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1040a Instruction Book

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1040a Instruction Book

1040a instruction book 5. 1040a instruction book   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. 1040a instruction book Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. 1040a instruction book   If you are a U. 1040a instruction book S. 1040a instruction book citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. 1040a instruction book S. 1040a instruction book law. 1040a instruction book This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. 1040a instruction book This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). 1040a instruction book If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. 1040a instruction book For details, see Publication 54, Tax Guide for U. 1040a instruction book S. 1040a instruction book Citizens and Resident Aliens Abroad. 1040a instruction book Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. 1040a instruction book The following topics are included. 1040a instruction book Bonuses and awards. 1040a instruction book Special rules for certain employees. 1040a instruction book Sickness and injury benefits. 1040a instruction book The chapter explains what income is included in the employee's gross income and what is not included. 1040a instruction book Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. 1040a instruction book Form W-2. 1040a instruction book    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. 1040a instruction book Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. 1040a instruction book   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. 1040a instruction book These wages must be included on line 7 of Form 1040. 1040a instruction book See Form 8919 for more information. 1040a instruction book Childcare providers. 1040a instruction book    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. 1040a instruction book If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 1040a instruction book You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. 1040a instruction book Babysitting. 1040a instruction book   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. 1040a instruction book Miscellaneous Compensation This section discusses different types of employee compensation. 1040a instruction book Advance commissions and other earnings. 1040a instruction book   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. 1040a instruction book    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. 1040a instruction book If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. 1040a instruction book See Repayments in chapter 12. 1040a instruction book Allowances and reimbursements. 1040a instruction book    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. 1040a instruction book If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. 1040a instruction book Back pay awards. 1040a instruction book    Include in income amounts you are awarded in a settlement or judgment for back pay. 1040a instruction book These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. 1040a instruction book They should be reported to you by your employer on Form W-2. 1040a instruction book Bonuses and awards. 1040a instruction book   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. 1040a instruction book These include prizes such as vacation trips for meeting sales goals. 1040a instruction book If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. 1040a instruction book However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. 1040a instruction book Employee achievement award. 1040a instruction book   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. 1040a instruction book However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. 1040a instruction book Your employer can tell you whether your award is a qualified plan award. 1040a instruction book Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. 1040a instruction book   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. 1040a instruction book A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. 1040a instruction book Example. 1040a instruction book Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. 1040a instruction book Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. 1040a instruction book However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. 1040a instruction book Differential wage payments. 1040a instruction book   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. 1040a instruction book These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. 1040a instruction book The payments are reported as wages on Form W-2. 1040a instruction book Government cost-of-living allowances. 1040a instruction book   Most payments received by U. 1040a instruction book S. 1040a instruction book Government civilian employees for working abroad are taxable. 1040a instruction book However, certain cost-of-living allowances are tax free. 1040a instruction book Publication 516, U. 1040a instruction book S. 1040a instruction book Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. 1040a instruction book Nonqualified deferred compensation plans. 1040a instruction book   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. 1040a instruction book This amount is shown on Form W-2, box 12, using code Y. 1040a instruction book This amount is not included in your income. 1040a instruction book   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. 1040a instruction book This amount is included in your wages shown on Form W-2, box 1. 1040a instruction book It is also shown on Form W-2, box 12, using code Z. 1040a instruction book Note received for services. 1040a instruction book    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. 1040a instruction book When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. 1040a instruction book Do not include that part again in your income. 1040a instruction book Include the rest of the payment in your income in the year of payment. 1040a instruction book   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. 1040a instruction book Severance pay. 1040a instruction book   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. 1040a instruction book Accrued leave payment. 1040a instruction book    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. 1040a instruction book   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. 1040a instruction book You can reduce gross wages by the amount you repaid in the same tax year in which you received it. 1040a instruction book Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. 1040a instruction book Outplacement services. 1040a instruction book   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. 1040a instruction book    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). 1040a instruction book Sick pay. 1040a instruction book   Pay you receive from your employer while you are sick or injured is part of your salary or wages. 1040a instruction book In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. 1040a instruction book A state sickness or disability fund. 1040a instruction book An association of employers or employees. 1040a instruction book An insurance company, if your employer paid for the plan. 1040a instruction book However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 1040a instruction book For more information, see Publication 525. 1040a instruction book Social security and Medicare taxes paid by employer. 