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Amend tax return online Publication 575 - Main Content Table of Contents General InformationPension. Amend tax return online Annuity. Amend tax return online Qualified employee plan. Amend tax return online Qualified employee annuity. Amend tax return online Designated Roth account. Amend tax return online Tax-sheltered annuity plan. Amend tax return online Fixed-period annuities. Amend tax return online Annuities for a single life. Amend tax return online Joint and survivor annuities. Amend tax return online Variable annuities. Amend tax return online Disability pensions. Amend tax return online Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Amend tax return online Taxation of Periodic PaymentsPeriod of participation. Amend tax return online Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Amend tax return online No tax withheld. Amend tax return online Partial rollovers. Amend tax return online Frozen deposits. Amend tax return online Reasonable period of time. Amend tax return online 20% Mandatory withholding. Amend tax return online How to report. Amend tax return online How to report. Amend tax return online Special rule for Roth IRAs and designated Roth accounts. Amend tax return online Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Amend tax return online How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Amend tax return online   Some of the terms used in this publication are defined in the following paragraphs. Amend tax return online Pension. Amend tax return online   A pension is generally a series of definitely determinable payments made to you after you retire from work. Amend tax return online Pension payments are made regularly and are based on such factors as years of service and prior compensation. Amend tax return online Annuity. Amend tax return online   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Amend tax return online They can be either fixed (under which you receive a definite amount) or variable (not fixed). Amend tax return online You can buy the contract alone or with the help of your employer. Amend tax return online Qualified employee plan. Amend tax return online   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Amend tax return online It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Amend tax return online To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Amend tax return online Qualified employee annuity. Amend tax return online   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Amend tax return online Designated Roth account. Amend tax return online   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Amend tax return online Elective deferrals that are designated as Roth contributions are included in your income. Amend tax return online However, qualified distributions (explained later) are not included in your income. Amend tax return online You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Amend tax return online Tax-sheltered annuity plan. Amend tax return online   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Amend tax return online Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Amend tax return online Types of pensions and annuities. Amend tax return online   Pensions and annuities include the following types. Amend tax return online Fixed-period annuities. Amend tax return online   You receive definite amounts at regular intervals for a specified length of time. Amend tax return online Annuities for a single life. Amend tax return online   You receive definite amounts at regular intervals for life. Amend tax return online The payments end at death. Amend tax return online Joint and survivor annuities. Amend tax return online   The first annuitant receives a definite amount at regular intervals for life. Amend tax return online After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Amend tax return online The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Amend tax return online Variable annuities. Amend tax return online   You receive payments that may vary in amount for a specified length of time or for life. Amend tax return online The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Amend tax return online Disability pensions. Amend tax return online   You receive disability payments because you retired on disability and have not reached minimum retirement age. Amend tax return online More than one program. Amend tax return online   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Amend tax return online If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Amend tax return online Also, you may be considered to have received more than one pension or annuity. Amend tax return online Your former employer or the plan administrator should be able to tell you if you have more than one contract. Amend tax return online Example. Amend tax return online Your employer set up a noncontributory profit-sharing plan for its employees. Amend tax return online The plan provides that the amount held in the account of each participant will be paid when that participant retires. Amend tax return online Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Amend tax return online The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Amend tax return online Under the pension plan, however, a formula determines the amount of the pension benefits. Amend tax return online The amount of contributions is the amount necessary to provide that pension. Amend tax return online Each plan is a separate program and a separate contract. Amend tax return online If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Amend tax return online Distributions from a designated Roth account are treated separately from other distributions from the plan. Amend tax return online Qualified domestic relations order (QDRO). Amend tax return online   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Amend tax return online The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Amend tax return online A QDRO may not award an amount or form of benefit that is not available under the plan. Amend tax return online   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Amend tax return online The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Amend tax return online The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Amend tax return online The denominator is the present value of all benefits payable to the participant. Amend tax return online   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Amend tax return online Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Amend tax return online For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Amend tax return online Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Amend tax return online The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Amend tax return online The taxable part of a distribution is treated as ordinary income. Amend tax return online Net investment income tax. Amend tax return online   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Amend tax return online For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Amend tax return online For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Amend tax return online Withdrawals. Amend tax return online   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Amend tax return online The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Amend tax return online   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Amend tax return online However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Amend tax return online To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Amend tax return online   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Amend tax return online   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Amend tax return online The rest is taxable. Amend tax return online   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Amend tax return online If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Amend tax return online Annuity payments. Amend tax return online   