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2010 1040 Ez

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2010 1040 Ez

2010 1040 ez Publication 957 - Main Content Table of Contents 1. 2010 1040 ez What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. 2010 1040 ez Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). 2010 1040 ez 1. 2010 1040 ez What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). 2010 1040 ez For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. 2010 1040 ez Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. 2010 1040 ez Report all back pay. 2010 1040 ez However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. 2010 1040 ez See Back Pay Under a Statute , later, for more information. 2010 1040 ez Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. 2010 1040 ez However, for income tax purposes, the IRS treats all back pay as wages in the year paid. 2010 1040 ez Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. 2010 1040 ez The SSA no longer accepts reports on tapes, cartridges, and diskettes. 2010 1040 ez Example. 2010 1040 ez In 2012, Terry Morris earned wages of $50,000. 2010 1040 ez In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. 2010 1040 ez Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. 2010 1040 ez However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. 2010 1040 ez Example. 2010 1040 ez If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. 2010 1040 ez A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. 2010 1040 ez SSA treatment of back pay under a statute. 2010 1040 ez   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. 2010 1040 ez This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. 2010 1040 ez   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. 2010 1040 ez Then, the SSA can allocate the statutory back pay to the appropriate periods. 2010 1040 ez   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. 2010 1040 ez    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. 2010 1040 ez    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. 2010 1040 ez No further action is necessary. 2010 1040 ez Example. 2010 1040 ez In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. 2010 1040 ez Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. 2010 1040 ez No further action is necessary. 2010 1040 ez Information the SSA needs to properly credit back pay under a statute (special report). 2010 1040 ez   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. 2010 1040 ez There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. 2010 1040 ez The special report must include the following information. 2010 1040 ez The employer's name, address, and employer identification number (EIN). 2010 1040 ez A signed statement citing the federal or state statute under which the payment was made. 2010 1040 ez If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). 2010 1040 ez The name and telephone number of a person to contact. 2010 1040 ez The SSA may have additional questions concerning the back pay case or the individual employee's information. 2010 1040 ez A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. 2010 1040 ez The employee's social security number (SSN). 2010 1040 ez The employee's name (as shown on his or her social security card). 2010 1040 ez The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. 2010 1040 ez The period(s) the back pay award covers (beginning and ending dates—month and year). 2010 1040 ez The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. 2010 1040 ez Do not include the back pay award shown in that wage report. 2010 1040 ez If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. 2010 1040 ez The amount to allocate to each reporting period*. 2010 1040 ez This includes any amount you want allocated (if applicable) to the tax year of the award payment. 2010 1040 ez If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. 2010 1040 ez *Note. 2010 1040 ez   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. 2010 1040 ez For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. 2010 1040 ez MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. 2010 1040 ez For tax years 1991 and later, list the social security and Medicare wages separately. 2010 1040 ez If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. 2010 1040 ez Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. 2010 1040 ez Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. 2010 1040 ez Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. 2010 1040 ez Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. 2010 1040 ez Such awards are not wages for social security coverage purposes. 2010 1040 ez If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. 2010 1040 ez The payments made in such a settlement may still be back pay and wages under the rules discussed here. 2010 1040 ez Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. 2010 1040 ez Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. 2010 1040 ez However, they are not payments made under a statute. 2010 1040 ez If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. 2010 1040 ez Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. 2010 1040 ez In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. 2010 1040 ez Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. 2010 1040 ez If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. 2010 1040 ez Read Special Wage Payments, later, for additional reporting instructions. 2010 1040 ez Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. 2010 1040 ez Exception. 2010 1040 ez   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. 2010 1040 ez Table 1. 2010 1040 ez Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. 