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Aarp tax help locations 3. Aarp tax help locations   Limit on Annual Additions Table of Contents Ministers and church employees. Aarp tax help locations Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Aarp tax help locations This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Aarp tax help locations The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Aarp tax help locations More than one 403(b) account. Aarp tax help locations If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Aarp tax help locations Ministers and church employees. Aarp tax help locations   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Aarp tax help locations For more information, see chapter 5. Aarp tax help locations Participation in a qualified plan. Aarp tax help locations If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Aarp tax help locations You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Aarp tax help locations Includible Compensation for Your Most Recent Year of Service Definition. Aarp tax help locations   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Aarp tax help locations When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Aarp tax help locations This can happen if your tax year is not the same as your employer's annual work period. Aarp tax help locations When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Aarp tax help locations Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Aarp tax help locations Tax year different from employer's annual work period. Aarp tax help locations   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Aarp tax help locations Example. Aarp tax help locations A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Aarp tax help locations To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Aarp tax help locations Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Aarp tax help locations A full year of service is equal to full-time employment for your employer's annual work period. Aarp tax help locations After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Aarp tax help locations Part-time or employed only part of the year. Aarp tax help locations   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Aarp tax help locations To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Aarp tax help locations Example. Aarp tax help locations You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Aarp tax help locations Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Aarp tax help locations Not yet employed for 1 year. Aarp tax help locations   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Aarp tax help locations Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Aarp tax help locations Includible compensation is not the same as income included on your tax return. Aarp tax help locations Compensation is a combination of income and benefits received in exchange for services provided to your employer. Aarp tax help locations Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Aarp tax help locations Includible compensation includes the following amounts. Aarp tax help locations Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Aarp tax help locations Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Aarp tax help locations Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Aarp tax help locations  Note. Aarp tax help locations For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Aarp tax help locations Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Aarp tax help locations Income otherwise excluded under the foreign earned income exclusion. Aarp tax help locations Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Aarp tax help locations Includible compensation does not include the following items. Aarp tax help locations Your employer's contributions to your 403(b) account. Aarp tax help locations Compensation earned while your employer was not an eligible employer. Aarp tax help locations Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Aarp tax help locations The cost of incidental life insurance. Aarp tax help locations See Cost of Incidental Life Insurance, later. Aarp tax help locations If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Aarp tax help locations Contributions after retirement. Aarp tax help locations   Nonelective contributions may be made for an employee for up to 5 years after retirement. Aarp tax help locations These contributions would be based on includible compensation for the last year of service before retirement. Aarp tax help locations Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Aarp tax help locations If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Aarp tax help locations If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Aarp tax help locations If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Aarp tax help locations Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Aarp tax help locations Not all annuity contracts include life insurance. Aarp tax help locations Contact your plan administrator to determine if your contract includes incidental life insurance. Aarp tax help locations If it does, you will need to figure the cost of life insurance each year the policy is in effect. Aarp tax help locations Figuring the cost of incidental life insurance. Aarp tax help locations If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Aarp tax help locations To determine the amount of the life insurance premiums, you will need to know the following information. Aarp tax help locations The value of your life insurance contract, which is the amount payable upon your death. Aarp tax help locations The cash value of your life insurance contract at the end of the tax year. Aarp tax help locations Your age on your birthday nearest the beginning of the policy year. Aarp tax help locations Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Aarp tax help locations You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Aarp tax help locations Example. Aarp tax help locations Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Aarp tax help locations Your cash value in the contract at the end of the first year is zero. Aarp tax help locations Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Aarp tax help locations The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Aarp tax help locations The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Aarp tax help locations The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Aarp tax help locations Figure 3-1. Aarp tax help locations Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Aarp tax help locations 70   35 $0. Aarp tax help locations 99   70 $20. Aarp tax help locations 62 1 0. Aarp tax help locations 41   36 1. Aarp tax help locations 01   71 22. Aarp tax help locations 72 2 0. Aarp tax help locations 27   37 1. Aarp tax help locations 04   72 25. Aarp tax help locations 07 3 0. Aarp tax help locations 19   38 1. Aarp tax help locations 06   73 27. Aarp tax help locations 57 4 0. Aarp tax help locations 13   39 1. Aarp tax help locations 07   74 30. Aarp tax help locations 18 5 0. Aarp tax help locations 13   40 1. Aarp tax help locations 10   75 33. Aarp tax help locations 05 6 0. Aarp tax help locations 14   41 1. Aarp tax help locations 13   76 36. Aarp tax help locations 33 7 0. Aarp tax help locations 15   42 1. Aarp tax help locations 20   77 40. Aarp tax help locations 17 8 0. Aarp tax help locations 16   43 1. Aarp tax help locations 29   78 44. Aarp tax help locations 33 9 0. Aarp tax help locations 16   44 1. Aarp tax help locations 40   79 49. Aarp tax help locations 23 10 0. Aarp tax help locations 16   45 1. Aarp tax help locations 53   80 54. Aarp tax