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Amend tax return online For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Amend tax return online For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Amend tax return online For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Amend tax return online Death benefits. Amend tax return online    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Amend tax return online If you choose to receive an annuity, the payments are subject to tax as described above. Amend tax return online If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Amend tax return online See Survivors and Beneficiaries , later. Amend tax return online Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Amend tax return online If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Amend tax return online You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Amend tax return online You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Amend tax return online Your 457(b) plan may have a designated Roth account option. Amend tax return online If so, you may be able to roll over amounts to the designated Roth account or make contributions. Amend tax return online Elective deferrals to a designated Roth account are included in your income. Amend tax return online Qualified distributions (explained later) are not included in your income. Amend tax return online See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Amend tax return online This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Amend tax return online For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Amend tax return online Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Amend tax return online Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Amend tax return online Nonelective deferred compensation plans for nonemployees (independent contractors). Amend tax return online Deferred compensation plans maintained by churches. Amend tax return online Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Amend tax return online An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Amend tax return online Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Amend tax return online You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Amend tax return online Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Amend tax return online You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Amend tax return online For information on this credit, see Publication 524. Amend tax return online Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Amend tax return online Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Amend tax return online Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Amend tax return online For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Amend tax return online Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Amend tax return online The premiums can be for coverage for you, your spouse, or dependents. Amend tax return online The distribution must be made directly from the plan to the insurance provider. Amend tax return online You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Amend tax return online You can only make this election for amounts that would otherwise be included in your income. Amend tax return online The amount excluded from your income cannot be used to claim a medical expense deduction. Amend tax return online An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Amend tax return online If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Amend tax return online The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Amend tax return online Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Amend tax return online Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Amend tax return online Enter “PSO” next to the appropriate line on which you report the taxable amount. Amend tax return online If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Amend tax return online Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Amend tax return online These categories are treated differently for income tax purposes. Amend tax return online The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Amend tax return online This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Amend tax return online If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Amend tax return online S. Amend tax return online Railroad Retirement Board (RRB). Amend tax return online For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Amend tax return online The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Amend tax return online It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Amend tax return online Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Amend tax return online This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Amend tax return online (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Amend tax return online ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Amend tax return online See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Amend tax return online Form RRB-1099-R is used for U. Amend tax return online S. Amend tax return online citizens, resident aliens, and nonresident aliens. Amend tax return online Nonresident aliens. Amend tax return online   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Amend tax return online Nonresident aliens are subject to mandatory U. Amend tax return online S. Amend tax return online tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Amend tax return online A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Amend tax return online See Tax withholding next for more information. Amend tax return online   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Amend tax return online To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Amend tax return online For information on filing requirements for aliens, see Publication 519, U. Amend tax return online S. Amend tax return online Tax Guide for Aliens. Amend tax return online For information on tax treaties between the United States and other countries that may reduce or eliminate U. Amend tax return online S. Amend tax return online tax on your benefits, see Publication 901, U. Amend tax return online S. Amend tax return online Tax Treaties. Amend tax return online Tax withholding. Amend tax return online   To request or change your income tax withholding from SSEB payments, U. Amend tax return online S. Amend tax return online citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Amend tax return online To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Amend tax return online If you are a nonresident alien or a U. Amend tax return online S. Amend tax return online citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Amend tax return online S. Amend tax return online tax withholding. Amend tax return online Nonresident U. Amend tax return online S. Amend tax return online citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Amend tax return online S. Amend tax return online Help from the RRB. Amend tax return online   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Amend tax return online S. Amend tax return online consulate/Embassy if you reside outside the United States. Amend tax return online You can visit the RRB on the Internet at www. Amend tax return online rrb. Amend tax return online gov. Amend tax return online Form RRB-1099-R. Amend tax return online   The following discussion explains the items shown on Form RRB-1099-R. Amend tax return online The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Amend tax return online   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Amend tax return online   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Amend tax return online To determine if any of these rules apply to your benefits, see the discussions about them later. Amend tax return online   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Amend tax return online Use distribution code “7” if you are asked for a distribution code. Amend tax return online Distribution codes are