2010 1040 ez Sec. 2010 1040 ez /Med. 2010 1040 ez Wages Paid In Award Year (4)3 Allocation     Soc. 2010 1040 ez Sec. 2010 1040 ez Med. 2010 1040 ez /MQGE Year Soc. 2010 1040 ez Sec. 2010 1040 ez Med. 2010 1040 ez /MQGE xxx-xx-xxxx HELEN T. 2010 1040 ez SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. 2010 1040 ez EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. 2010 1040 ez ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. 2010 1040 ez  2Exclude the amount of back pay, if any, included in that amount. 2010 1040 ez  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. 2010 1040 ez The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. 2010 1040 ez (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. 2010 1040 ez Sec. 2010 1040 ez column. 2010 1040 ez ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. 2010 1040 ez Explanation of examples. 2010 1040 ez Helen T. 2010 1040 ez Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. 2010 1040 ez In 2012, this employee was also paid $40,000 in other wages. 2010 1040 ez (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. 2010 1040 ez The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. 2010 1040 ez ) Sam W. 2010 1040 ez Evans–The back pay award was $30,000 for the periods 7/89-12/91. 2010 1040 ez This employee was hired in 1989 and was subject to MQGE only. 2010 1040 ez He was no longer employed by this governmental employer in 2012. 2010 1040 ez (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. 2010 1040 ez After the SSA allocation, he will not have any net posted wages for 2012. 2010 1040 ez ) Roland S. 2010 1040 ez Adams–The back pay award was $15,000 for the periods 7/80-12/81. 2010 1040 ez He was no longer employed by this state and local government (Section 218) employer in 2012. 2010 1040 ez (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. 2010 1040 ez ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. 2010 1040 ez Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. 2010 1040 ez Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. 2010 1040 ez Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. 2010 1040 ez Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. 2010 1040 ez Note. 2010 1040 ez Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. 2010 1040 ez Earnings Test. 2010 1040 ez   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. 2010 1040 ez The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. 2010 1040 ez Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. 2010 1040 ez If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. 2010 1040 ez Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. 2010 1040 ez Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. 2010 1040 ez Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. 2010 1040 ez See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. 2010 1040 ez In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. 2010 1040 ez Submit reports after the close of the tax year. 2010 1040 ez To avoid delays in processing, submit reports in time to reach the SSA by April 1. 2010 1040 ez Use one of the following reporting methods. 2010 1040 ez Electronic reporting. 2010 1040 ez   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. 2010 1040 ez gov website. 2010 1040 ez BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. 2010 1040 ez You must register to use this website. 2010 1040 ez The web address is www. 2010 1040 ez socialsecurity. 2010 1040 ez gov/bso/bsowelcome. 2010 1040 ez htm. 2010 1040 ez   Use the specifications and record layout shown in  Table 2, later. 2010 1040 ez Only one file at a time may be submitted. 2010 1040 ez If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. 2010 1040 ez A zipped file contains a file that has been compressed to reduce its file size. 2010 1040 ez WinZip and PKZIP are examples of acceptable compression packages. 2010 1040 ez   Electronic submissions not meeting the specifications in Table 2 will be rejected. 2010 1040 ez Paper listing. 2010 1040 ez   A paper listing can be used to report special wage payments to several employees. 2010 1040 ez Use the format shown in Table 3, later. 2010 1040 ez Submit paper listings to the local SSA office nearest your place of business. 2010 1040 ez Visit www. 2010 1040 ez socialsecurity. 2010 1040 ez gov/locator to find a Social Security office near you. 2010 1040 ez Form SSA-131. 2010 1040 ez   Use Form SSA-131 to report special wage payments made to an employee. 2010 1040 ez Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. 2010 1040 ez    This image is too large to be displayed in the current screen. 2010 1040 ez Please click the link to view the image. 2010 1040 ez Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. 2010 1040 ez Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. 2010 1040 ez 2. 2010 1040 ez Enter the date the employee retired. 2010 1040 ez Enter “Not Retired” if the employee has not retired. 2010 1040 ez 3. 2010 1040 ez Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. 2010 1040 ez This date should be the same as or earlier than the date in item “2”. 2010 1040 ez Enter “Not Retired” if the employee has not retired. 2010 1040 ez 4. 2010 1040 ez Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. 2010 1040 ez  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. 2010 1040 ez Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. 2010 1040 ez Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. 2010 1040 ez Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. 2010 1040 ez Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. 2010 1040 ez Stock Options. 2010 1040 ez   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). 2010 1040 ez That were reported or will be reported under “Nonqualified Plans” on the Form W-2. 