help locations 56 11 0. Aarp tax help locations 19   46 1. Aarp tax help locations 67   81 60. Aarp tax help locations 51 12 0. Aarp tax help locations 24   47 1. Aarp tax help locations 83   82 66. Aarp tax help locations 74 13 0. Aarp tax help locations 28   48 1. Aarp tax help locations 98   83 73. Aarp tax help locations 07 14 0. Aarp tax help locations 33   49 2. Aarp tax help locations 13   84 80. Aarp tax help locations 35 15 0. Aarp tax help locations 38   50 2. Aarp tax help locations 30   85 88. Aarp tax help locations 76 16 0. Aarp tax help locations 52   51 2. Aarp tax help locations 52   86 99. Aarp tax help locations 16 17 0. Aarp tax help locations 57   52 2. Aarp tax help locations 81   87 110. Aarp tax help locations 40 18 0. Aarp tax help locations 59   53 3. Aarp tax help locations 20   88 121. Aarp tax help locations 85 19 0. Aarp tax help locations 61   54 3. Aarp tax help locations 65   89 133. Aarp tax help locations 40 20 0. Aarp tax help locations 62   55 4. Aarp tax help locations 15   90 144. Aarp tax help locations 30 21 0. Aarp tax help locations 62   56 4. Aarp tax help locations 68   91 155. Aarp tax help locations 80 22 0. Aarp tax help locations 64   57 5. Aarp tax help locations 20   92 168. Aarp tax help locations 75 23 0. Aarp tax help locations 66   58 5. Aarp tax help locations 66   93 186. Aarp tax help locations 44 24 0. Aarp tax help locations 68   59 6. Aarp tax help locations 06   94 206. Aarp tax help locations 70 25 0. Aarp tax help locations 71   60 6. Aarp tax help locations 51   95 228. Aarp tax help locations 35 26 0. Aarp tax help locations 73   61 7. Aarp tax help locations 11   96 250. Aarp tax help locations 01 27 0. Aarp tax help locations 76   62 7. Aarp tax help locations 96   97 265. Aarp tax help locations 09 28 0. Aarp tax help locations 80   63 9. Aarp tax help locations 08   98 270. Aarp tax help locations 11 29 0. Aarp tax help locations 83   64 10. Aarp tax help locations 41   99 281. Aarp tax help locations 05 30 0. Aarp tax help locations 87   65 11. Aarp tax help locations 90       31 0. Aarp tax help locations 90   66 13. Aarp tax help locations 51       32 0. Aarp tax help locations 93   67 15. Aarp tax help locations 20       33 0. Aarp tax help locations 96   68 16. Aarp tax help locations 92       34 0. Aarp tax help locations 98   69 18. Aarp tax help locations 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Aarp tax help locations Example 1. Aarp tax help locations Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Aarp tax help locations The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Aarp tax help locations Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Aarp tax help locations Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Aarp tax help locations When figuring her includible compensation for this year, Lynne will subtract $28. Aarp tax help locations Table 3-1. Aarp tax help locations Worksheet A. Aarp tax help locations Cost of Incidental Life Insurance Note. Aarp tax help locations Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Aarp tax help locations This amount will be used to figure includible compensation for your most recent year of service. Aarp tax help locations 1. Aarp tax help locations Enter the value of the contract (amount payable upon your death) 1. Aarp tax help locations $20,000. Aarp tax help locations 00 2. Aarp tax help locations Enter the cash value in the contract at the end of the year 2. Aarp tax help locations 0. Aarp tax help locations 00 3. Aarp tax help locations Subtract line 2 from line 1. Aarp tax help locations This is the value of your current life insurance protection 3. Aarp tax help locations $20,000. Aarp tax help locations 00 4. Aarp tax help locations Enter your age on your birthday nearest the beginning of the policy year 4. Aarp tax help locations 44 5. Aarp tax help locations Enter the 1-year term premium for $1,000 of life insurance based on your age. Aarp tax help locations (From Figure 3-1) 5. Aarp tax help locations $1. Aarp tax help locations 40 6. Aarp tax help locations Divide line 3 by $1,000 6. Aarp tax help locations 20 7. Aarp tax help locations Multiply line 6 by line 5. Aarp tax help locations This is the cost of your incidental life insurance 7. Aarp tax help locations $28. Aarp tax help locations 00 Example 2. Aarp tax help locations Lynne's cash value in the contract at the end of the second year is $1,000. Aarp tax help locations In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Aarp tax help locations In year two, Lynne's employer will include $29. Aarp tax help locations 07 in her current year's income. Aarp tax help locations Lynne will subtract this amount when figuring her includible compensation. Aarp tax help locations Table 3-2. Aarp tax help locations Worksheet A. Aarp tax help locations Cost of Incidental Life Insurance Note. Aarp tax help locations Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Aarp tax help locations This amount will be used to figure includible compensation for your most recent year of service. Aarp tax help locations 1. Aarp tax help locations Enter the value of the contract (amount payable upon your death) 1. Aarp tax help locations $20,000. Aarp tax help locations 00 2. Aarp tax help locations Enter the cash value in the contract at the end of the year 2. Aarp tax help locations $1,000. Aarp tax help locations 00 3. Aarp tax help locations Subtract line 2 from line 1. Aarp tax help locations This is the value of your current life insurance protection 3. Aarp tax help locations $19,000. Aarp tax help locations 00 4. Aarp tax help locations Enter your age on your birthday nearest the beginning of the policy year 4. Aarp tax help locations 45 5. Aarp tax help locations Enter the 1-year term premium for $1,000 of life insurance based on your age. Aarp tax help locations (From Figure 3-1) 5. Aarp tax help locations $1. Aarp tax help locations 53 6. Aarp tax help locations Divide line 3 by $1,000 6. Aarp tax help locations 19 7. Aarp tax help locations Multiply line 6 by line 5. Aarp tax help locations This is the cost of your incidental life insurance 7. Aarp tax help locations $29. Aarp tax help locations 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Aarp tax help locations Example. Aarp tax help locations Floyd has been periodically working full-time for a local hospital since September 2011. Aarp tax help locations He needs to figure his limit on annual additions for 2014. Aarp tax help locations The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Aarp tax help locations During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Aarp tax help locations Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Aarp tax help locations Floyd has never worked abroad and there is no life insurance provided under the plan. Aarp tax help locations Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Aarp tax help locations Table 3-3. Aarp tax help locations Floyd's Compensation Note. Aarp tax help locations This table shows information Floyd will use to figure includible compensation for his most recent year of service. Aarp tax help locations   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Aarp tax help locations Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Aarp tax help locations If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Aarp tax help locations He figures his most recent year of service shown in the following list. Aarp tax help locations Time he will work in 2014 is 6/12 of a year. Aarp tax help locations Time worked in 2013 is 4/12 of a year. Aarp tax help locations All of this time will be used to determine Floyd's most recent year of service. Aarp tax help locations Time worked in 2012 