Tax Preparation Income Types and Reporting 1 — Questions and Answers
Question 1: Which form reports wages, tips, and other compensation paid by an employer to an employee?
- Form 1099-NEC
- Form W-2 (Correct answer)
- Form 1099-MISC
- Form 1098
Correct answer: Form W-2
Form W-2, Wage and Tax Statement, is issued by employers to report employee wages and withheld taxes.
Question 2: A freelancer receives $700 from a single client. Is the client required to issue a 1099-NEC?
- Yes, any amount requires a 1099
- No, the threshold is $600 (Correct answer)
- No, only amounts over $1,000 require reporting
- Yes, amounts over $500 require a 1099
Correct answer: No, the threshold is $600
Form 1099-NEC is required when payments to an independent contractor reach $600 or more during the tax year.
Question 3: Social Security benefits become partially taxable when the taxpayer's combined income exceeds which threshold for single filers?
- $15,000
- $25,000 (Correct answer)
- $32,000
- $50,000
Correct answer: $25,000
Up to 50% of Social Security benefits may be taxable when combined income (AGI + nontaxable interest + half of SS benefits) exceeds $25,000 for single filers.
Question 4: Which of the following is generally excluded from gross income under the IRC?
- Gambling winnings
- Gifts received (Correct answer)
- Wages from a second job
- Interest on a personal savings account
Correct answer: Gifts received
Gifts received are generally excluded from the recipient's gross income under IRC Section 102, though the donor may owe gift tax.
Question 5: An employee receives $6,000 in employer-provided educational assistance. How much is excludable from income?
- $0 — all is taxable
- $5,250 (Correct answer)
- $6,000
- $2,500
Correct answer: $5,250
Up to $5,250 of employer-provided educational assistance can be excluded from income under IRC Section 127.
Question 6: Which type of income is reported on Schedule E of Form 1040?
- Self-employment income
- Rental income (Correct answer)
- Gambling winnings
- Alimony received
Correct answer: Rental income
Schedule E is used to report supplemental income such as rental income, S-corporation income, partnership income, and royalties.
Tax Preparation Income Types and Reporting 1
Which form reports wages, tips, and other compensation paid by an employer to an employee?