review of w-2 wages, tax statement and employee business ... · employee business expense form 2106...
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Review of W-2 Wages, Tax Statement and
Employee Business Expense Form 2106
May 2018
Materials You Will Need
• 2106 Calculator (From the Genworth Website)
• Tax Return 1040’s for Connie Commissions
• W-2
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Learn to use 2106 calculator for unreimbursed business expenses using personal tax returns
Complete 2106 calculator for business expenses
– Review W-2 Form
– Calculate Expenses reported on a 2106 (Un-reimbursed Business Expenses)
• Schedule A
• 2106 Worksheet
Objective
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What Not to Ask -
“How Much Do You Make?”
Verifying Employment Income
About $50,000
$39,850!!
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The Interview - Let’s talk about how you get paid…
Do you Receive an Annual Salary?
Are you Paid by the Hour?
• If yes, what is your hourly rate?
• How many hours do you work per week?
– Are your hours scheduled or per diem?
– Do the amount of hours vary week-to-week?
– Do you work year round or is your position seasonal?
Do you Receive any Commission or Bonus Income?
• If yes, have you received it for the past two years? Has it declined? Do you expect to
continue receiving it?
Verifying Employment Income
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A minimum history of two years of employment is recommended.
However, in certain circumstances, income that has been received for a
shorter period of time may be acceptable. Each file is reviewed
individually.
Base Pay (Salary and Hourly)
Obtain the following documents:• A Completed Verification of Employment (Form 1005); or
• The Borrower’s Recent Paystub & W-2 Forms (covering the most recent two-year period)
A 1005 may be required to document the income types included on the W2
• The paystub must be dated no earlier than 30 days prior to the initial loan application and it must
include all y-t-d earnings
• They must be computer generated or typed by the employer
• A Verbal Verification of Employment (VVOE)
• Fannie Mae & Freddie Mac require lenders to have each borrower (regardless of income
source) complete and sign a separate IRS Form 4506-T at, or before, closing
Verifying the Qualifying Income
*
*Reduced documentation may be available when using an automated underwriting system
Base Income and Commission Entry
Commissions must be
averaged & annualized!!
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If you are using commission income to qualify your borrower you must:• Confirm receipt for the past two years, determine that it is regular & reoccurring (not declining), and
calculate the % of income the commission earnings represent of the monthly qualifying income
• If the commission earnings represent 25% or more of the income, you must review the borrower’s tax
returns to determine if they have filed a 2106 expense form
2017 W-2
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The W2 identifies the borrower’s total compensation, but not the break down of
the income amounts or types, so you’ll need to order a written VOE
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W-2 Reminders:
– Name and SSN# match application and the pay stub
– Applicant’s address should also match the 1003 and bank statement mailing
address
– Should be the most recent one or two (if required)
– Is the YTD income consistent with monthly income; if not, obtain explanation
– Employer addresses match application
– Employer ID# must be valid, (XX-XXXXXX) is the proper format
– FICA and Medicare Withholding based on wages can be checked
– You generally should NOT have the Employer’s Copy or the Social Security
Administration Copy!
– Review the document at application, don’t just shove in the loan file
Examining W-2s
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Reminders:
– The borrower’s name and SSN# must be consistent with the application
(Spelling, middle initial or a JR or III)
– Computer generated; if not, the most recent tax return is required and/or a
written VOE
– If paid hourly, the number of hours must be noted on the paystub
– Dated within 30 days of application; if stale dated, ask applicant for more
recent stub
– YTD income must be provided and should be consistent with monthly income
– Note any commission, overtime, or bonus income - don’t use if you don’t need
– Review for possible liabilities that may need to be included in your debt ratio
(child support, alimony, IRS garnishment or a new loan take out)
– If automatically deposited, cross reference the income to the bank statement
– We are calculating income, but also validating the document. Does employer
match back to application? To the W-2?