is 4/12 of a year. Aarp tax help locations Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Aarp tax help locations Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Aarp tax help locations Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Aarp tax help locations His includible compensation for his most recent year of service is figured as shown in Table 3-4. Aarp tax help locations After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Aarp tax help locations Table 3-4. Aarp tax help locations Worksheet B. Aarp tax help locations Includible Compensation for Your Most Recent Year of Service1 Note. Aarp tax help locations Use this worksheet to figure includible compensation for your most recent year of service. Aarp tax help locations 1. Aarp tax help locations Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Aarp tax help locations $66,000 2. Aarp tax help locations Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Aarp tax help locations 4,4753 3. Aarp tax help locations Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Aarp tax help locations -0- 4. Aarp tax help locations Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Aarp tax help locations -0- 5. Aarp tax help locations Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Aarp tax help locations -0- 6. Aarp tax help locations Enter your foreign earned income exclusion for your most recent year of service 6. Aarp tax help locations -0- 7. Aarp tax help locations Add lines 1, 2, 3, 4, 5, and 6 7. Aarp tax help locations 70,475 8. Aarp tax help locations Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Aarp tax help locations -0- 9. Aarp tax help locations Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Aarp tax help locations -0- 10. Aarp tax help locations Add lines 8 and 9 10. Aarp tax help locations -0- 11. Aarp tax help locations Subtract line 10 from line 7. Aarp tax help locations This is your includible compensation for your most recent year of service 11. Aarp tax help locations 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Aarp tax help locations 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Aarp tax help locations  3$4,475 ($2,000 + $1,650 + $825). Aarp tax help locations Prev  Up  Next   Home   More Online Publications
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Aarp tax help locations Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Aarp tax help locations S. Aarp tax help locations Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. Aarp tax help locations Full-time student. Aarp tax help locations Adjusted gross income. Aarp tax help locations More information. Aarp tax help locations Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). Aarp tax help locations Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. Aarp tax help locations Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Aarp tax help locations You are a member of a religious order who has taken a vow of poverty. Aarp tax help locations You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Aarp tax help locations See Exemption From Self-Employment (SE) Tax , later. Aarp tax help locations You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. Aarp tax help locations For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Aarp tax help locations Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. Aarp tax help locations See Ministerial Services , later. Aarp tax help locations Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. Aarp tax help locations However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax help locations For the specific services covered, see Ministerial Services , later. Aarp tax help locations Ministers defined. Aarp tax help locations   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Aarp tax help locations Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. Aarp tax help locations   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Aarp tax help locations Employment status for other tax purposes. Aarp tax help locations   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. Aarp tax help locations For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Aarp tax help locations Common-law employee. Aarp tax help locations   Under common-law rules, you are considered either an employee or a self-employed person. Aarp tax help locations Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. Aarp tax help locations For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Aarp tax help locations   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. Aarp tax help locations However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. Aarp tax help locations Example. Aarp tax help locations A church hires and pays you a salary to perform ministerial services subject to its control. Aarp tax help locations Under the common-law rules, you are an employee of the church while performing those services. Aarp tax help locations Form SS-8. Aarp tax help locations   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. Aarp tax help locations Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. Aarp tax help locations See Ministerial Services , later. Aarp tax help locations However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax help locations Vow of poverty. Aarp tax help locations   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. Aarp tax help locations You do not need to request a separate exemption. Aarp tax help locations For income tax purposes, the earnings are tax free to you. Aarp tax help locations Your earnings are considered the income of the religious order. Aarp tax help locations Services covered under FICA at the election of the order. Aarp tax help locations   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Aarp tax help locations Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. Aarp tax help locations   The order or subdivision elects coverage by filing Form SS-16. Aarp tax help locations The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. Aarp tax help locations If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Aarp tax help locations You do not pay any of the FICA tax. Aarp tax help locations Services performed outside the order. Aarp tax help locations   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. Aarp tax help locations   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Aarp tax help locations You may, however, be able to take a charitable deduction for the amount you turn over to the order. Aarp tax help locations See Publication 526, Charitable Contributions. Aarp tax help locations Rulings. Aarp tax help locations   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. Aarp tax help locations To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Aarp tax help locations R. Aarp tax help locations B. Aarp tax help locations 1, available at www. Aarp tax help locations irs. Aarp tax help locations gov/irb/2014-1_IRB/ar05. Aarp tax help locations html. Aarp tax help locations Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. Aarp tax help locations However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax help locations Practitioners. Aarp tax help locations   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Aarp tax help locations State law specifically exempts Christian Science practitioners from licensing requirements. Aarp tax help locations   Some Christian Science practitioners also are Christian Science teachers or lecturers. Aarp tax help locations Income from teaching or lecturing is considered the same as income from their work as practitioners. Aarp tax help locations Readers. Aarp tax help locations   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Aarp tax help