How Does TurboTax Calculate Line 7 Form 1040/1040A and Line 1 1040EZ Wages?

You may be wondering what income is included  on the "Wages, Salaries, Tips, Etc."  line of your Form 1040 or 1040A, or you may be confused about why your income is more than that reported on your W-2s.

There are many other types of income that impact the total on that line besides your regular wages reported on your W-2. TurboTax makes these calculations in accordance with IRS tax laws. See IRS publication 17 Chapter 5 for guidelines.

You should receive a W-2, wage and tax statement from your employer showing the wages you received for your services. However, there may be some cases when no Form W-2 is received but income must be claimed on line 7 of your 1040 or 1040A or  line 1 of Form 1040EZ.

Your W-2 may also include special benefits that are taxable on the "Wages, Salaries, Tips, Etc." line, but are not included in box 1 (Gross Income) of your W-2.

Here is a list of income sources that increase the Wages, Salaries, Tips, Etc. line or that should be reported on that line and where to find them in the TurboTax interview:

• Scholarships/Fellowship income from Form 1098-T
• Miscellaneous Income from Form 8919 Uncollected Social Security and Medicare Tax on Wages
• Items from 1099-R such as disability before the minimum age of retirement and return of excess contributions
• Excess Form 2106 Reimbursements from your employer
• Form 4137 Taxable Allocated Tips
• Excess Moving Reimbursement from Form 3903
• Wages earned as a household employee ( if less than $1,800 without Form W-2)
• Sick pay or disability
• Eligible Foreign Earned Income not reported on W-2
• Ordinary Income from employer stock transactions not reported on Form W-2
• Other Income Earned not reported on Form W-2
• Taxable employer-provided dependent care benefits from Form 2441
• Taxable employer-provided adoption benefits less any excluded benefits from Form 8839

Scholarships and Grants are benefits given to students to study at an eligible institution. The amount you received as a Scholarship or Grant is located in box 5 onForm 1098-T.

If this amount exceeds your eligible education expenses in box 1 or 2 on Form 1098-T, then the excess scholarship or grant is treated as income for tax purposes and will be added to line 7 on your 1040/1040A or line 1 on your 1040EZ. 

The separate amount that is added to your income from Scholarships and Grants and “SCH” will be noted on the dotted line next to "Wages, Salaries, Tips, Etc."

Follow these instructions to enter or view Scholarship/Fellowship income:

1. Go to the Federal Taxes tab, click Deductions and Credits.
2. Click Explore on My Own.
3. On the “Your Deductions and Credits” screen scroll down to Education Expenses, click Edit if you already entered and Start to enter. 
4. View amounts already entered on "Enter Your 1098-T Info" screen.  To enter information enter amounts in box 1 or 2 and box 5.

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If you were an employee but were treated as an independent contractor and you have Uncollected Social Security and Medicare Tax on wages, you must file Form 8919.

Wages from Form 8919 line 6 will go directly to line 7 on Form 1040. See IRS Form 8919 instructions for more information.

If your wages with Uncollected Social Security and Medicare tax were reported by your employer on a 1099-MISC, instead of a W-2, TurboTax will guide you through entering untaxed wages as follows:

1. Go to the Federal Taxes tab, Click on the Wages and Income tab.
2. On “Your  Income Summary” scroll down to Income from 1099-MISC, click Start.
3. Enter 1099-MISC information, click Continue.
4. On the “Select the Reason You Got This 1099-MISC click “None of the Above-Show Me More Options.”
5. Click “My employer reported this extra money on a 1099-MISC in addition to or instead of a W-2 for my regular pay.”
6. TurboTax will guide you through entering income for form 8919 line 6.

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Disability income received before the minimum age of retirement reported on Form 1099-R box 1 with code 1 (Early Distribution) in box 7 should go to line 7 on Form 1040/1040A or line 1 on  Form 1040EZ.

Permissible withdrawals from eligible automatic contribution arrangements and corrective distribution of excess deferrals, and excess contributions in box 1 with code 8 (excess contribution plus earnings/excess deferrals) reported on 1099-R transfers directly to line 7 on Form 1040/1040A

Follow these instructions to see where you entered the disability income and distributions of excess deferrals and contributions:

1. Go to the Federal Taxes tab, Click on the Wages and Income tab.
2. Click Explore on My Own
3. Scroll down to IRA, 401K, Pension Plans, click Update.
4. “Your 1099-R Summary” screen will come up, click Edit.
5. Go to “Take a Look at Your 1099-R” screen.

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If your employer reimburses you for expenses related to your employment and there is excess income not used for employee expenses, you must report the additional income on Form 2106.

The excess income from line 7 and line 6 on Form 2106 is transferred to line 7 on Form 1040/1040A.

Follow these instructions to see where you entered Excess Form 2106 Reimbursements from Your Employer:

1. Go to the Federal Taxes tab, Click on the Deductions and Credits tab.
2. Click Explore on My Own.
3. Scroll down to Job-Related Expenses, click Update.
4. On the Job-Related Expenses Summary screen click Edit.
5. Continue through screens to check expenses entered. On the “Tell Us About Reimbursements” screen you should see reimbursements made by your employer from your W-2.

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If you received tips allocated to you by your employer, they are shown separately in box 8 of your Form W-2 and they are not included in box 1 with your wages and reported tips.

If this is the case, Social Security and Medicare Taxes were not withheld by your employer and you must report this income on Form 4137.

TurboTax automatically transfers the amount shown in box 8 of your W-2 to Form 4137 and directly to line 7 1040.

You also must claim any unreported tips more than $20/month on Form 4137. TurboTax also automatically transfers unreported tips from Form 4137 to line 7 on Form 1040.

