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File 1040x

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File 1040x

File 1040x 8. File 1040x   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. File 1040x Reporting tax withheld. File 1040x Nominees. File 1040x Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. File 1040x Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. File 1040x Alternative minimum tax treatment. File 1040x How To Report Dividend IncomeInvestment interest deducted. File 1040x Reminder Foreign-source income. File 1040x  If you are a U. File 1040x S. File 1040x citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. File 1040x S. File 1040x law. File 1040x This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. File 1040x Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. File 1040x This chapter also explains how to report dividend income on your tax return. File 1040x Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. File 1040x You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. File 1040x However, some amounts you receive that are called dividends are actually interest income. File 1040x (See Dividends that are actually interest under Taxable Interest in chapter 7. File 1040x ) Most distributions are paid in cash (or check). File 1040x However, distributions can consist of more stock, stock rights, other property, or services. File 1040x Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. File 1040x Tax on unearned income of certain children. File 1040x   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. File 1040x If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. File 1040x If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. File 1040x    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. File 1040x Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. File 1040x   For more information about the tax on unearned income of children and the parents' election, see chapter 31. File 1040x Beneficiary of an estate or trust. File 1040x    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. File 1040x You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. File 1040x , from the fiduciary. File 1040x Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. File 1040x Social security number (SSN) or individual taxpayer identification number (ITIN). File 1040x    You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. File 1040x This includes payers of dividends. File 1040x If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. File 1040x For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. File 1040x Backup withholding. File 1040x   Your dividend income is generally not subject to regular withholding. File 1040x However, it may be subject to backup withholding to ensure that income tax is collected on the income. File 1040x Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. File 1040x   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. File 1040x For more information, see Backup Withholding in chapter 4. File 1040x Stock certificate in two or more names. File 1040x   If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. File 1040x Form 1099-DIV. File 1040x   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. File 1040x Keep this form with your records. File 1040x You do not have to attach it to your tax return. File 1040x Dividends not reported on Form 1099-DIV. File 1040x   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. File 1040x For example, you may receive distributive shares of dividends from partnerships or S corporations. File 1040x These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. File 1040x , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. File 1040x Reporting tax withheld. File 1040x   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. File 1040x Nominees. File 1040x   If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. File 1040x Form 1099-MISC. File 1040x   Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. File 1040x See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. File 1040x Incorrect amount shown on a Form 1099. File 1040x   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. File 1040x The new Form 1099 you receive will be marked “Corrected. File 1040x ” Dividends on stock sold. File 1040x   If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. File 1040x Dividends received in January. File 1040x   If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. File 1040x You report the dividend in the year it was declared. File 1040x Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. File 1040x They are paid out of earnings and profits and are ordinary income to you. File 1040x This means they are not capital gains. File 1040x You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. File 1040x Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. File 1040x Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. File 1040x They should be shown in box 1b of the Form 1099-DIV you receive. File 1040x The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. File 1040x 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. File 1040x 6%. File 1040x 20% on any amount that otherwise would be taxed at a 39. File 1040x 6% rate. File 1040x To qualify for the maximum rate, all of the following requirements must be met. File 1040x The dividends must have been paid by a U. File 1040x S. File 1040x corporation or a qualified foreign corporation. File 1040x (See Qualified foreign corporation , later. File 1040x ) The dividends are not of the type listed later under Dividends that are not qualified dividends . File 1040x You meet the holding period (discussed next). File 1040x Holding period. File 1040x   You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. File 1040x The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. File 1040x Instead, the seller will get the dividend. File 1040x   When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. File 1040x See the examples later. File 1040x Exception for preferred stock. File 1040x   In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. File 1040x If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. File 1040x Example 1. File 1040x You bought 5,000 shares of XYZ Corp. File 1040x common stock on July 9, 2013. File 1040x XYZ Corp. File 1040x paid a cash dividend of 10 cents per share. File 1040x The ex-dividend date was July 16, 2013. File 1040x Your Form 1099-DIV from XYZ Corp. File 1040x shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). File 1040x However, you sold the 5,000 shares on August 12, 2013. File 1040x You held your shares of XYZ Corp. File 1040x for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). File 1040x The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. File 1040x You have no qualified dividends from XYZ Corp. File 1040x because you held the XYZ stock for less than 61 days. File 1040x Example 2. File 1040x Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. File 1040x You held the stock for 63 days (from