1040a instruction book   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. 1040a instruction book The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. 1040a instruction book However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. 1040a instruction book Stock appreciation rights. 1040a instruction book   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. 1040a instruction book When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. 1040a instruction book You include the cash payment in your income in the year you use the right. 1040a instruction book Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. 1040a instruction book Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. 1040a instruction book Accounting period. 1040a instruction book   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. 1040a instruction book Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. 1040a instruction book The general rule: benefits are reported for a full calendar year (January 1–December 31). 1040a instruction book The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. 1040a instruction book For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. 1040a instruction book  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. 1040a instruction book   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). 1040a instruction book Form W-2. 1040a instruction book   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. 1040a instruction book Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). 1040a instruction book However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). 1040a instruction book Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. 1040a instruction book Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . 1040a instruction book For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. 1040a instruction book Long-term care coverage. 1040a instruction book    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. 1040a instruction book However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. 1040a instruction book This amount will be reported as wages in box 1 of your Form W-2. 1040a instruction book   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. 1040a instruction book Archer MSA contributions. 1040a instruction book    Contributions by your employer to your Archer MSA generally are not included in your income. 1040a instruction book Their total will be reported in box 12 of Form W-2 with code R. 1040a instruction book You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 1040a instruction book File the form with your return. 1040a instruction book Health flexible spending arrangement (health FSA). 1040a instruction book   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. 1040a instruction book Note. 1040a instruction book Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. 1040a instruction book The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. 1040a instruction book For more information, see Notice 2012-40, 2012-26 I. 1040a instruction book R. 1040a instruction book B. 1040a instruction book 1046, available at www. 1040a instruction book irs. 1040a instruction book gov/irb/2012-26 IRB/ar09. 1040a instruction book html. 1040a instruction book Health reimbursement arrangement (HRA). 1040a instruction book   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. 1040a instruction book Health savings accounts (HSA). 1040a instruction book   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. 1040a instruction book Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. 1040a instruction book Contributions made by your employer are not included in your income. 1040a instruction book Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. 1040a instruction book Distributions not used for qualified medical expenses are included in your income. 1040a instruction book See Publication 969 for the requirements of an HSA. 1040a instruction book   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 1040a instruction book The contributions are treated as a distribution of money and are not included in the partner's gross income. 1040a instruction book Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. 1040a instruction book In both situations, the partner can deduct the contribution made to the partner's HSA. 1040a instruction book   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. 1040a instruction book The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 1040a instruction book Qualified HSA funding distribution. 1040a instruction book   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. 1040a instruction book See Publication 590 for the requirements for these qualified HSA funding distributions. 1040a instruction book Failure to maintain eligibility. 1040a instruction book   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. 1040a instruction book If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. 1040a instruction book This income is also subject to an additional 10% tax. 1040a instruction book Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. 1040a instruction book See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. 1040a instruction book Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. 1040a instruction book They also are included as social security and Medicare wages in boxes 3 and 5. 1040a instruction book However, they are not included as wages in box 1. 1040a instruction book To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. 1040a instruction book File the form with your return. 1040a instruction book De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. 1040a instruction book In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. 1040a instruction book Holiday gifts. 1040a instruction book   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. 1040a instruction book However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. 1040a instruction book Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. 1040a instruction book For more information, see Publication 970, Tax Benefits for Education. 1040a instruction book Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. 1040a instruction book However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. 1040a instruction book For exceptions, see Entire cost excluded , and Entire cost taxed , later. 1040a instruction book If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. 1040a instruction book Also, it is shown separately in box 12 with code C. 1040a instruction book Group-term life insurance. 1040a instruction book   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. 1040a instruction book Permanent benefits. 1040a instruction book   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. 1040a instruction book Your employer should be able to tell you the amount to include in your income. 1040a instruction book Accidental death benefits. 1040a instruction book   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. 1040a instruction book Former employer. 1040a instruction book   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. 1040a instruction book Also, it is shown separately in box 12 with code C. 1040a instruction book Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. 1040a instruction book You must pay these taxes with your income tax return. 1040a instruction book Include them on line 60, Form 1040, and follow the instructions for line 60. 1040a instruction book For more information, see the Instructions for Form 1040. 