not shown on Form RRB-1099-R. Amend tax return online   There are three copies of this form. Amend tax return online Copy B is to be included with your income tax return if federal income tax is withheld. Amend tax return online Copy C is for your own records. Amend tax return online Copy 2 is filed with your state, city, or local income tax return, when required. Amend tax return online See the illustrated Copy B (Form RRB-1099-R) above. Amend tax return online       Each beneficiary will receive his or her own Form RRB-1099-R. Amend tax return online If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Amend tax return online So that you get your form timely, make sure the RRB always has your current mailing address. Amend tax return online Please click here for the text description of the image. Amend tax return online Form RRB-1099-R Box 1—Claim Number and Payee Code. Amend tax return online   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Amend tax return online This is the number under which the RRB paid your benefits. Amend tax return online Your payee code follows your claim number and is the last number in this box. Amend tax return online It is used by the RRB to identify you under your claim number. Amend tax return online In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Amend tax return online Box 2—Recipient's Identification Number. Amend tax return online   This is the recipient's U. Amend tax return online S. Amend tax return online taxpayer identification number. Amend tax return online It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Amend tax return online If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Amend tax return online The Instructions for Form W-7 explain how and when to apply. Amend tax return online Box 3—Employee Contributions. Amend tax return online   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Amend tax return online This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Amend tax return online (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Amend tax return online ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Amend tax return online It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Amend tax return online If this amount has changed, the change is retroactive. Amend tax return online You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Amend tax return online If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Amend tax return online    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Amend tax return online Box 4—Contributory Amount Paid. Amend tax return online   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Amend tax return online (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Amend tax return online ) This amount is the total contributory pension paid in 2013. Amend tax return online It may be partly taxable and partly tax free or fully taxable. Amend tax return online If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Amend tax return online Box 5—Vested Dual Benefit. Amend tax return online   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Amend tax return online It is fully taxable. Amend tax return online VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Amend tax return online Note. Amend tax return online The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Amend tax return online Box 6—Supplemental Annuity. Amend tax return online   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Amend tax return online It is fully taxable. Amend tax return online Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Amend tax return online Box 7—Total Gross Paid. Amend tax return online   This is the sum of boxes 4, 5, and 6. Amend tax return online The amount represents the total pension paid in 2013. Amend tax return online Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Amend tax return online Box 8—Repayments. Amend tax return online   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Amend tax return online The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Amend tax return online It only includes repayments of benefits that were taxable to you. Amend tax return online This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Amend tax return online If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Amend tax return online For more information about repayments, see Repayment of benefits received in an earlier year , later. Amend tax return online    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Amend tax return online Box 9—Federal Income Tax Withheld. Amend tax return online   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Amend tax return online Include this on your income tax return as tax withheld. Amend tax return online If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Amend tax return online Determine the total amount of U. Amend tax return online S. Amend tax return online federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Amend tax return online Box 10—Rate of Tax. Amend tax return online   If you are taxed as a U. Amend tax return online S. Amend tax return online citizen or resident alien, this box does not apply to you. Amend tax return online If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Amend tax return online If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Amend tax return online Box 11—Country. Amend tax return online   If you are taxed as a U. Amend tax return online S. Amend tax return online citizen or resident alien, this box does not apply to you. Amend tax return online If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Amend tax return online If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Amend tax return online Box 12—Medicare Premium Total. Amend tax return online   This is for information purposes only. Amend tax return online The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Amend tax return online Medicare premium refunds are not included in the Medicare total. Amend tax return online The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Amend tax return online However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Amend tax return online If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Amend tax return online Repayment of benefits received in an earlier year. Amend tax return online   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Amend tax return online   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Amend tax return online The 2%-of-adjusted-gross-income limit applies to this deduction. Amend tax return online You cannot take this deduction if you file Form 1040A. Amend tax return online    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Amend tax return online For more information, see Repayments in Publication 525. Amend tax return online Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Amend tax return online However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Amend tax return online (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Amend tax return online ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Amend tax return online See Estimated tax , later. Amend tax return online The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Amend tax return online For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Amend tax return online There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Amend tax return online Choosing no withholding. Amend tax return online   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Amend tax return online You can make this choice on Form W-4P for periodic and nonperiodic payments. Amend tax return online This choice generally remains in effect until you revoke it. Amend tax return online   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Amend tax return online   To choose not to have tax withheld, a U. Amend tax return online S. Amend tax return online citizen or resident alien must give the payer a home address in the United States or its possessions. Amend tax return online Without that address, the payer must withhold tax. Amend tax return online