2010 1040 ez That were deducted from the employee's wages and paid to a deferred compensation plan (e. 2010 1040 ez g. 2010 1040 ez , 401k). 2010 1040 ez Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). 2010 1040 ez Bonuses earned and paid in the tax year. 2010 1040 ez 5. 2010 1040 ez Check whether payments listed in item 4 will be made for years after the tax year. 2010 1040 ez If yes, please show the amounts and years in which these will be paid, if known. 2010 1040 ez 6. 2010 1040 ez Nonqualified deferred compensation and section 457 plans only. 2010 1040 ez If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. 2010 1040 ez Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). 2010 1040 ez Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. 2010 1040 ez 702. 2010 1040 ez The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. 2010 1040 ez While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. 2010 1040 ez We may also use the information you give us when we match records by computer. 2010 1040 ez Matching programs compare our records with those of other Federal, State, or local government agencies. 2010 1040 ez Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. 2010 1040 ez The law allows us to do this even if you do not agree to it. 2010 1040 ez Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. 2010 1040 ez If you want to learn more about this, contact any Social Security Office. 2010 1040 ez The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. 2010 1040 ez S. 2010 1040 ez C. 2010 1040 ez §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. 2010 1040 ez You are not required to answer these questions unless we display a valid Office of Management and Budget control number. 2010 1040 ez We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. 2010 1040 ez Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. 2010 1040 ez Or, the employee can submit it to the SSA office handling the claim. 2010 1040 ez You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. 2010 1040 ez If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. 2010 1040 ez Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. 2010 1040 ez Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. 2010 1040 ez Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. 2010 1040 ez It should not count for the social security earnings test. 2010 1040 ez Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. 2010 1040 ez Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. 2010 1040 ez For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. 2010 1040 ez Nonqualified and section 457 plans are reported differently than other special wage payments. 2010 1040 ez See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. 2010 1040 ez Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. 2010 1040 ez However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. 2010 1040 ez The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. 2010 1040 ez No risk of forfeiture. 2010 1040 ez   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 2010 1040 ez Example. 2010 1040 ez Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. 2010 1040 ez The plan has no risk of forfeiture. 2010 1040 ez In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. 2010 1040 ez Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. 2010 1040 ez   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 2010 1040 ez The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. 2010 1040 ez   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 2010 1040 ez If the employee continues working, future deferrals are social security and Medicare wages when they are earned. 2010 1040 ez    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 2010 1040 ez Risk of forfeiture lapses at retirement. 2010 1040 ez   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. 2010 1040 ez Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 2010 1040 ez   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 2010 1040 ez    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 2010 1040 ez Example—risk of forfeiture. 2010 1040 ez At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. 2010 1040 ez B's wages, including this year's deferred amount, are $80,000. 2010 1040 ez Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. 2010 1040 ez Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2010 1040 ez Example. 2010 1040 ez Employee D retired from the XYZ company and began receiving social security benefits. 2010 1040 ez XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. 2010 1040 ez In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. 2010 1040 ez D made no deferrals to the nonqualified plan this year. 2010 1040 ez Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. 2010 1040 ez For more information, see Reporting Special Wage Payments , earlier. 2010 1040 ez Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). 2010 1040 ez Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. 2010 1040 ez Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. 2010 1040 ez See Form SSA-131 and its instructions, earlier. 2010 1040 ez Example. 2010 1040 ez Employee K retired this year from Company XYZ and began receiving social security benefits. 2010 1040 ez During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. 2010 1040 ez K also received $75,000 in payments from the company's nonqualified plan. 2010 1040 ez Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. 2010 1040 ez File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. 2010 1040 ez If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. 2010 1040 ez For more information, see Notice 2008-115, 2008-52 I. 2010 1040 ez R. 2010 1040 ez B. 2010 1040 ez 1367, available at www. 2010 1040 ez irs. 2010 1040 ez gov/irb/2008-52_IRB/ar10. 