July 16, 2013, through September 16, 2013). File 1040x The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). File 1040x Example 3. File 1040x You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. File 1040x ABC Mutual Fund paid a cash dividend of 10 cents a share. File 1040x The ex-dividend date was July 16, 2013. File 1040x The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. File 1040x Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. File 1040x However, you sold the 10,000 shares on August 12, 2013. File 1040x You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. File 1040x Holding period reduced where risk of loss is diminished. File 1040x   When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. File 1040x You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. File 1040x You were grantor (writer) of an option to buy substantially identical stock or securities. File 1040x Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. File 1040x   For information about how to apply condition (3), see Regulations section 1. File 1040x 246-5. File 1040x Qualified foreign corporation. File 1040x   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. File 1040x The corporation is incorporated in a U. File 1040x S. File 1040x possession. File 1040x The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. File 1040x For a list of those treaties, see Table 8-1. File 1040x The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. File 1040x See Readily tradable stock , later. File 1040x Exception. File 1040x   A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. File 1040x Readily tradable stock. File 1040x   Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. File 1040x For a list of the exchanges that meet these requirements, see www. File 1040x sec. File 1040x gov/divisions/marketreg/mrexchanges. File 1040x shtml. File 1040x Dividends that are not qualified dividends. File 1040x   The following dividends are not qualified dividends. File 1040x They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. File 1040x Capital gain distributions. File 1040x Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. File 1040x S. File 1040x building and loan associations, U. File 1040x S. File 1040x savings and loan associations, federal savings and loan associations, and similar financial institutions. File 1040x (Report these amounts as interest income. File 1040x ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. File 1040x Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. File 1040x Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. File 1040x Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. File 1040x Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. File 1040x Table 8-1. File 1040x Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. File 1040x Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal     Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. File 1040x This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. File 1040x Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. File 1040x If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. File 1040x If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. File 1040x You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. File 1040x But you may be able to deduct the service charge. File 1040x See chapter 28 for more information about deducting expenses of producing income. File 1040x In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. File 1040x If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. File 1040x When figuring this amount, use the fair market value of the stock on the dividend payment date. File 1040x Money Market Funds Report amounts you receive from money market funds as dividend income. File 1040x Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. File 1040x Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). File 1040x They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. File 1040x Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. File 1040x Undistributed capital gains of mutual funds and REITs. File 1040x    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. File 1040x You must treat your share of these gains as distributions, even though you did not actually receive them. File 1040x However, they are not included on Form 1099-DIV. File 1040x Instead, they are reported to you in box 1a of Form 2439. File 1040x   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. File 1040x   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. File 1040x You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. File 1040x Attach Copy B of Form 2439 to your return, and keep Copy C for your records. File 1040x Basis adjustment. File 1040x   Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. File 1040x Additional information. File 1040x   For more information on the treatment of distributions from mutual funds, see Publication 550. File 1040x Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. File 1040x You should receive a Form 1099-DIV or other statement showing the nondividend distribution. File 1040x On Form 1099-DIV, a nondividend distribution will be shown in box 3. File 1040x If you do not receive such a statement, you report the distribution as an ordinary dividend. File 1040x Basis adjustment. File 1040x   A nondividend distribution reduces the basis of your stock. File 1040x It is not taxed until your basis in the stock is fully recovered. File 1040x This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. File 1040x If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. File 1040x   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. File 1040x Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. File 1040x See Holding Period in chapter 14. File 1040x Example. File 1040x You bought stock in 2000 for $100. File 1040x In 2003, you received a nondividend distribution of $80. File 1040x You did not include this amount in your income, but you reduced the basis of your stock to $20. File 1040x You received a nondividend distribution of $30 in 2013. File 1040x The first $20 of this amount reduced your basis to zero. File 1040x You report the other $10 as a long-term capital gain for 2013. File 1040x You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. File 1040x Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. File 1040x These distributions are, at least in part, one form of a return of capital. File 1040x They may be paid in one or more installments. File 1040x You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. File 1040x For more information on liquidating distributions, see chapter 1 of Publication 550. File 1040x Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. File 1040x Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. File 1040x Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. File 1040x Taxable stock dividends and stock rights. File 1040x   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. File 1040x You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. File 