For example, the payer has to withhold tax if the recipient has provided a U. Amend tax return online S. Amend tax return online address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Amend tax return online S. Amend tax return online home address. Amend tax return online   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Amend tax return online S. Amend tax return online citizen, a U. Amend tax return online S. Amend tax return online resident alien, or someone who left the country to avoid tax. Amend tax return online But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Amend tax return online This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Amend tax return online For details, get Publication 519. Amend tax return online Periodic payments. Amend tax return online   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Amend tax return online Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Amend tax return online You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Amend tax return online If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Amend tax return online   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Amend tax return online   You must file a new withholding certificate to change the amount of withholding. Amend tax return online Nonperiodic distributions. Amend tax return online    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Amend tax return online You can also ask the payer to withhold an additional amount using Form W-4P. Amend tax return online The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Amend tax return online Eligible rollover distribution. Amend tax return online    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Amend tax return online You cannot choose not to have tax withheld from an eligible rollover distribution. Amend tax return online However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Amend tax return online For more information about eligible rollover distributions, see Rollovers , later. Amend tax return online Estimated tax. Amend tax return online   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Amend tax return online Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Amend tax return online If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Amend tax return online For more information, get Publication 505, Tax Withholding and Estimated Tax. Amend tax return online In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Amend tax return online See Publication 915. Amend tax return online You can choose to have income tax withheld from those benefits. Amend tax return online Use Form W-4V to make this choice. Amend tax return online Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Amend tax return online If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Amend tax return online Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Amend tax return online In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Amend tax return online To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Amend tax return online This includes the amounts your employer contributed that were taxable to you when paid. Amend tax return online (However, see Foreign employment contributions , later. Amend tax return online ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Amend tax return online It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Amend tax return online From this total cost you must subtract the following amounts. Amend tax return online Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Amend tax return online Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Amend tax return online If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Amend tax return online (See Simplified Method , later, for information on its required use. Amend tax return online ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Amend tax return online (See General Rule , later, for information on its use. Amend tax return online ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Amend tax return online For more information, see Publication 939. Amend tax return online The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Amend tax return online Form 1099-R. Amend tax return online If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Amend tax return online Annuity starting date defined. Amend tax return online   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Amend tax return online Example. Amend tax return online On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Amend tax return online The annuity starting date is July 1. Amend tax return online This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Amend tax return online Designated Roth accounts. Amend tax return online   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Amend tax return online Your cost will also include any in-plan Roth rollovers you included in income. Amend tax return online Foreign employment contributions. Amend tax return online   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Amend tax return online The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Amend tax return online Foreign employment contributions while a nonresident alien. Amend tax return online   In determining your cost, special rules apply if you are a U. Amend tax return online S. Amend tax return online citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Amend tax return online Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Amend tax return online Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Amend tax return online Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Amend tax return online These payments are also known as amounts received as an annuity. Amend tax return online If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Amend tax return online In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Amend tax return online The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Amend tax return online Designated Roth accounts. Amend tax return online   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Amend tax return online This applies to both your cost in the account and income earned on that account. Amend tax return online A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Amend tax return online   If the distribution is not a qualified distribution, the rules discussed in this section apply. Amend tax return online The designated Roth account is treated as a separate contract. Amend tax return online Period of participation. Amend tax return online   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Amend tax return online Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Amend tax return online   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Amend tax return online   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Amend tax return online This is known as an in-plan Roth rollover. Amend tax return online For more details, see In-plan Roth rollovers , later. Amend tax return online Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Amend tax return online You did not pay anything or are not considered to have paid anything for your pension or annuity. Amend tax return online Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Amend tax return online Your employer did not withhold contributions from your salary. Amend tax return online You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Amend tax return online Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Amend tax return online You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Amend tax return online Deductible voluntary employee contributions. Amend tax return online   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Amend tax return online Accumulated deductible voluntary employee contributions include net earnings on the contributions. Amend tax return online If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Amend tax return online Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Amend tax return online This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Amend tax return