2010 1040 ez html. 2010 1040 ez Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). 2010 1040 ez Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. 2010 1040 ez See Notice 2008-115. 2010 1040 ez The following examples use small dollar amounts for illustrative purposes. 2010 1040 ez However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). 2010 1040 ez The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. 2010 1040 ez Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. 2010 1040 ez The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. 2010 1040 ez For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. 2010 1040 ez Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. 2010 1040 ez The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. 2010 1040 ez Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. 2010 1040 ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 2010 1040 ez The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. 2010 1040 ez Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. 2010 1040 ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 2010 1040 ez The deferral of $20 was vested upon deferral. 2010 1040 ez During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. 2010 1040 ez Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. 2010 1040 ez Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). 2010 1040 ez For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. 2010 1040 ez There was no vesting of prior-year deferrals under the plan. 2010 1040 ez During the year, there were total distributions of $50 from the plan to the employee. 2010 1040 ez Regular pay = $100; Distribution = $50. 2010 1040 ez Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). 2010 1040 ez   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. 2010 1040 ez Instead, report on Form SSA-131 the total amount the employee earned during the year. 2010 1040 ez * Submit the SSA-131 to the nearest SSA office or give it to the employee. 2010 1040 ez   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. 2010 1040 ez Do not consider prior-year deferrals that are vesting in the current year. 2010 1040 ez If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. 2010 1040 ez Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 2010 1040 ez There was also an employer match of $10. 2010 1040 ez The deferral and employer match were vested upon deferral. 2010 1040 ez There was no vesting of prior-year deferrals under the plan. 2010 1040 ez During the year, there were total distributions of $50 from the plan to the employee. 2010 1040 ez Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. 2010 1040 ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. 2010 1040 ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 2010 1040 ez The deferral was not vested upon deferral. 2010 1040 ez There was no vesting of prior-year deferrals under the plan. 2010 1040 ez During the year, there were total distributions of $50 from the plan to the employee. 2010 1040 ez Regular pay = $200; Deferral, not vested = $20; Distribution = $50. 2010 1040 ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). 2010 1040 ez 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 2010 1040 ez The deferral was vested upon deferral. 2010 1040 ez There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. 2010 1040 ez During the year, there were total distributions of $50 from the plan to the employee. 2010 1040 ez Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. 2010 1040 ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. 2010 1040 ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). 2010 1040 ez For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 2010 1040 ez The deferral was not vested upon deferral. 2010 1040 ez There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). 2010 1040 ez During the year, there were total distributions of $50 from the plan to the employee. 2010 1040 ez Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. 2010 1040 ez Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. 2010 1040 ez File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. 2010 1040 ez Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. 2010 1040 ez  The file format is ASCII. 2010 1040 ez  Submit only one file at a time. 2010 1040 ez   Table 3. 2010 1040 ez Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. 2010 1040 ez Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . 2010 1040 ez 1) B. 2010 1040 ez Employee Name: (Last) (First) (MI)   C. 2010 1040 ez SSN: D. 2010 1040 ez SWP:$ E. 2010 1040 ez Type: Other: 2) B. 2010 1040 ez Employee Name: (Last) (First) (MI)   C. 2010 1040 ez SSN: D. 2010 1040 ez SWP:$ E. 2010 1040 ez Type: Other: 3) B. 2010 1040 ez Employee Name: (Last) (First) (MI)   C. 2010 1040 ez SSN: D. 2010 1040 ez SWP:$ E. 2010 1040 ez Type: Other: 4) B. 2010 1040 ez Employee Name: (Last) (First) (MI)   C. 2010 1040 ez SSN: D. 2010 1040 ez SWP:$ E. 2010 1040 ez Type: Other: 5) B. 2010 1040 ez Employee Name: (Last) (First) (MI)   C. 2010 1040 ez SSN: D. 2010 1040 ez SWP:$ E. 2010 1040 ez Type: Other:     INSTRUCTIONS:   Enter tax year and page number. 2010 1040 ez   A. 2010 1040 ez Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. 2010 1040 ez   B. 2010 1040 ez Employee's name. 2010 1040 ez   C. 2010 1040 ez Employee's social security number (SSN). 2010 1040 ez   D. 2010 1040 ez Total amount of special wage payments made to the employee. 2010 1040 ez   E. 2010 1040 ez Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. 2010 1040 ez   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. 2010 1040 ez (Get Form SSA-131. 2010 1040 ez )                 Prev  Up  Next   Home   More Online Publications
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Beware of e-Mail Scams about Electronic Federal Tax Payments