locations Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. Aarp tax help locations Some exceptions are discussed next. Aarp tax help locations Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. Aarp tax help locations If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. Aarp tax help locations Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Aarp tax help locations 28 during the tax year. Aarp tax help locations However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Aarp tax help locations Churches and church organizations make this election by filing two copies of Form 8274. Aarp tax help locations For more information about making this election, see Form 8274. Aarp tax help locations Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. Aarp tax help locations This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Aarp tax help locations Make this choice by filing Form 4029. Aarp tax help locations See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Aarp tax help locations U. Aarp tax help locations S. Aarp tax help locations Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Aarp tax help locations Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. Aarp tax help locations S. Aarp tax help locations social security system. Aarp tax help locations To determine your alien status, see Publication 519, U. Aarp tax help locations S. Aarp tax help locations Tax Guide for Aliens. Aarp tax help locations Residents of Puerto Rico, the U. Aarp tax help locations S. Aarp tax help locations Virgin Islands, Guam, the CNMI, and American Samoa. Aarp tax help locations   If you are a resident of one of these U. Aarp tax help locations S. Aarp tax help locations possessions but not a U. Aarp tax help locations S. Aarp tax help locations citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Aarp tax help locations For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Aarp tax help locations Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. Aarp tax help locations Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Aarp tax help locations Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Aarp tax help locations The exemption does not apply to any other income. Aarp tax help locations The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Aarp tax help locations Ministers Most services you perform as a minister, priest, rabbi, etc. Aarp tax help locations , are ministerial services. Aarp tax help locations These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. Aarp tax help locations You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Aarp tax help locations A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. Aarp tax help locations Services for nonreligious organizations. Aarp tax help locations   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Aarp tax help locations Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Aarp tax help locations   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. Aarp tax help locations Services that are not part of your ministry. Aarp tax help locations   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. Aarp tax help locations The following are not ministerial services. Aarp tax help locations Services you perform for nonreligious organizations other than the services stated above. Aarp tax help locations Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. Aarp tax help locations These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Aarp tax help locations (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Aarp tax help locations ) Services you perform in a government-owned and operated hospital. Aarp tax help locations (These services are considered performed by a government employee, not by a minister as part of the ministry. Aarp tax help locations ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. Aarp tax help locations Books or articles. Aarp tax help locations   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Aarp tax help locations   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Aarp tax help locations Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. Aarp tax help locations The services are considered ministerial because you perform them as an agent of the order. Aarp tax help locations For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. Aarp tax help locations However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. Aarp tax help locations Effect of employee status. Aarp tax help locations   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. Aarp tax help locations In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. Aarp tax help locations This result is true even if you have taken a vow of poverty. Aarp tax help locations Example. Aarp tax help locations Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Aarp tax help locations They renounce all claims to their earnings. Aarp tax help locations The earnings belong to the order. Aarp tax help locations Pat is a licensed attorney. Aarp tax help locations The superiors of the order instructed her to get a job with a law firm. Aarp tax help locations Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Aarp tax help locations Chris is a secretary. Aarp tax help locations The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Aarp tax help locations Chris took the job and gave all his earnings to the order. Aarp tax help locations Pat's services are not duties required by the order. Aarp tax help locations Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Aarp tax help locations Chris' services are duties required by the order. Aarp tax help locations He is acting as an agent of the order and not as an employee of a third party. Aarp tax help locations He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. Aarp tax help locations Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Aarp tax help locations Amounts you receive for performing these services are generally subject to SE tax. Aarp tax help locations You may request an exemption from SE tax, discussed next, which applies only to those services. Aarp tax help locations Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. Aarp tax help locations Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. Aarp tax help locations They do not have to request the exemption. Aarp tax help locations Who cannot be exempt. Aarp tax help locations   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Aarp tax help locations These elections are irrevocable. Aarp tax help locations You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. Aarp tax help locations You elected before 1968 to be covered under social security for your ministerial services. Aarp tax help locations Requesting exemption. Aarp tax help locations    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Aarp tax help locations More detailed explanations follow. Aarp tax help locations If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. Aarp tax help locations It does not apply to any other self-employment income. Aarp tax help locations Table 2. Aarp tax help locations The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. Aarp tax help locations You file Form 4361, described below under Requesting Exemption—Form 4361 . Aarp tax help locations You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. Aarp tax help locations You file for other than economic reasons. Aarp tax help locations You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). Aarp tax help locations This requirement does not apply to Christian Science practitioners or readers. Aarp tax help locations You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Aarp tax help locations You establish that the organization is a church or a convention or association of