online The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Amend tax return online You figure the tax-free part of the payment using one of the following methods. Amend tax return online Simplified Method. Amend tax return online You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Amend tax return online You cannot use this method if your annuity is paid under a nonqualified plan. Amend tax return online General Rule. Amend tax return online You must use this method if your annuity is paid under a nonqualified plan. Amend tax return online You generally cannot use this method if your annuity is paid under a qualified plan. Amend tax return online You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Amend tax return online If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Amend tax return online Qualified plan annuity starting before November 19, 1996. Amend tax return online   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Amend tax return online If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Amend tax return online If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Amend tax return online Exclusion limit. Amend tax return online   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Amend tax return online Once your annuity starting date is determined, it does not change. Amend tax return online If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Amend tax return online That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Amend tax return online Exclusion limited to cost. Amend tax return online   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Amend tax return online Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Amend tax return online This deduction is not subject to the 2%-of-adjusted-gross-income limit. Amend tax return online Example 1. Amend tax return online Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Amend tax return online The total cost of your annuity is $12,000. Amend tax return online Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Amend tax return online After that, your annuity payments are generally fully taxable. Amend tax return online Example 2. Amend tax return online The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Amend tax return online You have recovered tax free only $9,600 (8 × $1,200) of your cost. Amend tax return online An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Amend tax return online Exclusion not limited to cost. Amend tax return online   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Amend tax return online If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Amend tax return online The total exclusion may be more than your cost. Amend tax return online Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Amend tax return online For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Amend tax return online For any other annuity, this number is the number of monthly annuity payments under the contract. Amend tax return online Who must use the Simplified Method. Amend tax return online   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Amend tax return online You receive your pension or annuity payments from any of the following plans. Amend tax return online A qualified employee plan. Amend tax return online A qualified employee annuity. Amend tax return online A tax-sheltered annuity plan (403(b) plan). Amend tax return online On your annuity starting date, at least one of the following conditions applies to you. Amend tax return online You are under age 75. Amend tax return online You are entitled to less than 5 years of guaranteed payments. Amend tax return online Guaranteed payments. Amend tax return online   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Amend tax return online If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Amend tax return online Annuity starting before November 19, 1996. Amend tax return online   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Amend tax return online You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Amend tax return online Who cannot use the Simplified Method. Amend tax return online   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Amend tax return online See General Rule , later. Amend tax return online How to use the Simplified Method. Amend tax return online    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Amend tax return online Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Amend tax return online   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Amend tax return online How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Amend tax return online For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Amend tax return online    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Amend tax return online Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Amend tax return online Single-life annuity. Amend tax return online   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Amend tax return online Enter on line 3 the number shown for your age on your annuity starting date. Amend tax return online This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Amend tax return online Multiple-lives annuity. Amend tax return online   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Amend tax return online Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Amend tax return online For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Amend tax return online For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Amend tax return online Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Amend tax return online   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Amend tax return online Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Amend tax return online This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Amend tax return online Fixed-period annuity. Amend tax return online   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Amend tax return online Line 6. Amend tax return online   The amount on line 6 should include all amounts that could have been recovered in prior years. Amend tax return online If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Amend tax return online Example. Amend tax return online Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Amend tax return online Bill's annuity starting date is January 1, 2013. Amend tax return online The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Amend tax return online Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Amend tax return online Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Amend tax return online Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Amend tax return online Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Amend tax return online His completed worksheet is shown later. Amend tax return online Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Amend tax return online Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Amend tax return online The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Amend tax return online If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Amend tax return online This deduction is not subject to the 2%-of-adjusted-gross-income limit. Amend tax return online Worksheet A. Amend tax return online Simplified Method Worksheet for Bill Smith 1. Amend tax return online Enter the total pension or annuity payments received this year. Amend tax return online Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Amend tax return online $14,400 2. Amend tax return online Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Amend tax return online * See Cost (Investment in the Contract) , earlier 2. Amend tax return online 31,000   Note. Amend tax return online If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Amend tax return online Otherwise, go to line 3. Amend tax return online     3. Amend tax return online Enter the appropriate number from Table 1 below. Amend tax return online But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Amend tax return online 310 4. Amend tax return online Divide line 2 by the