Examining Pay Stubs
VOE
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The written VOE confirms that the borrower receives a base salary of $64,000 and is also
compensated through commissions.
The commissions have been received for the past two years & have been increasing!
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Reminders:
– All fields completed, signed and dated, with signature and printed name of
employer
– If faxed, note the origin of the faxed document. Is it coming from the employer?
– Income consistent with application
– If income is bonus or overtime, is it likely to continue?
– Probability of Continued Employment completed?
– Review for different handwriting styles and cross outs, possible white outs or
cutting and pasting
– Look for Declining Income
– Calculate the % of Commissions
Written Verification of Employment
12
Fannie Mae Selling Guide
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https://www.fanniemae.com/content/guide/selling/b3/3.1/04.html
Freddie Mac Documentation Matrix
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Calculating % of Commissions Example
Connie’s commission earnings represent 25% or more of the income. You must review the
borrower’s tax returns, to determine if they have filed a 2106 expense form.
Type 2018 y-t-d
06/01/2018
2017 2016
Base 31998 62,000 60,000
Bonus 0 0 0
Commission 25,877 47,377 38,094
Total 57,875 109,377 88,094
% 44.71% 43.31% 43.24%
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A Tax Return…Tax Return for Connie Commissions
• Connie receives a W-2 from National
Trucking
• We must determine if she has declared
un-reimbursed expenses (#2106)
against her income
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1040W-2 wages Reported on Line 7
• Is there any indication that Connie
is Self Employed?
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Form 1040We have already reviewed the
front page of the 1040 for W2
wages and any self employed
indication
Now let’s review page 2 of the
1040
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Did Your Borrower File a Schedule A?Review Line 40 entry vs. Standard Deduction values on Page 2 of 1040
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Schedule A ExpensesWhen a 2106 Worksheet has been
completed, you must review it for
total expenses declared!
2106
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Training Tools and Information
Form 1084 and Form 91
The Revised Freddie
Mac 91 does not
have a 2106 Section.
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The Revised Fannie
Mae 1084 does not
have a 2106 Section.
2106 Calculator
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2106 Worksheet
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2106 Calculator
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2106 Worksheet For Connie
28
Page 2 of the 2106 Form
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2106 Calculator
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2106 Worksheet For Connie
30
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Automobile DepreciationIf a borrower claims a “standard mileage” deduction, the business miles driven
should be multiplied by the depreciation factor for the appropriate year, and the
calculated amount added to the borrower’s cash flow.
If a borrower claims an “actual depreciation expense” deduction, the amount the
borrower claimed should be added to the borrower’s cash flow.
Depreciation Factor
31
$18,534.25 /12= $1,544.52 monthly expenses
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2106 Calculator
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Total Monthly Qualifying Income
Type 2018 y-t-d
07/01/2018
2017 2016
Base 31998 62,000 60,000
Bonus 0 0 0
Commission 25,877 47,377 38,094
Total 57,875 109,377 88,094
% 44.71% 43.31% 43.24%
Connie’s commission earnings represent 25% or more of the income. You must review the
borrower’s tax returns to determine if they have filed a 2106 expense form.
Base Salary $64,000/12=$5,333
2 Year Average Commissions
$47377+ $38,094=$85,471/24=
$3561 monthly commissions
Monthly Business Expenses
($1,544)
$5333 + $3561 - $1544 = $7350
Total Monthly Income= $7350
2106-EZTax Return #2
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2106 WorksheetIf the borrower did not receive
any reimbursements (line 7)
they would file a 2106-EZ, not
a 2106
Let’s review…
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2106-EZ Calculator
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2106-EZ Worksheet
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2106-EZ Calculator
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2106-EZ Worksheet
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Training Tools and Information
42
Genworth Underwriting Guidelines
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43
MI Rate Quotes
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44
Additional MI Site Information
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Underwriter➢ Your Genworth Sales
Representative
Your Genworth Resources
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