Consumers should be aware of a scam e-mail about an electronic federal tax payment the e-mail claims they tried to make or which specifies the Electronic Federal Tax Payment System (EFTPS). The e-mail states that tax payments made by the e-mail recipient through EFTPS have been rejected.

The e-mail then directs recipients to a bogus link for a transaction report that, when clicked, downloads malicious software (malware) that infects the intended victim’s computer. The malware is designed to send back to the scammer personal and financial information already contained on the taxpayer's computer or obtained through capturing keystrokes. The scammer uses this personal and financial information to commit identity theft.

To avoid malware, do not click on any links, open any attachments or reply to the sender for this or any other unsolicited e-mails you may receive about your tax account which claims to come from the IRS or EFTPS.

If you responded to this scam and believe you may have become the victim of identity theft, find out what steps you can take.

The IRS and the Financial Management Service (the Treasury bureau that owns EFTPS) do not communicate payment information through e-mail.

A scam that tricks someone into revealing their personal and financial data is identity theft. A scam that attempts to do this through e-mail is known as phishing. Find out more about IRS-impersonation phishing scams and how to recognize and report them to the IRS.

EFTPS is a tax payment system that allows individuals and businesses to pay federal taxes electronically via the Internet or phone. It is committed to taxpayer privacy and uses industry-leading security practices and technology to protect taxpayer data. 