number on line 3 4. Amend tax return online 100 5. Amend tax return online Multiply line 4 by the number of months for which this year's payments were made. Amend tax return online If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Amend tax return online Otherwise, go to line 6 5. Amend tax return online 1,200 6. Amend tax return online Enter any amount previously recovered tax free in years after 1986. Amend tax return online This is the amount shown on line 10 of your worksheet for last year 6. Amend tax return online -0- 7. Amend tax return online Subtract line 6 from line 2 7. Amend tax return online 31,000 8. Amend tax return online Enter the smaller of line 5 or line 7 8. Amend tax return online 1,200 9. Amend tax return online Taxable amount for year. Amend tax return online Subtract line 8 from line 1. Amend tax return online Enter the result, but not less than zero. Amend tax return online Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Amend tax return online Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Amend tax return online If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Amend tax return online $13,200 10. Amend tax return online Was your annuity starting date before 1987? □ Yes. Amend tax return online STOP. Amend tax return online Do not complete the rest of this worksheet. Amend tax return online  ☑ No. Amend tax return online Add lines 6 and 8. Amend tax return online This is the amount you have recovered tax free through 2013. Amend tax return online You will need this number if you need to fill out this worksheet next year 10. Amend tax return online 1,200 11. Amend tax return online Balance of cost to be recovered. Amend tax return online Subtract line 10 from line 2. Amend tax return online If zero, you will not have to complete this worksheet next year. Amend tax return online The payments you receive next year will generally be fully taxable 11. Amend tax return online $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Amend tax return online           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Amend tax return online . Amend tax return online . Amend tax return online BEFORE November 19, 1996, enter on line 3. Amend tax return online . Amend tax return online . Amend tax return online AFTER November 18, 1996, enter on line 3. Amend tax return online . Amend tax return online . Amend tax return online     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Amend tax return online . Amend tax return online . Amend tax return online THEN enter on line 3. Amend tax return online . Amend tax return online . Amend tax return online     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Amend tax return online   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Amend tax return online Figure your share by taking the following steps. Amend tax return online Complete your worksheet through line 4 to figure the monthly tax-free amount. Amend tax return online Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Amend tax return online Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Amend tax return online The result is your share of the monthly tax-free amount. Amend tax return online   Replace the amount on line 4 of the worksheet with the result in (3) above. Amend tax return online Enter that amount on line 4 of your worksheet each year. Amend tax return online General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Amend tax return online Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Amend tax return online To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Amend tax return online Who must use the General Rule. Amend tax return online   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Amend tax return online Annuity starting before November 19, 1996. Amend tax return online   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Amend tax return online You also had to use it for any fixed-period annuity. Amend tax return online If you did not have to use the General Rule, you could have chosen to use it. Amend tax return online If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Amend tax return online   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Amend tax return online Who cannot use the General Rule. Amend tax return online   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Amend tax return online See Simplified Method , earlier. Amend tax return online More information. Amend tax return online   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Amend tax return online Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Amend tax return online Nonperiodic distributions are also known as amounts not received as an annuity. Amend tax return online They include all payments other than periodic payments and corrective distributions. Amend tax return online For example, the following items are treated as nonperiodic distributions. Amend tax return online Cash withdrawals. Amend tax return online Distributions of current earnings (dividends) on your investment. Amend tax return online However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Amend tax return online Certain loans. Amend tax return online See Loans Treated as Distributions , later. Amend tax return online The value of annuity contracts transferred without full and adequate consideration. Amend tax return online See Transfers of Annuity Contracts , later. Amend tax return online Corrective distributions of excess plan contributions. Amend tax return online   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Amend tax return online To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Amend tax return online Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Amend tax return online It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Amend tax return online    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Amend tax return online   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Amend tax return online Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Amend tax return online If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Amend tax return online If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Amend tax return online You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Amend tax return online See Rollovers, later. Amend tax return online If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Amend tax return online See Lump-Sum Distributions, later. Amend tax return online Annuity starting date. Amend tax return online   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Amend tax return online Distributions of employer securities. Amend tax return online    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Amend tax return online The NUA is the net increase in the securities' value while they were in the trust. Amend tax return online This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Amend tax return online   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Amend tax return online    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Amend tax return online    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und
