Tax Unit: Module 3

1. Tax Unit: Module 3 For Consumer Math Class East Jackson High School

2. Module 3: Interest Income Introduction • Interest can be taxable or tax-exempt. • All interest must be reported on the tax return.

3. Interest • Interest is the charge for the use of borrowed money. • Your money earns interest when it is • Deposited in accounts in banks, savings and loans, and credit unions. • Used to buy certificates of deposit or bonds. • Lent to another person or business. • Interest is considered unearned income because money, not a person, is working to earn the income.

4. Taxable Interest Taxable interest income is earned from • savings and checking accounts • U.S. Savings Bonds • savings certificates (certificates of deposit or CDs) • money market certificates

5. Tax-exempt Interest Tax-exempt interest income is earned from bonds issued by entities in states, cities, counties, or the District of Columbia, such as: • port authorities • toll-road commissions • community redevelopment agencies • qualified volunteer fire departments

6. Quick Check! ____1. Interest income is earned on all of the following except a. U.S. Saving Bonds b. rental properties c. deposits in savings accounts d. deposits in credit union accounts ____2. Which statement is not true? a. Interest is the charge for the use of money. b. Interest income is considered unearned income. c. Interest income may be taxable or tax-exempt. d. The U.S. government does not pay interest. ____3. Alexa earned $145 from money in her savings account. a. Taxable b. Tax-exempt ____4. LaKeisha earned $135 on bonds issued by the Ohio Water Authority. a. Taxable b. Tax-exempt

7. 1099-INT • Interest income is usually reported on Form 1099-INT • It is important to report each Form 1099-INT separately. • Taxable interest income is reported on the tax return, even if the taxpayer does not receive Form 1099-INT.

9. Quick Check! 1. How much taxable interest income did Maurice earn? ___________ ___2. Did Maurice earn any interest on U.S. Savings Bonds? a. Yes b. No ___3. Did Maurice have any federal income tax withheld on the interest he earned? a. Yes b. No $78.21

10. Review! _____1. Interest income is earned on money in savings accounts. a. True b. False ______2. All interest income is taxable. a. True b. False ______3. Tax-exempt interest is not reported on the individual income tax return. a. True b. False ______4. Form 1099-INT is used to report interest income. a. True b. False

11. Simulation for Module 3Using Your W-2 and Form 1099-INT to File Your 1040EZ • Your name is Tasha Miller. • You are an administrator at the Job Center. • You are single with no children. • You are a U.S. Citizen. • Your favorite aunt dies and leaves $2000 to you in her will. You deposit the money in a savings account at your bank. • Inheritance is tax-free, but interest earned on it is subject to tax.

12. Congratulations! Your have just successfully completed Module 3! All information came from the Internal Revenue Service Understanding Taxes Program www.irs.gov/app/understandingTaxes/jsp/S_student_lessons.jsp