Page Last Reviewed or Updated: 12-Dec-2013

The 2010 1040 Ez

2010 1040 ez 8. 2010 1040 ez   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. 2010 1040 ez Half-time student. 2010 1040 ez How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. 2010 1040 ez ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. 2010 1040 ez Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. 2010 1040 ez If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. 2010 1040 ez You cannot deduct either payments or contributions to a QTP. 2010 1040 ez For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. 2010 1040 ez What is the tax benefit of a QTP. 2010 1040 ez   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. 2010 1040 ez See Are Distributions Taxable , later, for more information. 2010 1040 ez    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. 2010 1040 ez See Coordination With American Opportunity and Lifetime Learning Credits, later. 2010 1040 ez What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. 2010 1040 ez QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. 2010 1040 ez The program must meet certain requirements. 2010 1040 ez Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. 2010 1040 ez Qualified education expenses. 2010 1040 ez   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). 2010 1040 ez As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. 2010 1040 ez See Half-time student , later. 2010 1040 ez The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. 2010 1040 ez Tuition and fees. 2010 1040 ez Books, supplies, and equipment. 2010 1040 ez Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. 2010 1040 ez Expenses for room and board must be incurred by students who are enrolled at least half-time. 2010 1040 ez The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. 2010 1040 ez The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. 2010 1040 ez The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. 2010 1040 ez You will need to contact the eligible educational institution for qualified room and board costs. 2010 1040 ez    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. 2010 1040 ez Designated beneficiary. 2010 1040 ez   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. 2010 1040 ez The designated beneficiary can be changed after participation in the QTP begins. 2010 1040 ez If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. 2010 1040 ez Half-time student. 2010 1040 ez   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. 2010 1040 ez Eligible educational institution. 2010 1040 ez   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 2010 1040 ez S. 2010 1040 ez Department of Education. 2010 1040 ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2010 1040 ez The educational institution should be able to tell you if it is an eligible educational institution. 2010 1040 ez   Certain educational institutions located outside the United States also participate in the U. 2010 1040 ez S. 2010 1040 ez Department of Education's Federal Student Aid (FSA) programs. 2010 1040 ez   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. 2010 1040 ez There are no income restrictions on the individual contributors. 2010 1040 ez You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. 2010 1040 ez   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. 2010 1040 ez This is a return of the investment in the plan. 2010 1040 ez The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). 2010 1040 ez Earnings and return of investment. 2010 1040 ez    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. 2010 1040 ez The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). 2010 1040 ez Form 1099-Q should be sent to you by January 31, 2014. 2010 1040 ez Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. 2010 1040 ez Adjusted qualified education expenses. 2010 1040 ez   This amount is the total qualified education expenses reduced by any tax-free educational assistance. 2010 1040 ez Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2010 1040 ez Taxable earnings. 2010 1040 ez   Use the following steps to figure the taxable part. 2010 1040 ez Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. 2010 1040 ez The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. 2010 1040 ez Subtract the amount figured in (1) from the total distributed earnings. 2010 1040 ez The result is the amount the beneficiary must include in income. 2010 1040 ez Report it on Form 1040 or Form 1040NR, line 21. 2010 1040 ez Example 1. 2010 1040 ez In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. 2010 1040 ez Over the years they contributed $18,000 to the account. 2010 1040 ez The total balance in the account was $27,000 on the date the distribution was made. 2010 1040 ez In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. 2010 1040 ez She paid her college expenses from the following sources. 2010 1040 ez   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. 2010 1040 ez   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. 2010 1040 ez Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. 2010 1040 ez Sara figures the taxable part of the distributed earnings as follows. 2010 1040 ez   1. 2010 1040 ez $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. 2010 1040 ez $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. 2010 1040 ez Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. 2010 1040 ez This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. 2010 1040 ez Example 2. 2010 1040 ez Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). 2010 1040 ez   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. 2010 1040 ez   1. 2010 1040 ez $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. 2010 1040 ez $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). 2010 1040 ez This represents distributed earnings not used for adjusted qualified education expenses. 2010 1040 ez Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. 2010 1040 ez For purposes of this allocation, disregard any qualified elementary and secondary education expenses. 2010 1040 ez Example 3. 2010 1040 ez Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. 2010 1040 ez In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. 2010 1040 ez   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. 2010 1040 ez Note. 2010 1040 ez If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . 2010 1040 ez Coordination With Tuition and Fees Deduction. 2010 1040 ez   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. 2010 1040 ez Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. 2010 1040 ez You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. 2010 1040 ez Your basis is the total amount of contributions to that QTP account. 2010 1040 ez You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. 2010 1040 ez If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. 2010 1040 ez ) from all such accounts in order to determine your taxable earnings for the year. 2010 1040 ez By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. 2010 1040 ez Example 1. 2010 1040 ez In 2013, Taylor received a final distribution of $1,000 from QTP #1. 2010 1040 ez His unrecovered basis in that account before the distribution was $3,000. 2010 1040 ez If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). 2010 1040 ez Example 2. 2010 1040 ez Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. 2010 1040 ez His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). 2010 1040 ez Taylor's adjusted qualified education expenses for 2013 totaled $6,000. 2010 1040 ez In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. 2010 1040 ez   1. 2010 1040 ez $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. 2010 1040 ez $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. 2010 1040 ez $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. 2010 1040 ez Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). 2010 1040 ez Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. 2010 1040 ez Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. 2010 1040 ez Exceptions. 2010 1040 ez   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. 2010 1040 ez Made because the designated beneficiary is disabled. 2010 1040 ez A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. 2010 1040 ez A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. 2010 1040 ez Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2010 1040 ez Made on account of the attendance of the designated beneficiary at a U. 2010 1040 ez S. 2010 1040 ez military academy (such as the USNA at Annapolis). 2010 1040 ez This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. 2010 1040 ez S. 2010 1040 ez Code) attributable to such attendance. 2010 1040 ez Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. 2010 1040 ez ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. 2010 1040 ez Figuring the additional tax. 2010 1040 ez    Use Part II of Form 5329, to figure any additional tax. 2010 1040 ez Report the amount on Form 1040, line 58, or Form 1040NR, line 56. 2010 1040 ez Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. 2010 1040 ez In addition, the designated beneficiary can be changed without transferring accounts. 2010 1040 ez Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). 2010 1040 ez An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. 2010 1040 ez Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. 2010 1040 ez These are not taxable distributions. 2010 1040 ez Members of the beneficiary's family. 2010 1040 ez   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. 2010 1040 ez Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. 2010 1040 ez Brother, sister, stepbrother, or stepsister. 2010 1040 ez Father or mother or ancestor of either. 2010 1040 ez Stepfather or stepmother. 2010 1040 ez Son or daughter of a brother or sister. 2010 1040 ez Brother or sister of father or mother. 2010 1040 ez Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. 2010 1040 ez The spouse of any individual listed above. 2010 1040 ez First cousin. 2010 1040 ez Example. 2010 1040 ez When Aaron graduated from college last year he had $5,000 left in his QTP. 2010 1040 ez He wanted to give this money to his younger brother, who was in junior high school. 2010 1040 ez In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. 2010 1040 ez If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. 2010 1040 ez Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. 2010 1040 ez See Members of the beneficiary's family , earlier. 2010 1040 ez Example. 2010 1040 ez Assume the same situation as in the last example. 2010 1040 ez Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. 2010 1040 ez Prev  Up  Next   Home   More Online Publications