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Amend tax return online 2. Amend tax return online   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Amend tax return online Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Amend tax return online S. Amend tax return online or foreign source income. Amend tax return online This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Amend tax return online S. Amend tax return online Virgin Islands (USVI). Amend tax return online Generally, the same rules that apply for determining U. Amend tax return online S. Amend tax return online source income also apply for determining possession source income. Amend tax return online However, there are some important exceptions to these rules. Amend tax return online Both the general rules and the exceptions are discussed in this chapter. Amend tax return online U. Amend tax return online S. Amend tax return online income rule. Amend tax return online   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Amend tax return online Table 2-1 shows the general rules for determining whether income is from sources within the United States. Amend tax return online Table 2-1. Amend tax return online General Rules for Determining U. Amend tax return online S. Amend tax return online Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Amend tax return online Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Amend tax return online For more information, see Regulations section 1. Amend tax return online 863-1(b). Amend tax return online Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Amend tax return online Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Amend tax return online Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Amend tax return online It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Amend tax return online Services performed wholly within a relevant possession. Amend tax return online   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Amend tax return online However, there is an exception for income earned as a member of the U. Amend tax return online S. Amend tax return online Armed Forces or a civilian spouse. Amend tax return online U. Amend tax return online S. Amend tax return online Armed Forces. Amend tax return online   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Amend tax return online However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Amend tax return online Civilian spouse of active duty member of the U. Amend tax return online S. Amend tax return online Armed Forces. Amend tax return online   If you are a bona fide resident of a U. Amend tax return online S. Amend tax return online possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Amend tax return online Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Amend tax return online S. Amend tax return online possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Amend tax return online Services performed partly inside and partly outside a relevant possession. Amend tax return online   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Amend tax return online Compensation (other than certain fringe benefits) is sourced on a time basis. Amend tax return online Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Amend tax return online   Or, you may be permitted to use an alternative basis to determine the source of compensation. Amend tax return online See Alternative basis , later. Amend tax return online   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Amend tax return online In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Amend tax return online Time basis. Amend tax return online   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Amend tax return online Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Amend tax return online The time period for which the income is made does not have to be a year. Amend tax return online Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Amend tax return online Example. Amend tax return online In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Amend tax return online Your Puerto Rico source income is $60,000, figured as follows. Amend tax return online       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Amend tax return online   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Amend tax return online Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Amend tax return online You determine the period to which the income is attributable based on the facts and circumstances of your case. Amend tax return online For more information on multi-year compensation, see Treasury Decision (T. Amend tax return online D. Amend tax return online ) 9212 and Regulations section 1. Amend tax return online 861-4, 2005-35 I. Amend tax return online R. Amend tax return online B. Amend tax return online 429, available at www. Amend tax return online irs. Amend tax return online gov/irb/2005-35_IRB/ar14. Amend tax return online html. Amend tax return online Certain fringe benefits sourced on a geographical basis. Amend tax return online   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Amend tax return online Housing. Amend tax return online Education. Amend tax return online Local transportation. Amend tax return online Tax reimbursement. Amend tax return online Hazardous or hardship duty pay. Amend tax return online Moving expense reimbursement. Amend tax return online For information on determining the source of the fringe benefits listed above, see Regulations section 1. Amend tax return online 861-4. Amend tax return online Alternative basis. Amend tax return online   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Amend tax return online If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Amend tax return online De minimis exception. Amend tax return online   There is an exception to the rule for determining the source of income earned in a possession. Amend tax return online Generally, you will not have income from a possession if during a tax year you: Are a U. Amend tax return online S. Amend tax return online citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Amend tax return online This exception began with income earned during your 2008 tax year. Amend tax return online Pensions. Amend tax return online   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Amend tax return online The contribution portion is sourced according to where services were performed that earned the pension. Amend tax return online The investment earnings portion is sourced according to the location of the pension trust. Amend tax return online Example. Amend tax return online You are a U. Amend tax return online S. Amend tax return online citizen who worked in Puerto Rico for a U. Amend tax return online S. Amend tax return online company. Amend tax return online All services were performed in Puerto Rico. Amend tax return online Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Amend tax return online S. Amend tax return online pension trust of your employer. Amend tax return online Distributions from the U. Amend tax return online S. Amend tax return online pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Amend tax return online S. Amend tax return online source income. Amend tax return online Investment Income This category includes such income as interest, dividends, rents, and royalties. Amend tax return online Interest income. Amend tax return online   The source of interest income is generally determined by the residence of the payer. Amend tax return online Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Amend tax return online   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Amend tax return online See Regulations section 1. Amend tax return online 937-2(i) for more information. Amend tax return online Dividends. Amend tax return online   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Amend tax return online There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Amend tax return online For more information, see Regulations section 1. Amend tax return online 937-2(g). Amend tax return online Rental income. Amend tax return online   Rents from property located in a relevant possession are treated as income from sources within that possession. Amend tax return online Royalties. Amend tax return online   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Amend tax return online   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Amend tax return online Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Amend tax return online The most common situations are discussed below. Amend tax return online Real property. Amend tax return online   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Amend tax return online The location of the property generally determines the source of income from the sale. Amend tax return online For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Amend tax return online If, however, the home you sold was located in the United States, the gain is U. Amend tax return online S. Amend tax return