1040a instruction book Two or more employers. 1040a instruction book   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. 1040a instruction book If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. 1040a instruction book You must figure how much to include in your income. 1040a instruction book Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. 1040a instruction book Figuring the taxable cost. 1040a instruction book   Use the following worksheet to figure the amount to include in your income. 1040a instruction book     Worksheet 5-1. 1040a instruction book Figuring the Cost of Group-Term Life Insurance To Include in Income 1. 1040a instruction book Enter the total amount of your insurance coverage from your employer(s) 1. 1040a instruction book   2. 1040a instruction book Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040a instruction book 50,000 3. 1040a instruction book Subtract line 2 from line 1 3. 1040a instruction book   4. 1040a instruction book Divide line 3 by $1,000. 1040a instruction book Figure to the nearest tenth 4. 1040a instruction book   5. 1040a instruction book Go to Table 5-1. 1040a instruction book Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 1040a instruction book   6. 1040a instruction book Multiply line 4 by line 5 6. 1040a instruction book   7. 1040a instruction book Enter the number of full months of coverage at this cost. 1040a instruction book 7. 1040a instruction book   8. 1040a instruction book Multiply line 6 by line 7 8. 1040a instruction book   9. 1040a instruction book Enter the premiums you paid per month 9. 1040a instruction book       10. 1040a instruction book Enter the number of months you paid the premiums 10. 1040a instruction book       11. 1040a instruction book Multiply line 9 by line 10. 1040a instruction book 11. 1040a instruction book   12. 1040a instruction book Subtract line 11 from line 8. 1040a instruction book Include this amount in your income as wages 12. 1040a instruction book      Table 5-1. 1040a instruction book Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. 1040a instruction book 05 25 through 29 . 1040a instruction book 06 30 through 34 . 1040a instruction book 08 35 through 39 . 1040a instruction book 09 40 through 44 . 1040a instruction book 10 45 through 49 . 1040a instruction book 15 50 through 54 . 1040a instruction book 23 55 through 59 . 1040a instruction book 43 60 through 64 . 1040a instruction book 66 65 through 69 1. 1040a instruction book 27 70 and older 2. 1040a instruction book 06 Example. 1040a instruction book You are 51 years old and work for employers A and B. 1040a instruction book Both employers provide group-term life insurance coverage for you for the entire year. 1040a instruction book Your coverage is $35,000 with employer A and $45,000 with employer B. 1040a instruction book You pay premiums of $4. 1040a instruction book 15 a month under the employer B group plan. 1040a instruction book You figure the amount to include in your income as shown in Worksheet 5-1. 1040a instruction book Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. 1040a instruction book Worksheet 5-1. 1040a instruction book Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. 1040a instruction book Enter the total amount of your insurance coverage from your employer(s) 1. 1040a instruction book 80,000 2. 1040a instruction book Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040a instruction book 50,000 3. 1040a instruction book Subtract line 2 from line 1 3. 1040a instruction book 30,000 4. 1040a instruction book Divide line 3 by $1,000. 1040a instruction book Figure to the nearest tenth 4. 1040a instruction book 30. 1040a instruction book 0 5. 1040a instruction book Go to Table 5-1. 1040a instruction book Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 1040a instruction book . 1040a instruction book 23 6. 1040a instruction book Multiply line 4 by line 5 6. 1040a instruction book 6. 1040a instruction book 90 7. 1040a instruction book Enter the number of full months of coverage at this cost. 1040a instruction book 7. 1040a instruction book 12 8. 1040a instruction book Multiply line 6 by line 7 8. 1040a instruction book 82. 1040a instruction book 80 9. 1040a instruction book Enter the premiums you paid per month 9. 1040a instruction book 4. 1040a instruction book 15     10. 1040a instruction book Enter the number of months you paid the premiums 10. 1040a instruction book 12     11. 1040a instruction book Multiply line 9 by line 10. 1040a instruction book 11. 1040a instruction book 49. 1040a instruction book 80 12. 1040a instruction book Subtract line 11 from line 8. 1040a instruction book Include this amount in your income as wages 12. 1040a instruction book 33. 1040a instruction book 00 Entire cost excluded. 1040a instruction book   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. 1040a instruction book You are permanently and totally disabled and have ended your employment. 1040a instruction book Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. 1040a instruction book A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. 1040a instruction book (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. 1040a instruction book ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. 1040a instruction book Entire cost taxed. 1040a instruction book   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. 1040a instruction book You are a key employee and your employer's plan discriminates in favor of key employees. 1040a instruction book Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. 1040a instruction book Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. 1040a instruction book You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. 1040a instruction book Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. 1040a instruction book A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. 1040a instruction book Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. 1040a instruction book However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. 1040a instruction book Exclusion limit. 1040a instruction book   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. 1040a instruction book   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. 1040a instruction book   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. 1040a instruction book   If the benefits have a value that is more than these limits, the excess must be included in your income. 1040a instruction book You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. 1040a instruction book Commuter highway vehicle. 1040a instruction book   This is a highway vehicle that seats at least six adults (not including the driver). 1040a instruction book At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). 1040a instruction book Transit pass. 1040a instruction book   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. 1040a instruction book Qualified parking. 1040a instruction book   This is parking provided to an employee at or near the employer's place of business. 1040a instruction book It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. 1040a instruction book It does not include parking at or near the employee's home. 1040a instruction book Qualified bicycle commuting. 1040a instruction book   This is reimbursement based on the number of qualified bicycle commuting months for the year. 1040a instruction book A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. 1040a instruction book The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. 