Noncash tips such as tickets and passes should be included with the rest of your tip income included in box 1 of your W-2, but do not include it on Form 4137 Social Security tax and Medicare Tax on Unreported Tip Income. Social Security tax and Medicare Tax is not required on noncash tips.

See IRS publication 531 for more information regarding Taxable Allocated Tips. 

Follow these instructions to see where Taxable Allocated Tips were entered:

1. Go to the Federal Taxes tab, Click on the Wages and Income tab.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Wages and Salaries, click Update.
4. On the W-2 Summary screen, click Edit.
5. Allocated Tips are shown in box 8 of Form W-2.

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If your employer reimbursed you for moving expenses related to your job and you have excess income that was not used for moving expenses this amount is considered income and is reported on line 7 on Form 1040.

The total amount your employer paid for your moving expenses is reported in box 12 of your W-2 with a code P. This amount is automatically transferred to form 3903 and is compared to your actual moving expenses. The excess is moved to line 7 Form 1040.

Follow these instructions to see where Excess Moving Reimbursement was entered:

1. Go to the Federal Taxes tab, Click on the Deductions and Credits tab.
2. Click Explore on My Own.
3. On the “Your Deductions and Credits” screen scroll down to Moving Expenses, click Update.
4. On the “Your Moving Expense Deduction Summary” click Edit.
5. The amount transferred from box 12 of your W-2 and the expenses you paid will appear.

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Wages earned as a household employee (if less than $1,800 and not reported on from W-2) must be claimed on line 7 on Form 1040.

Note: If you are a household employee who earns $1,800 or more, you will need to have your employer issue a W-2.

Follow these instructions to view or enter Wages Earned As a Household Employee:

1. Go to the Federal Taxes tab, click on Wages and Income.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Miscellaneous Income, click Update to view or Start to enter Wages.
4. On the “Let’s Work on Any Miscellaneous Income” screen go to Wages not Already Reported on a W-2, click Update or Start. 
5. You will come to “Wages Earned as a Household Employee Screen.” View wages already entered or Enter them here.
    

Note: If you are a household employee who earns more than $1,700, you will need to have your employer issue a W-2. 

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Sick pay or disability pay not reported on your W-2 or Form 1099-R should be reported on line 7 on Form 1040.

Follow these instructions to enter or view Sick or Disability Pay Not on Form W-2 or 1099-R:

1. Go to the Federal taxes tab, click on Wages and Income.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Miscellaneous Income, click Update to view or Start to enter.
4. On the “Let’s Work on Any Miscellaneous Income” screen go to Wages not Already Reported on a W-2, click Update to view or Start to enter. 
5.  The Sick or Disability Pay screen will be the second screen.

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If you received foreign income and you are a U.S. citizen or resident alien, you must report income from outside sources whether you receive a W-2 or 1099 or not.

This income is reported on line 7 oo Form 1040. TurboTax guides you on how to input this income.

Follow these steps to enter or view Foreign Earned Income not reported on W-2 or 1099:

1. Go to the Federal Taxes tab, click on Wages and Income.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Foreign Income and Exclusions, click Start if you are just entering and Update if you already entered.
4. Follow the interview prompts.

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Compensation income from employer stock transactions not reported on Form W-2 must be reported on line 7 on Form 1040. TurboTax automatically transfers this income to the correct line.

Follow these steps to enter or view Ordinary Income from Employer Stock Transactions not Reported on Form W-2:

1. Go to the Federal Taxes tab, click on Wages and Income.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Miscellaneous Income, click Update.
4. On the “Let’s Work on Any Miscellaneous Income” screen go to Wages not Already Reported on a W-2, click Update to view and Start to enter. 
5. Go to the third screen “Other Earned Income” to view or enter.

See IRS Publication 525 for more information on Employer Stock Transactions.  

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Other income not reported on Form W-2 must be reported on line 7 on Form 1040. TurboTax automatically transfers this income to the correct line.

Follow these steps to enter or view Other Income Earned not Reported on Form W-2:

1. Go to the Federal Taxes tab, click on Wages and Income.
2. Click Explore on My Own.
3. On the “Your Income Summary Screen” scroll down to Miscellaneous Income, click Update to view or Start to enter.
4. On the “Let’s Work on Any Miscellaneous Income” screen go to Wages not Already Reported on a W-2, click Update to view or Start to enter.
5. Go to the third screen “Other Earned Income” to view or enter.

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If your employer-provided dependent care entered on box 10 of your W-2 exceeds your qualified expenses incurred for the care of a dependent entered on Form 2441, you are required to report that excess as income on line 7on Form 1040. 

TurboTax automatically transfers this income to the correct line with “DCB” printed on the dotted line next to Wages, Salaries, Tips, Etc.

Follow these steps to enter or view Taxable Employer-Provided Dependent Care Benefits From Form 2441:

1. Go to the Federal Taxes tab, click on Deductions and Credits.
2. Click Explore on My Own.
3. Scroll down to Child and Dependent Care, click Start to enter and Update to review.
4. Follow the interview screens.

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If you received employer-provided adoption benefits which were more than the maximum adoption credit exclusion, the excess will be added to your income with “AB” next to line 7 on Form 1040.

Employer-Provided Adoption Benefits are entered on your W-2 box 12 with code T and the maximum exclusion is a set amount (13,170 per child) from Form 8839. TurboTax performs the correct calculations and transfers the income to the correct lines.

Follow these steps to enter or view Taxable Employer-Provided Adoption Benefits Less Any Excluded Benefits from Form 8839:

1. Go to the Federal Taxes tab, click on Deductions and Credits.
2. Click Explore on My Own.
3. Scroll down to Adoption Credit, Click Start to enter and Update to review entries or Start to enter.
4. Follow prompts. The employer-provided adoption benefit will already be transferred from your W-2 box 12 entry.

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