1040x The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. File 1040x The distribution is in convertible preferred stock and has the same result as in (2). File 1040x The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. File 1040x The distribution is on preferred stock. File 1040x (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. File 1040x )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. File 1040x If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. File 1040x Preferred stock redeemable at a premium. File 1040x   If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. File 1040x For more information, see chapter 1 of Publication 550. File 1040x Basis. File 1040x   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. File 1040x If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. File 1040x Fractional shares. File 1040x    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. File 1040x However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. File 1040x Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. File 1040x Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. File 1040x Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. File 1040x    Report these transactions on Form 8949 with the correct box checked. File 1040x   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. File 1040x Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). File 1040x Example. File 1040x You own one share of common stock that you bought on January 3, 2004, for $100. File 1040x The corporation declared a common stock dividend of 5% on June 29, 2013. File 1040x The fair market value of the stock at the time the stock dividend was declared was $200. File 1040x You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. File 1040x You figure your gain or loss as follows: Fair market value of old stock $200. File 1040x 00 Fair market value of stock dividend (cash received) +10. File 1040x 00 Fair market value of old stock and stock dividend $210. File 1040x 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. File 1040x 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. File 1040x 76 Total $100. File 1040x 00 Cash received $10. File 1040x 00 Basis (cost) of stock dividend − 4. File 1040x 76 Gain $5. File 1040x 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. File 1040x Scrip dividends. File 1040x   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. File 1040x The certificate is generally nontaxable when you receive it. File 1040x If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. File 1040x   However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. File 1040x You must include its fair market value in income on the date you receive it. File 1040x Other Distributions You may receive any of the following distributions during the year. File 1040x Exempt-interest dividends. File 1040x   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. File 1040x Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. File 1040x Information reporting requirement. File 1040x   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. File 1040x This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. File 1040x Alternative minimum tax treatment. File 1040x   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. File 1040x See Alternative Minimum Tax (AMT) in chapter 30 for more information. File 1040x Dividends on insurance policies. File 1040x    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. File 1040x However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. File 1040x    If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. File 1040x Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. File 1040x Report any taxable distributions on insurance policies on Form 1040, line 21. File 1040x Dividends on veterans' insurance. File 1040x   Dividends you receive on veterans' insurance policies are not taxable. File 1040x In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. File 1040x Patronage dividends. File 1040x   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. File 1040x   Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. File 1040x But you must reduce the basis (cost) of the items bought. File 1040x If the dividend is more than the adjusted basis of the assets, you must report the excess as income. File 1040x   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. File 1040x Alaska Permanent Fund dividends. File 1040x    Do not report these amounts as dividends. File 1040x Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. File 1040x How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. File 1040x Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. File 1040x Report qualified dividends on line 9b of Form 1040 or Form 1040A. File 1040x If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. File 1040x See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. File 1040x If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. File 1040x You cannot use Form 1040EZ if you receive any dividend income. File 1040x Form 1099-DIV. File 1040x   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. File 1040x Even if you do not receive Form 1099-DIV, you must report all your dividend income. File 1040x   See Form 1099-DIV for more information on how to report dividend income. File 1040x Form 1040A or 1040. File 1040x    You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. File 1040x If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. File 1040x   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. File 1040x If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. File 1040x If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. File 1040x   Enter on line 6 the total of the amounts listed on line 5. File 1040x Also enter this total on line 9a of Form 1040A or 1040. File 1040x Qualified dividends. File 1040x   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. File 1040x The amount in box 1b is already included in box 1a. File 1040x Do not add the amount in box 1b to, or substract it from, the amount in box 1a. File 1040x   Do not include any of the following on line 9b. File 1040x Qualified dividends you received as a nominee. File 1040x See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. File 1040x Dividends on stock for which you did not meet the holding period. File 1040x See Holding period , earlier under Qualified Dividends. File 1040x Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. File 1040x Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. File 1040x Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. File 1040x   If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. File 1040x Enter qualified dividends on line 2 of the worksheet. File 1040x Investment interest deducted. File 1040x   If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. File 1040x Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. File 1040x This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. File 1040x For more information about the limit on investment interest, see Investment expenses in chapter 23. File 1040x Expenses related to dividend income. File 1040x   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). File 1040x See chapter 28 for general information about deducting expenses of producing income. File 1040x More information. File 1040x    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. File 1040x Prev  Up  Next   Home   More Online Publications