1040a instruction book Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. 1040a instruction book (Your employer can tell you whether your retirement plan is qualified. 1040a instruction book ) However, the cost of life insurance coverage included in the plan may have to be included. 1040a instruction book See Group-Term Life Insurance , earlier, under Fringe Benefits. 1040a instruction book If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. 1040a instruction book However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. 1040a instruction book For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. 1040a instruction book S. 1040a instruction book Civil Service Retirement Benefits, if you are a federal employee or retiree). 1040a instruction book Elective deferrals. 1040a instruction book   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. 1040a instruction book The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. 1040a instruction book An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. 1040a instruction book However, it is included in wages subject to social security and Medicare taxes. 1040a instruction book   Elective deferrals include elective contributions to the following retirement plans. 1040a instruction book Cash or deferred arrangements (section 401(k) plans). 1040a instruction book The Thrift Savings Plan for federal employees. 1040a instruction book Salary reduction simplified employee pension plans (SARSEP). 1040a instruction book Savings incentive match plans for employees (SIMPLE plans). 1040a instruction book Tax-sheltered annuity plans (403(b) plans). 1040a instruction book Section 501(c)(18)(D) plans. 1040a instruction book Section 457 plans. 1040a instruction book Qualified automatic contribution arrangements. 1040a instruction book   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. 1040a instruction book You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. 1040a instruction book The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. 1040a instruction book   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. 1040a instruction book Overall limit on deferrals. 1040a instruction book   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. 1040a instruction book The limit for SIMPLE plans is $12,000. 1040a instruction book The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. 1040a instruction book The limit for section 457 plans is the lesser of your includible compensation or $17,500. 1040a instruction book Amounts deferred under specific plan limits are part of the overall limit on deferrals. 1040a instruction book Designated Roth contributions. 1040a instruction book   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. 1040a instruction book Designated Roth contributions are treated as elective deferrals, except that they are included in income. 1040a instruction book Excess deferrals. 1040a instruction book   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. 1040a instruction book However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. 1040a instruction book   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. 1040a instruction book See Publication 525 for a discussion of the tax treatment of excess deferrals. 1040a instruction book Catch-up contributions. 1040a instruction book   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. 1040a instruction book Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. 1040a instruction book However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. 1040a instruction book Your employer can tell you which kind of option you hold. 1040a instruction book For more information, see Publication 525. 1040a instruction book Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. 1040a instruction book However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. 1040a instruction book (You can choose to include the value of the property in your income in the year it is transferred to you. 1040a instruction book ) For more information, see Restricted Property in Publication 525. 1040a instruction book Dividends received on restricted stock. 1040a instruction book   Dividends you receive on restricted stock are treated as compensation and not as dividend income. 1040a instruction book Your employer should include these payments on your Form W-2. 1040a instruction book Stock you chose to include in income. 1040a instruction book   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. 1040a instruction book Report them on your return as dividends. 1040a instruction book For a discussion of dividends, see chapter 8. 1040a instruction book    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. 1040a instruction book Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. 1040a instruction book Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. 1040a instruction book , in addition to your salary. 1040a instruction book If the offering is made to the religious institution, it is not taxable to you. 1040a instruction book If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. 1040a instruction book However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. 1040a instruction book See chapter 24. 1040a instruction book Pension. 1040a instruction book    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. 1040a instruction book It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040a instruction book Housing. 1040a instruction book    Special rules for housing apply to members of the clergy. 1040a instruction book Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. 1040a instruction book However, the exclusion cannot be more than the reasonable pay for your service. 1040a instruction book If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. 1040a instruction book The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. 1040a instruction book However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. 1040a instruction book For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 1040a instruction book Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. 1040a instruction book Services performed for the order. 1040a instruction book   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. 1040a instruction book   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. 1040a instruction book Any wages you earn as an agent of an order that you turn over to the order are not included in your income. 1040a instruction book Example. 1040a instruction book You are a member of a church order and have taken a vow of poverty. 1040a instruction book You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. 1040a instruction book You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. 1040a instruction book However, you remain under the general direction and control of the order. 1040a instruction book You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. 1040a instruction book Services performed outside the order. 1040a instruction book   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. 1040a instruction book They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. 1040a instruction book If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. 1040a instruction book Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. 1040a instruction book Example. 1040a instruction book Mark Brown is a member of a religious order and has taken a vow of poverty. 1040a instruction book He renounces all claims to his earnings and turns over his earnings to the order. 