churches. Aarp tax help locations You did not make an election discussed earlier under Who cannot be exempt . Aarp tax help locations You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. Aarp tax help locations Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Aarp tax help locations The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Aarp tax help locations If it is approved, keep the approved copy of Form 4361 in your permanent records. Aarp tax help locations When to file. Aarp tax help locations   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. Aarp tax help locations You have net earnings from self-employment of at least $400. Aarp tax help locations Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. Aarp tax help locations The 2 years do not have to be consecutive tax years. Aarp tax help locations    The approval process can take some time, so you should file Form 4361 as soon as possible. Aarp tax help locations Example 1. Aarp tax help locations Rev. Aarp tax help locations Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Aarp tax help locations He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Aarp tax help locations However, if Rev. Aarp tax help locations Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Aarp tax help locations Example 2. Aarp tax help locations Rev. Aarp tax help locations Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. Aarp tax help locations She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Aarp tax help locations However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. Aarp tax help locations Example 3. Aarp tax help locations In 2011, Rev. Aarp tax help locations David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Aarp tax help locations In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Aarp tax help locations Therefore, he had no net self-employment earnings as a minister in 2012. Aarp tax help locations Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Aarp tax help locations In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Aarp tax help locations Rev. Aarp tax help locations Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. Aarp tax help locations Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Aarp tax help locations Death of individual. Aarp tax help locations   The right to file an application for exemption ends with an individual's death. Aarp tax help locations A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Aarp tax help locations Effective date of exemption. Aarp tax help locations   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. Aarp tax help locations Once the exemption is approved, it is irrevocable. Aarp tax help locations Example. Aarp tax help locations Rev. Aarp tax help locations Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Aarp tax help locations She files an application for exemption on February 20, 2014. Aarp tax help locations If an exemption is granted, it is effective for 2010 and the following years. Aarp tax help locations Refunds of SE tax. Aarp tax help locations   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Aarp tax help locations Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. Aarp tax help locations A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Aarp tax help locations   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. Aarp tax help locations Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. Aarp tax help locations Exception. Aarp tax help locations   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. Aarp tax help locations However, if you pay your benefits back, you may be considered for exemption. Aarp tax help locations Contact your local Social Security Administration office to find out the amount you must pay back. Aarp tax help locations Eligibility requirements. Aarp tax help locations   To claim this exemption from SE tax, all the following requirements must be met. Aarp tax help locations You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Aarp tax help locations As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. Aarp tax help locations You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. Aarp tax help locations The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. Aarp tax help locations Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. Aarp tax help locations The sect or division must complete part of the form. Aarp tax help locations The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Aarp tax help locations If it is approved, keep the approved copy of Form 4029 in your permanent records. Aarp tax help locations When to file. Aarp tax help locations   You can file Form 4029 at any time. Aarp tax help locations   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. Aarp tax help locations See Effective date of exemption next for information on when the newly approved exemption would become effective. Aarp tax help locations    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. Aarp tax help locations Effective date of exemption. Aarp tax help locations   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. Aarp tax help locations (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. Aarp tax help locations )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. Aarp tax help locations You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. Aarp tax help locations The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Aarp tax help locations Refunds of SE tax paid. Aarp tax help locations    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Aarp tax help locations For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Aarp tax help locations Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Aarp tax help locations Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. Aarp tax help locations A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Aarp tax help locations If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. Aarp tax help locations Information for employers. Aarp tax help locations   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. Aarp tax help locations   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. Aarp tax help locations Form W-2. Aarp tax help locations   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Aarp tax help locations ” Do not make any entries in boxes 3, 4, 5, or 6. Aarp tax help locations Forms 941, 943, and 944. Aarp tax help locations   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Aarp tax help locations Instead, follow the instructions given below. Aarp tax help locations Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. Aarp tax help locations Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. Aarp tax help locations Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. Aarp tax help locations Effective date. Aarp tax help locations   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. Aarp tax help locations The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. Aarp tax help locations Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. Aarp tax help locations Regular method. Aarp tax help locations Nonfarm optional method. Aarp tax help locations You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Aarp tax help locations Blank worksheets are in the back of this publication, after the Comprehensive Example. Aarp tax help locations Regular Method Most people use the regular method. Aarp tax help locations Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. Aarp tax help locations Then, subtract your allowable business deductions and multiply the difference by 92. Aarp tax help locations 35% (. Aarp tax help locations 9235). Aarp tax help locations Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Aarp