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The File 1040x

File 1040x Publication 15-B - Main Content Table of Contents 1. File 1040x Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. File 1040x Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. File 1040x Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. File 1040x Rules for Withholding, Depositing, and ReportingTransfer of property. File 1040x Amount of deposit. File 1040x Limitation. File 1040x Conformity rules. File 1040x Election not to withhold income tax. File 1040x How To Get Tax Help 1. File 1040x Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. File 1040x For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. File 1040x Performance of services. File 1040x   A person who performs services for you does not have to be your employee. File 1040x A person may perform services for you as an independent contractor, partner, or director. File 1040x Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. File 1040x Provider of benefit. File 1040x   You are the provider of a fringe benefit if it is provided for services performed for you. File 1040x You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. File 1040x For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. File 1040x Recipient of benefit. File 1040x   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. File 1040x That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. File 1040x For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. File 1040x Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. File 1040x Section 2 discusses the exclusions that apply to certain fringe benefits. File 1040x Any benefit not excluded under the rules discussed in section 2 is taxable. File 1040x Including taxable benefits in pay. File 1040x   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. File 1040x Any amount the law excludes from pay. File 1040x Any amount the recipient paid for the benefit. File 1040x The rules used to determine the value of a fringe benefit are discussed in section 3. File 1040x   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. File 1040x However, you can use special rules to withhold, deposit, and report the employment taxes. File 1040x These rules are discussed in section 4. File 1040x   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. File 1040x However, you may have to report the benefit on one of the following information returns. File 1040x If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. File 1040x For more information, see the instructions for the forms listed above. File 1040x Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. File 1040x If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. File 1040x Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. File 1040x However, a cafeteria plan can include a qualified 401(k) plan as a benefit. File 1040x Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. File 1040x Qualified benefits. File 1040x   A cafeteria plan can include the following benefits discussed in section 2. File 1040x Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). File 1040x Adoption assistance. File 1040x Dependent care assistance. File 1040x Group-term life insurance coverage (including costs that cannot be excluded from wages). File 1040x Health savings accounts (HSAs). File 1040x Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. File 1040x Benefits not allowed. File 1040x   A cafeteria plan cannot include the following benefits discussed in section 2. File 1040x Archer MSAs. File 1040x See Accident and Health Benefits in section 2. File 1040x Athletic facilities. File 1040x De minimis (minimal) benefits. File 1040x Educational assistance. File 1040x Employee discounts. File 1040x Employer-provided cell phones. File 1040x Lodging on your business premises. File 1040x Meals. File 1040x Moving expense reimbursements. File 1040x No-additional-cost services. File 1040x Transportation (commuting) benefits. File 1040x Tuition reduction. File 1040x Working condition benefits. File 1040x It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). File 1040x $2,500 limit on a health flexible spending arrangement (FSA). File 1040x   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. File 1040x For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. File 1040x   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). File 1040x While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. File 1040x A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. File 1040x   For more information, see Notice 2012-40, 2012-26 I. File 1040x R. File 1040x B. File 1040x 1046, available at www. File 1040x irs. File 1040x gov/irb/2012-26_IRB/ar09. File 1040x html. File 1040x Employee. File 1040x   For these plans, treat the following individuals as employees. File 1040x A current common-law employee. File 1040x See section 2 in Publication 15 (Circular E) for more information. File 1040x A full-time life insurance agent who is a current statutory employee. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x Exception for S corporation shareholders. File 1040x   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File 1040x A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File 1040x Plans that favor highly compensated employees. File 1040x   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. File 1040x A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. File 1040x   A highly compensated employee for this purpose is any of the following employees. File 1040x An officer. File 1040x A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. File 1040x An employee who is highly compensated based on the facts and circumstances. File 1040x A spouse or dependent of a person described in (1), (2), or (3). File 1040x Plans that favor key employees. File 1040x   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. File 1040x A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. File 1040x However, a plan you maintain under a collective bargaining agreement does not favor key employees. File 1040x   A key employee during 2014 is generally an employee who is either of the following. File 1040x An officer having annual pay of more than $170,000. File 1040x An employee who for 2014 is either of the following. File 1040x A 5% owner of your business. File 1040x A 1% owner of your business whose annual pay was more than $150,000. File 1040x Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. File 1040x Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. File 1040x Eligible employer. File 1040x   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. File 