1040a instruction book Mark is a schoolteacher. 1040a instruction book He was instructed by the superiors of the order to get a job with a private tax-exempt school. 1040a instruction book Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. 1040a instruction book Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. 1040a instruction book The wages Mark earns working for the school are included in his income. 1040a instruction book Foreign Employer Special rules apply if you work for a foreign employer. 1040a instruction book U. 1040a instruction book S. 1040a instruction book citizen. 1040a instruction book   If you are a U. 1040a instruction book S. 1040a instruction book citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. 1040a instruction book Social security and Medicare taxes. 1040a instruction book   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. 1040a instruction book However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. 1040a instruction book This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. 1040a instruction book Employees of international organizations or foreign governments. 1040a instruction book   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). 1040a instruction book   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. 1040a instruction book You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). 1040a instruction book Your work is like the work done by employees of the United States in foreign countries. 1040a instruction book The foreign government gives an equal exemption to employees of the United States in its country. 1040a instruction book Waiver of alien status. 1040a instruction book   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. 1040a instruction book See Foreign Employer in Publication 525. 1040a instruction book Employment abroad. 1040a instruction book   For information on the tax treatment of income earned abroad, see Publication 54. 1040a instruction book Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. 1040a instruction book Allowances generally are not taxed. 1040a instruction book For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. 1040a instruction book Differential wage payments. 1040a instruction book   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. 1040a instruction book These wages are subject to income tax withholding and are reported on a Form W-2. 1040a instruction book See the discussion under Miscellaneous Compensation , earlier. 1040a instruction book Military retirement pay. 1040a instruction book   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040a instruction book Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. 1040a instruction book   For more detailed discussion of survivor annuities, see chapter 10. 1040a instruction book Disability. 1040a instruction book   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. 1040a instruction book Veterans' benefits. 1040a instruction book   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). 1040a instruction book The following amounts paid to veterans or their families are not taxable. 1040a instruction book Education, training, and subsistence allowances. 1040a instruction book Disability compensation and pension payments for disabilities paid either to veterans or their families. 1040a instruction book Grants for homes designed for wheelchair living. 1040a instruction book Grants for motor vehicles for veterans who lost their sight or the use of their limbs. 1040a instruction book Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. 1040a instruction book Interest on insurance dividends you leave on deposit with the VA. 1040a instruction book Benefits under a dependent-care assistance program. 1040a instruction book The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. 1040a instruction book Payments made under the compensated work therapy program. 1040a instruction book Any bonus payment by a state or political subdivision because of service in a combat zone. 1040a instruction book Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. 1040a instruction book Peace Corps. 1040a instruction book   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. 1040a instruction book Taxable allowances. 1040a instruction book   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. 1040a instruction book Living allowances designated by the Director of the Peace Corps as basic compensation. 1040a instruction book These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. 1040a instruction book Leave allowances. 1040a instruction book Readjustment allowances or termination payments. 1040a instruction book These are considered received by you when credited to your account. 1040a instruction book Example. 1040a instruction book Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. 1040a instruction book Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. 1040a instruction book Volunteers in Service to America (VISTA). 1040a instruction book   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. 1040a instruction book National Senior Services Corps programs. 1040a instruction book   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. 1040a instruction book Retired Senior Volunteer Program (RSVP). 1040a instruction book Foster Grandparent Program. 1040a instruction book Senior Companion Program. 1040a instruction book Service Corps of Retired Executives (SCORE). 1040a instruction book   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. 1040a instruction book Volunteer tax counseling. 1040a instruction book   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). 1040a instruction book   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. 1040a instruction book See chapter 24. 1040a instruction book Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. 1040a instruction book In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. 1040a instruction book If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. 1040a instruction book However, certain payments may not be taxable to you. 1040a instruction book Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. 1040a instruction book In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. 1040a instruction book Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. 1040a instruction book Cost paid by you. 1040a instruction book   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. 1040a instruction book If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. 1040a instruction book See Reimbursement in a later year in chapter 21. 1040a instruction book Cafeteria plans. 1040a instruction book   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. 1040a instruction book If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. 1040a instruction book Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. 1040a instruction book You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. 1040a instruction book Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. 1040a instruction book You may be entitled to a tax credit if you were permanently and totally disabled when you retired. 1040a instruction book For information on this credit and the definition of permanent and total disability, see chapter 33. 1040a instruction book Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. 1040a instruction book Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040a instruction book The rules for reporting pensions are explained in How To Report in chapter 10. 1040a instruction book For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. 