Gross receipts are the amounts received from all sources, in- the performance of services. cluding contributions, without subtracting any costs or expenses. Placed in service. Placed in service means when something is ready and avail- able for a specific use in a trade or business. Tangible property. Tangible property is property that can be seen and touched, such as buildings, machinery, vehicles, furniture, and equipment. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 2  19  NOTES Learning Objective 2-A Recognize the various filing statuses available to taxpayers. Married Taxpayers For federal tax purposes, two individuals are married if the marriage is rec- Married individuals can file a joint return or separate returns. ognized by the state, possession, or territory of the United States (or foreign jurisdiction) in which the marriage is entered. Married individuals can file a joint return or separate returns. KEY FACT A legally married taxpayer may not use the Single filing status. Registered domestic partnerships and civil unions. For federal tax purpos- es, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state law, are not considered married. Single A taxpayer can file as Single if any of the following was true on December 31, 2024. The taxpayer has never married. The taxpayer was legally separated, according to state law, under a final decree of divorce or separate maintenance. The taxpayer’s spouse died before January 1, 2024, and the taxpayer did not remarry in 2024. If the taxpayer meets the definition of unmarried, file as Single unless the re- quirements for one of the following filing statuses are met that will give lower tax. Head of Household, or Qualifying Surviving Spouse (QSS). Married Filing Jointly (MFJ) A taxpayer can file a joint return for 2024 with a spouse if: The taxpayer was married at the end of 2024. The taxpayer’s spouse died in 2024, and the taxpayer did not remarry in 2024. The taxpayer was married at the end of 2024, and the spouse died in 2025 before filing a 2024 return. The taxpayer lived with a person in a common-law marriage recognized in the state where they live or in the state where the common-law marriage began. A taxpayer can file MFJ if both spouses agree, otherwise a married taxpayer must file: Married Filing Separately (MFS), or Head of Household (HOH) if the taxpayer meets the requirements to be “con- sidered unmarried.” See Married individuals considered unmarried, page 21. 20  Chapter 2 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Nonresidents and dual-status aliens. Generally, a married couple cannot file NOTES a joint return if either spouse is a nonresident alien at any time during the year. However, if an individual is a nonresident alien or a dual-status alien and was married to a U.S. citizen or resident alien at the end of the year, the individual can elect to be treated as a resident alien and file a joint return. Married Filing Separately (MFS) A married taxpayer not filing a joint return with his or her spouse must use the A married taxpayer not filing MFS filing status unless he or she meets the requirements to be “considered a joint return with his or her unmarried.” See Married individuals considered unmarried, below. spouse must use the MFS filing status unless he or she meets the Head of Household (HOH) requirements to be “considered unmarried.” A taxpayer can file using the HOH filing status if he or she was unmarried or legally separated according to state law under a final decree of divorce or sepa- rate maintenance at the end of 2024, and one of the following applies. 1) The taxpayer paid over half the cost of keeping up a home that was the main home for all of 2024 of his or her parent who can be claimed as a dependent of the taxpayer, other than under a multiple support agreement. The depen- dent parent did not have to live with the taxpayer. 2) The taxpayer paid over half the cost of keeping up a home in which the tax- payer lived and in which one of the following persons also lived for more than half the year. a) Any person the taxpayer can claim as a dependent, but not including the following: – The taxpayer’s qualifying child claimed as a dependent based on the rules for children of divorced or separated parents, – Any person who is the taxpayer’s dependent only because he or she lived with the taxpayer for all of 2024, or – Any person claimed as a dependent under a multiple support agreement. b) The taxpayer’s unmarried qualifying child who is not a dependent of the taxpayer. c) The taxpayer’s married qualifying child who is not a dependent of the taxpayer only because the taxpayer can be claimed as a dependent on someone else’s 2024 return. d) The taxpayer’s qualifying child who, even though the taxpayer is the cus- todial parent, is not the taxpayer’s dependent because of the rules for chil- dren of divorced or separated parents. Married individuals considered unmarried. A married individual can be considered unmarried for HOH filing status purposes if all the following apply. The taxpayer lived apart from his or her spouse for the last six months of the year. Temporary absences for special circumstances, such as for business, medical care, school, or military service, count as time lived in the home. The taxpayer does not file a joint return with his or her spouse. The taxpayer paid over half the cost of keeping up the home during the year. The taxpayer’s home was the main home of the taxpayer’s child, stepchild, or foster child for more than half the year. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 2  21  NOTES The taxpayer claims this child as a dependent, or the child’s noncustodial par- ent claims him or her as a dependent under the rules for children of divorced or separated parents. Nonresident alien spouse. A taxpayer is considered unmarried for HOH filing status purposes if his or her spouse was a nonresident alien at any time during the year and the taxpayer does not elect to treat the nonresident spouse as a resident alien. However, the spouse is not a qualifying person for HOH pur- poses. The taxpayer must have another qualifying person and meet the other tests to be eligible to file as Head of Household. Qualifying Surviving Spouse (QSS) The QSS filing status, previously known as Qualifying Widow(er), is available for the first two years following the year a spouse died, if all the following re- quirements are met. The spouse died in 2022 or 2023 and the taxpayer did not remarry before the end of 2024. The taxpayer has a child or stepchild (not a foster child) whom the taxpayer can claim as a dependent or could claim as a dependent except that for 2024: – The child had gross income of $5,050 or more, – The child filed a joint return, or – The taxpayer could be claimed as a dependent on someone else’s return. The child lived in the taxpayer’s home for all of 2024, except for temporary absences. The taxpayer paid over half the cost of keeping up a home. The taxpayer filed a joint return with deceased spouse in the year of death or could have filed a joint return that year. KEY FACT If the taxpayer’s spouse died in 2024, the taxpayer is married for 2024 and cannot file as a QSS until 2025. Learning Objective 2-B Determine the taxability of earnings. Earnings or Earned Income Earnings, or earned income, generally means taxable employee pay and net earn- ings from self-employment. The taxability of earnings from self-employment is discussed in Learning Objective 2-H, page 36. In addition to wages, salaries, commissions, fees, and tips, earned income in- In addition to wages, salaries, commissions, fees, and tips, earned cludes other forms of compensation such as fringe benefits and stock options. income includes other forms of compensation such as fringe Wages, Salaries, and Tips benefits and stock options. Wages, salaries, and tips include: The total from box 1 of all Forms W-2. Household wages not reported on Form(s) W-2. Tips. See Tip Income, page 23. 22  Chapter 2 TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP)  Any Medicaid waiver payments the taxpayer chooses to include in earned NOTES income for purposes of claiming a credit or other tax benefit. Taxable dependent care benefits (box 10, Form W-2) from Form 2441, Child and Dependent Care Expenses. Dependent care benefits paid by an employer are taxable if the amount received is greater than the qualified dependent care expenses. Taxable employer-provided adoption benefits (box 12, code T, Form W-2) from Form 8839, Qualified Adoption Expenses. Employer benefits may be taxable if they exceed $16,810. Wages from line 6, Form 8919, Uncollected Social Security and Medicare Tax on Wages. Disability pensions reported on Form 1099-R if the taxpayer has not reached employer’s minimum retirement age. Excess salary deferrals and corrective distributions from 401(k) plans and other employer retirement plans. Note: Amounts from Form W-2G, Certain Gambling Winnings, are general- ly reported as Other Income on Schedule 1 (Form 1040), not with other W-2 income. Tip Income An employee is required to report tips to his or her employer monthly if tips for the month are $20 or more. This threshold applies separately to each employer. Only cash, check, debit or credit card tips are reported to an employer. Tips paid out to other employees are not reported. KEY FACT If the taxpayer does not report tips to an employer as required, a penalty of 50% of the Social Security and Medicare taxes may apply. Report tips on tax return. Tips reported to an employer are included in box 1, Form W-2. All tips are taxable, including noncash tips and tips that total less than $20 in a month. Tips a taxpayer did not report to an employer are reported on line 1c, Form 1040. Social Security and Medicare tax. If an employee’s wages before tips are not enough to withhold tax on the tips, tax uncollected at year end is reported in box 12, Form W-2, Codes A and B. These amounts are reported on Schedule 2 (Form 1040), Additional Taxes. If an employee received $20 or more in cash and card tips in a month and did not report tips to the employer, complete Form 4137, Social Security and Medi- care Tax on Unreported Tip Income, to report the tax on Schedule 2. Service charges. Service charges that an employer adds to a customer’s bill and then pays to the employee are treated as wages and not tips. Allocated tips are tips that an employer assigns to an employee Allocated tips. Allocated tips are tips that an employer assigns to an employ- in addition to tips reported by the ee in addition to tips reported by the employee. Allocated tips are reported by employee. restaurants, lounges, and similar businesses when the employee reported less than 8% of his or her share of food and drink sales. TTB Online CPE — 2024 Annual Federal Tax Refresher Course (2025 AFSP) Chapter 2  23  NOTES Allocated tips are reported in box 8, Form W-2. They are not included in box 1, 3, 5, or 7. No income, Social Security, or Medicare taxes are withheld on allocat- ed tips. Report the amount from box 8, Form W-2, on line 1c, Form 1040, and on Form 4137. Security and Medicare taxes computed on Form 4137 are reported on Schedule 2. Actual tips less than allocated tips. An employee can report less than the An employee can report less than the allocated amount on Form allocated amount on Form 1040 if the employee has a daily tip record or other 1040 if the employee has a daily evidence that is as credible and as reliable as a daily tip record. Report actual tip record or other evidence that tips (less reported tips) instead of the allocated amount. is as credible and as reliable as a daily tip record. Scholarships, Fellowships, and Grants Scholarships, fellowships, and grants are tax free if: The taxpayer is a degree candidate at an eligible educational institution, and The taxpayer uses the funds to pay qualified education expenses. This applies to scholarships, fellowships, and grants of all types, including ath-