tax help locations If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. Aarp tax help locations 35% (. Aarp tax help locations 9235). Aarp tax help locations Do not reduce your wages by any business deductions when making this computation. Aarp tax help locations Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Aarp tax help locations If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. Aarp tax help locations Amounts included in gross income. Aarp tax help locations   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. Aarp tax help locations , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. Aarp tax help locations This amount is also subject to income tax. Aarp tax help locations   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Aarp tax help locations Example. Aarp tax help locations Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Aarp tax help locations The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Aarp tax help locations His church owns a parsonage that has a fair rental value of $12,000 per year. Aarp tax help locations The church gives Pastor Adams the use of the parsonage. Aarp tax help locations He is not exempt from SE tax. Aarp tax help locations He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Aarp tax help locations The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. Aarp tax help locations Overseas duty. Aarp tax help locations   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. Aarp tax help locations S. Aarp tax help locations citizen or resident alien serving abroad and living in a foreign country. Aarp tax help locations   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Aarp tax help locations Example. Aarp tax help locations Diane Jones was the minister of a U. Aarp tax help locations S. Aarp tax help locations church in Mexico. Aarp tax help locations She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Aarp tax help locations The United States does not have a social security agreement with Mexico, so Mrs. Aarp tax help locations Jones is subject to U. Aarp tax help locations S. Aarp tax help locations SE tax and must include $35,000 when figuring net earnings from self-employment. Aarp tax help locations Specified U. Aarp tax help locations S. Aarp tax help locations possessions. Aarp tax help locations    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Aarp tax help locations Also see Residents of Puerto Rico, the U. Aarp tax help locations S. Aarp tax help locations Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Aarp tax help locations S. Aarp tax help locations Citizens and Resident and Nonresident Aliens. Aarp tax help locations Amounts not included in gross income. Aarp tax help locations   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Aarp tax help locations Offerings that others made to the church. Aarp tax help locations Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. Aarp tax help locations Pension payments or retirement allowances you receive for your past ministerial services. Aarp tax help locations The rental value of a parsonage or a parsonage allowance provided to you after you retire. Aarp tax help locations Allowable deductions. Aarp tax help locations   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Aarp tax help locations These are ministerial expenses you incurred while working other than as a common-law employee of the church. Aarp tax help locations They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Aarp tax help locations Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. Aarp tax help locations   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . Aarp tax help locations Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Aarp tax help locations Do not complete Schedule C or C-EZ (Form 1040). Aarp tax help locations However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. Aarp tax help locations Employee reimbursement arrangements. Aarp tax help locations   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Aarp tax help locations Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Aarp tax help locations Accountable plans. Aarp tax help locations   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Aarp tax help locations Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Aarp tax help locations You must adequately account to your employer for these expenses within a reasonable period of time. Aarp tax help locations You must return any excess reimbursement or allowance within a reasonable period of time. Aarp tax help locations   The reimbursement is not reported on your Form W-2. Aarp tax help locations Generally, if your expenses equal your reimbursement, you have no deduction. Aarp tax help locations If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Aarp tax help locations Nonaccountable plan. Aarp tax help locations   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Aarp tax help locations In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Aarp tax help locations Excess reimbursements you fail to return to your employer. Aarp tax help locations Reimbursement of nondeductible expenses related to your employer's business. Aarp tax help locations   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Aarp tax help locations Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. Aarp tax help locations   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Aarp tax help locations Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. Aarp tax help locations If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. Aarp tax help locations Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. Aarp tax help locations The tax rate for the social security part is 12. Aarp tax help locations 4%. Aarp tax help locations In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Aarp tax help locations This tax rate is 2. Aarp tax help locations 9%. Aarp tax help locations The combined self-employment tax rate is 15. Aarp tax help locations 3%. Aarp tax help locations Additional Medicare Tax. Aarp tax help locations   Beginning in 2013, a 0. Aarp tax help locations 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Aarp tax help locations Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Aarp tax help locations A self-employment loss is not considered for purposes of this tax. Aarp tax help locations RRTA compensation is separately compared to the threshold. Aarp tax help locations For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Aarp tax help locations Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Aarp tax help locations In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. Aarp tax help locations You may use the nonfarm optional method if you meet all the following tests. Aarp tax help locations You are self-employed on a regular basis. Aarp tax help locations You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Aarp tax help locations The net earnings can be from either farm or nonfarm earnings or both. Aarp tax help locations You have used this method less than 5 prior years. Aarp tax help locations (There is a 5-year lifetime limit. Aarp tax help locations ) The years do not have to be consecutive. Aarp tax help locations Your net nonfarm profits were: Less than $5,024, and Less than 72. Aarp tax help locations 189% of your gross nonfarm income. Aarp tax help locations If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Aarp tax help locations Table 3. Aarp tax help locations Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Aarp tax help locations . Aarp tax help locations . Aarp tax help locations THEN your net earnings are equal to . Aarp tax help locations . Aarp tax help locations . Aarp tax help locations $6,960 or less Two-thirds of your gross nonfarm income. Aarp tax help locations More than $6,960 $4,640. Aarp tax help locations Actual net earnings. Aarp tax help locations   Multiply your total earnings subject to SE tax by 92. Aarp tax help locations 35% (. Aarp tax help locations 9235) to get actual net earnings. Aarp tax help locations Actual net earnings are equivalent to net earnings under the “Regular Method. Aarp tax help locations ” More information. Aarp tax help locations   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Aarp tax help locations Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. Aarp tax help locations Note. Aarp tax help locations For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Aarp tax help locations Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. Aarp tax help locations Offerings and Fees 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. Aarp tax help locations , in addition to your salary. Aarp tax help locations If the offering is made to the religious institution, it is not taxable to you. Aarp tax help locations Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. Aarp tax help locations However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Aarp tax help locations For more information, see Publication 526. Aarp tax help locations Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Aarp tax help locations Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. Aarp tax help locations This exclusion applies only for income tax purposes. Aarp tax help locations It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Aarp tax help locations Designation requirement. Aarp tax help locations   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Aarp tax help locations It must designate a definite amount. Aarp tax help locations It cannot determine the amount of the housing allowance at a later date. Aarp tax help locations If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. Aarp tax help locations   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. Aarp tax help locations The local congregation must officially designate the part of your salary that is a housing allowance. Aarp tax help locations However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Aarp tax help locations Rental allowances. Aarp tax help locations   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. Aarp tax help locations   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Aarp tax help locations Fair rental value of parsonage. Aarp tax help locations   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. Aarp tax help locations However, the exclusion cannot be more than the reasonable pay for your services. Aarp tax help locations If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Aarp tax help locations Example. Aarp tax help locations Rev. Aarp tax help locations Joanna Baker is a full-time minister. Aarp tax help locations The church allows her to use a parsonage that has an annual fair rental value of $24,000. Aarp tax help locations The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Aarp tax help locations Her actual utility costs during the year were $7,000. Aarp tax help locations For income tax purposes, Rev. Aarp tax help locations Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Aarp tax help locations She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Aarp tax help locations Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Aarp tax help locations Home ownership. Aarp tax help locations   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. Aarp tax help locations Excess rental allowance. Aarp tax help locations   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. Aarp tax help locations   Include in the total on Form 1040, line 7. Aarp tax help locations On the dotted line next to line 7, enter “Excess allowance” and the amount. Aarp tax help locations You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. Aarp tax help locations However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Aarp tax help locations Retired ministers. Aarp tax help locations   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. Aarp tax help locations However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. Aarp tax help locations Teachers or administrators. Aarp tax help locations   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. Aarp tax help locations However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. Aarp tax help locations    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. Aarp tax help locations In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Aarp tax help locations   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. Aarp tax help locations Theological students. Aarp tax help locations   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. Aarp tax help locations Traveling evangelists. Aarp tax help locations   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Aarp tax help locations You are an ordained minister. Aarp tax help locations You perform ministerial services at churches located away from your community. Aarp tax help locations You actually use the rental allowance to maintain your permanent home. Aarp tax help locations Cantors. Aarp tax help locations   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. Aarp tax help locations Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. Aarp tax help locations See Members of Religious Orders , earlier, under Social Security Coverage. Aarp tax help locations Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Aarp tax help locations S. Aarp tax help locations possession. Aarp tax help locations Publication 54 discusses the foreign earned income exclusion. Aarp tax help locations Publication 570, Tax Guide for Individuals With Income From U. Aarp tax help locations S. Aarp tax help locations Possessions, covers the rules for taxpayers with income from U. Aarp tax help locations S. Aarp tax help locations possessions. Aarp tax help locations You can get these free publications from the Internal Revenue Service at IRS. Aarp tax help locations gov or from most U. Aarp tax help locations S. Aarp tax help locations Embassies or consulates. Aarp tax help locations Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Aarp tax help locations Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. Aarp tax help locations You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Aarp tax help locations You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Aarp tax help locations See Publication 529 for more information on this limit. Aarp tax help locations However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Aarp tax help locations Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. Aarp tax help locations You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Aarp tax help locations Exception. Aarp tax help locations   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Aarp tax help locations Figuring the allocation. Aarp tax help locations   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. Aarp tax help locations    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Aarp tax help locations Example. Aarp tax help locations Rev. Aarp tax help locations Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. Aarp tax help locations He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Aarp tax help locations $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. Aarp tax help locations Rev. Aarp tax help locations Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. Aarp tax help locations Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. Aarp tax help locations   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Aarp