1040a instruction book Retirement and profit-sharing plans. 1040a instruction book   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. 1040a instruction book The payments must be reported as a pension or annuity. 1040a instruction book For more information on pensions, see chapter 10. 1040a instruction book Accrued leave payment. 1040a instruction book   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. 1040a instruction book The payment is not a disability payment. 1040a instruction book Include it in your income in the tax year you receive it. 1040a instruction book Military and Government Disability Pensions Certain military and government disability pensions are not taxable. 1040a instruction book Service-connected disability. 1040a instruction book   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. 1040a instruction book The armed forces of any country. 1040a instruction book The National Oceanic and Atmospheric Administration. 1040a instruction book The Public Health Service. 1040a instruction book The Foreign Service. 1040a instruction book Conditions for exclusion. 1040a instruction book   Do not include the disability payments in your income if any of the following conditions apply. 1040a instruction book You were entitled to receive a disability payment before September 25, 1975. 1040a instruction book You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. 1040a instruction book You receive the disability payments for a combat-related injury. 1040a instruction book This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. 1040a instruction book You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. 1040a instruction book Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. 1040a instruction book Pension based on years of service. 1040a instruction book   If you receive a disability pension based on years of service, in most cases you must include it in your income. 1040a instruction book However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. 1040a instruction book You must include the rest of your pension in your income. 1040a instruction book Retroactive VA determination. 1040a instruction book   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. 1040a instruction book You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. 1040a instruction book You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. 1040a instruction book The letter must show the amount withheld and the effective date of the benefit. 1040a instruction book   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. 1040a instruction book However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. 1040a instruction book Special statute of limitations. 1040a instruction book   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. 1040a instruction book However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. 1040a instruction book This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. 1040a instruction book Example. 1040a instruction book You retired in 2007 and receive a pension based on your years of service. 1040a instruction book On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. 1040a instruction book Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. 1040a instruction book However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. 1040a instruction book You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. 1040a instruction book Terrorist attack or military action. 1040a instruction book   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. 1040a instruction book Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. 1040a instruction book Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. 1040a instruction book To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. 1040a instruction book A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. 1040a instruction book The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. 1040a instruction book Qualified long-term care services. 1040a instruction book   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. 1040a instruction book Chronically ill individual. 1040a instruction book   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. 1040a instruction book Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. 1040a instruction book An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. 1040a instruction book Limit on exclusion. 1040a instruction book   You generally can exclude from gross income up to $320 a day for 2013. 1040a instruction book See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. 1040a instruction book Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. 1040a instruction book The exemption also applies to your survivors. 1040a instruction book The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. 1040a instruction book If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 1040a instruction book For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. 1040a instruction book Return to work. 1040a instruction book    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. 1040a instruction book Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. 1040a instruction book Railroad sick pay. 1040a instruction book    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. 1040a instruction book However, do not include them in your income if they are for an on-the-job injury. 1040a instruction book   If you received income because of a disability, see Disability Pensions , earlier. 1040a instruction book Federal Employees' Compensation Act (FECA). 1040a instruction book   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. 1040a instruction book However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. 1040a instruction book Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. 1040a instruction book Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. 1040a instruction book    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 1040a instruction book For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. 1040a instruction book    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. 1040a instruction book It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). 1040a instruction book If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. 1040a instruction book Do not deduct it separately. 1040a instruction book Other compensation. 1040a instruction book   Many other amounts you receive as compensation for sickness or injury are not taxable. 1040a instruction book These include the following amounts. 1040a instruction book Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. 1040a instruction book Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. 1040a instruction book Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. 1040a instruction book Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. 1040a instruction book This compensation must be based only on the injury and not on the period of your absence from work. 1040a instruction book These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. 1040a instruction book Reimbursement for medical care. 1040a instruction book    A reimbursement for medical care is generally not taxable. 1040a instruction book However, it may reduce your medical expense deduction. 1040a instruction book For more information, see chapter 21. 1040a instruction book Prev  Up  Next   Home   More Online Publications
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Understanding your CP11A Notice

