Take a moment to review what you have covered in this lesson for your course of study:
- Earned income is any income accumulated by personal effort, such as wages or business/self-employment income.
- Unearned income is any income produced by investments, such as interest on savings or dividends on stock.
- Form 1040, line 7 income includes wages, salaries, tips, and scholarships; income generally reported to the taxpayer on Form W-2.
- Common sources of taxable interest income are checking and savings accounts, certificates of deposit (CDs), savings certificates, or U.S. government bonds. This interest is reported by the payer on Form 1099-INT and included in the taxpayer's income on Form 1040, line 8.
- Lines 9a and 9b on Form 1040 are for reporting ordinary and qualified dividends. Dividends are reported to the taxpayer on Form 1099-DIV. Ordinary dividends are corporate distributions paid out of the earnings and profits of a corporation. Qualified dividends are ordinary dividends that are eligible for a lower tax rate than other ordinary income.
- Form 1040, line 10 is for taxpayers who received a state or local income tax refund. Taxpayers who itemized deductions in the previous year and received a tax benefit from deducting state or local income taxes may have to report part or all of their refund as income. Taxpayers generally receive Form 1099-G reporting their state or local tax refund.
- Alimony is income received from a spouse or former spouse under a separation or divorce instrument. It is reported on Form 1040, line 11.
- Capital gain distributions are reported on Form 1040, line 13, and Schedule D, if required.