tax help locations The statement must contain all of the following information. Aarp tax help locations A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Aarp tax help locations ) plus the amount. Aarp tax help locations A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Aarp tax help locations A list of each item of otherwise deductible ministerial expenses plus the amount. Aarp tax help locations How you figured the nondeductible part of your otherwise deductible expenses. Aarp tax help locations A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Aarp tax help locations   See the attachments prepared for the Comprehensive Example , later. Aarp tax help locations Following the example, you will find blank worksheets for your own use. Aarp tax help locations Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. Aarp tax help locations If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Aarp tax help locations See the Instructions for Form 1040 to figure your deduction. Aarp tax help locations The following special rules apply to the self-employed health insurance deduction. Aarp tax help locations You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. Aarp tax help locations You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Aarp tax help locations The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Aarp tax help locations Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Aarp tax help locations More information. Aarp tax help locations   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Aarp tax help locations Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Aarp tax help locations This is an income tax deduction only, on Form 1040, line 27. Aarp tax help locations Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Aarp tax help locations Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Aarp tax help locations You must pay the tax as you earn or receive income during the year. Aarp tax help locations An employee usually has income tax withheld from his or her wages or salary. Aarp tax help locations However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Aarp tax help locations You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. Aarp tax help locations Your salary is for ministerial services (see Ministerial Services , earlier). Aarp tax help locations If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. Aarp tax help locations You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. Aarp tax help locations Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Aarp tax help locations Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Aarp tax help locations See Form 1040-ES for the different payment methods. Aarp tax help locations The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Aarp tax help locations For more information, see chapter 2 of Publication 505. Aarp tax help locations If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. Aarp tax help locations Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. Aarp tax help locations Table 4. Aarp tax help locations 2013 Filing Requirements for Most Taxpayers IF your filing status is . Aarp tax help locations . Aarp tax help locations . Aarp tax help locations AND at the end of 2013 you were* . Aarp tax help locations . Aarp tax help locations . Aarp tax help locations THEN file a return if your gross income** was at least . Aarp tax help locations . Aarp tax help locations . Aarp tax help locations single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Aarp tax help locations ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Aarp tax help locations Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Aarp tax help locations If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. Aarp tax help locations Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Aarp tax help locations Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Aarp tax help locations But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Aarp tax help locations *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Aarp tax help locations Additional requirements. Aarp tax help locations   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. Aarp tax help locations 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Aarp tax help locations Self-employment tax. Aarp tax help locations   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Aarp tax help locations   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. Aarp tax help locations You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Aarp tax help locations You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Aarp tax help locations However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). Aarp tax help locations Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Aarp tax help locations Note. Aarp tax help locations For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. Aarp tax help locations You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Aarp tax help locations Exemption from SE tax. Aarp tax help locations   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Aarp tax help locations Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Aarp tax help locations However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. Aarp tax help locations    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Aarp tax help locations Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Aarp tax help locations More information. Aarp tax help locations   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Aarp tax help locations Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Aarp tax help locations You generally can deduct your contributions to the plan. Aarp tax help locations Your contributions and the earnings on them are not taxed until they are distributed. Aarp tax help locations Retirement plans for the self-employed. Aarp tax help locations   To set up one of the following plans you must be self-employed. Aarp tax help locations SEP (simplified employee pension) plan. Aarp tax help locations SIMPLE (savings incentive match plan for employees) plan. Aarp tax help locations Qualified retirement plan (also called a Keogh or H. Aarp tax help locations R. Aarp tax help locations 10 plan). Aarp tax help locations   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Aarp tax help locations See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Aarp tax help locations This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Aarp tax help locations   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. Aarp tax help locations You are not a self-employed person for purposes of setting up a retirement plan. Aarp tax help locations This result is true even if your salary is subject to SE tax. Aarp tax help locations   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. Aarp tax help locations   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Aarp tax help locations Individual retirement arrangements (IRAs). Aarp tax help locations   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Aarp tax help locations Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). Aarp tax help locations   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Aarp tax help locations You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. Aarp tax help locations   If you contribute to a traditional IRA, your contribution may be deductible. Aarp tax help locations However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). Aarp tax help locations   For more information on IRAs, see Publication 590. Aarp tax help locations Tax-sheltered annuity plans. Aarp tax help locations   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. Aarp tax help locations For more