We made changes to your return because we believe there's a miscalculation involving your Earned Income Credit. You owe money on your taxes as a result of these changes.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully ― it will explain why you owe money on your taxes.
  • Pay the amount owed by the date on the notice's payment coupon.
  • Make payment arrangements if you can't pay the full amount you owe.
  • Contact us within 60 days of the date of your notice if you disagree with the change we made.
  • Correct the copy of your tax return that you kept for your records.

You may want to...


Answers to Common Questions

How can I find out what caused my tax return to change?
Please contact us at the number listed on your notice for specific information concerning your tax return.

What should I do if I disagree with the changes you made?
If you disagree, contact us at the toll free number listed on the top right corner of your notice.

If you contact us in writing within 60 days of the date of this notice, we'll reverse the change we made to your account. However, if you're unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we'll forward your case for audit. This step gives you formal appeal rights, including the right to appeal our decision in court before you have to pay the additional tax. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don’t contact us within the 60-day period, you'll lose your right to appeal our decision before payment of tax.

If you don't contact us within 60 days, the change won’t be reversed and you must pay the additional tax. You may then file a claim for refund. You must submit the claim within three years of the date you filed the tax return, or within two years of the date of your last payment for this tax.

What happens if I can’t pay the full amount I owe?
You can arrange to make a payment plan with us if you can’t pay the full amount you owe.

Am I charged interest on the money I owe?
Not if you pay the full amount you owe by the date on the payment coupon. However interest accrues on the unpaid balance after that date.

Will I receive a penalty if I can't pay the full amount?
Yes, you will receive a late payment penalty. You can contact us at the number given on your notice at 1-800-829-0922 if you're unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.

What's the difference between the "Child Tax Credit" and the "Additional Child Tax Credit?" Can I qualify for both?
The Child Tax Credit is for people who have a qualifying child and meet the eligibility requirements. The maximum amount you can claim is $1000 for each qualifying child. The Additional Child Tax Credit is for eligible individuals who receive less than the full amount of Child Tax Credit. You may qualify for both the Child Tax Credit and the Additional Child Tax Credit. For more information, see:

How do I claim an Additional Child Tax Credit?
You can claim the credit by completing a Form 1040 Schedule 8812, Child Tax Credit and attaching it to your income tax return.

My child is turning 18 this year. Can I still get the Additional Child Tax Credit?
No. Your child must be under age 17 at the end of 2009 to qualify for both the Child Tax Credit and the Additional Child Tax Credit.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Use the EITC Assistant on our website to help you complete your Schedule EIC, Earned Income Credit and claim your Earned Income Credit.

If you have any dependent children, remember to check out if you are eligible to claim the Child Tax Credit and the Additional Child Tax Credit the next time you file your income tax return. Instructions for claiming the Child Tax Credit are found in the Form 1040 Instruction booklet. Use Form 1040 Schedule 8812, Child Tax Credit to claim the Additional Child Tax Credit, if you are eligible.

Page Last Reviewed or Updated: 28-Mar-2014

The 1040a Instruction Book

1040a instruction book Publication 555 - Additional Material Prev  Up  Next   Home   More Online Publications