online source income. Amend tax return online Personal property. Amend tax return online   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Amend tax return online Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Amend tax return online If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Amend tax return online   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Amend tax return online The rules applying to sales of inventory are discussed below. Amend tax return online For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Amend tax return online Inventory. Amend tax return online   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Amend tax return online The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Amend tax return online Purchased. Amend tax return online   Income from the sale of inventory that you purchased is sourced where you sell the property. Amend tax return online Generally, this is where title to the property passes to the buyer. Amend tax return online Produced. Amend tax return online   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Amend tax return online For information on making the allocation, see Regulations section 1. Amend tax return online 863-3(f). Amend tax return online Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Amend tax return online S. Amend tax return online citizen or resident alien prior to becoming a bona fide resident of a possession. Amend tax return online You are subject to these special rules if you meet both of the following conditions. Amend tax return online For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Amend tax return online For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Amend tax return online If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Amend tax return online Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Amend tax return online S. Amend tax return online tax return. Amend tax return online (See chapter 3 for additional filing information. Amend tax return online ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Amend tax return online These rules apply to dispositions after April 11, 2005. Amend tax return online For details, see Regulations section 1. Amend tax return online 937-2(f)(1) and Examples 1 and 2 of section 1. Amend tax return online 937-2(k). Amend tax return online Example 1. Amend tax return online In 2007, Cheryl Jones, a U. Amend tax return online S. Amend tax return online citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Amend tax return online S. Amend tax return online corporation listed on the New York Stock Exchange. Amend tax return online On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Amend tax return online Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Amend tax return online On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Amend tax return online On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Amend tax return online Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Amend tax return online The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Amend tax return online This existing special rule applies if you are a U. Amend tax return online S. Amend tax return online citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Amend tax return online S. Amend tax return online assets during the 10-year period beginning when you became a bona fide resident. Amend tax return online The gain is U. Amend tax return online S. Amend tax return online source income that generally is subject to U. Amend tax return online S. Amend tax return online tax if the property is either (1) located in the United States; (2) stock issued by a U. Amend tax return online S. Amend tax return online corporation or a debt obligation of a U. Amend tax return online S. Amend tax return online person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Amend tax return online See chapter 3 for filing information. Amend tax return online Special election. Amend tax return online   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Amend tax return online Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Amend tax return online This election overrides both of the special rules discussed earlier. Amend tax return online   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Amend tax return online Marketable securities. Amend tax return online   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Amend tax return online Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Amend tax return online S. Amend tax return online holding periods. Amend tax return online   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Amend tax return online The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Amend tax return online This is your gain (or loss) that is treated as being from sources within the relevant possession. Amend tax return online If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Amend tax return online Example 2. Amend tax return online Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Amend tax return online S. Amend tax return online and possession holding periods. Amend tax return online Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Amend tax return online Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Amend tax return online By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Amend tax return online Other personal property. Amend tax return online   For personal property other than marketable securities, use a time-based allocation. Amend tax return online Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Amend tax return online      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Amend tax return online Example 3. Amend tax return online In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Amend tax return online On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Amend tax return online On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Amend tax return online She had owned the interest for a total of 1,720 days. Amend tax return online Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Amend tax return online The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Amend tax return online By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Amend tax return online Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Amend tax return online Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Amend tax return online These rules do not apply to amounts paid as salary or other compensation for services. Amend tax return online See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Amend tax return online Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Amend tax return online These circumstances are listed below. Amend tax return online You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Amend tax return online That office or place of business is a material factor in producing the income. Amend tax return online The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Amend tax return online An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Amend tax return online The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Amend tax return online Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Amend tax return online Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Amend tax return online Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Amend tax return online Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Amend tax return online Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Amend tax return online Example. Amend tax return online Marcy Jackson is a bona fide resident of American Samoa. Amend tax return online Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Amend tax return online A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Amend tax return online Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Amend tax return online The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Amend tax return online However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Amend tax return online Prev  Up  Next   Home   More Online Publications