1040x If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. File 1040x If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. File 1040x Eligibility and participation requirements. File 1040x   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. File 1040x You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. File 1040x S. File 1040x source. File 1040x Contribution requirements. File 1040x   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. File 1040x If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. File 1040x More information. File 1040x   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. File 1040x 2. File 1040x Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. File 1040x These rules exclude all or part of the value of certain benefits from the recipient's pay. File 1040x The excluded benefits are not subject to federal income tax withholding. File 1040x Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. File 1040x This section discusses the exclusion rules for the following fringe benefits. File 1040x Accident and health benefits. File 1040x Achievement awards. File 1040x Adoption assistance. File 1040x Athletic facilities. File 1040x De minimis (minimal) benefits. File 1040x Dependent care assistance. File 1040x Educational assistance. File 1040x Employee discounts. File 1040x Employee stock options. File 1040x Employer-provided cell phones. File 1040x Group-term life insurance coverage. File 1040x Health savings accounts (HSAs). File 1040x Lodging on your business premises. File 1040x Meals. File 1040x Moving expense reimbursements. File 1040x No-additional-cost services. File 1040x Retirement planning services. File 1040x Transportation (commuting) benefits. File 1040x Tuition reduction. File 1040x Working condition benefits. File 1040x See Table 2-1, later, for an overview of the employment tax treatment of these benefits. File 1040x Table 2-1. File 1040x Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. File 1040x ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. File 1040x Exempt, except for certain payments to S corporation employees who are 2% shareholders. File 1040x Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). File 1040x Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. File 1040x De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). File 1040x Educational assistance Exempt up to $5,250 of benefits each year. File 1040x (See Educational Assistance , later in this section. File 1040x ) Employee discounts Exempt3 up to certain limits. File 1040x (See Employee Discounts , later in this section. File 1040x ) Employee stock options See Employee Stock Options , later in this section. File 1040x Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. File 1040x Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. File 1040x (Special rules apply to former employees. File 1040x ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. File 1040x (See Health Savings Accounts , later in this section. File 1040x ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. File 1040x Meals Exempt if furnished on your business premises for your convenience. File 1040x Exempt if de minimis. File 1040x Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. File 1040x No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). File 1040x (See Transportation (Commuting) Benefits , later in this section. File 1040x ) Exempt if de minimis. File 1040x Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). File 1040x Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. File 1040x 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. File 1040x 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. File 1040x 4 Exemption does not apply to certain key employees under a plan that favors those employees. File 1040x 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. File 1040x 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. File 1040x 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. File 1040x Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. File 1040x Also, show it in box 12 with code “C. File 1040x ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. File 1040x Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. File 1040x Contributions to the cost of accident or health insurance including qualified long-term care insurance. File 1040x Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. File 1040x Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). File 1040x This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. File 1040x Payments or reimbursements of medical expenses. File 1040x Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). File 1040x The payments must be figured without regard to any period of absence from work. File 1040x Accident or health plan. File 1040x   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. File 1040x The plan may be insured or noninsured and does not need to be in writing. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current common-law employee. File 1040x A full-time life insurance agent who is a current statutory employee. File 1040x A retired employee. File 1040x A former employee you maintain coverage for based on the employment relationship. File 1040x A widow or widower of an individual who died while an employee. File 1040x A widow or widower of a retired employee. File 1040x For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x Special rule for certain government plans. File 1040x   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. File 1040x See section 105(j) for details. File 1040x Exception for S corporation shareholders. File 1040x   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File 1040x A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File 1040x Exclusion from wages. File 1040x   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. File 1040x Exception for certain long-term care benefits. File 1040x   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. File 1040x This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. File 1040x However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. File 1040x S corporation shareholders. File 1040x   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. File 1040x However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. File 1040x Exception for highly compensated employees. File 1040x   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. File 1040x However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. File 1040x   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. File 1040x   A highly compensated employee for this exception is any of the following individuals. File 1040x One of the five highest paid officers. File 1040x An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. File 1040x An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). File 1040x   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. File 1040x COBRA premiums. File 1040x   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). File 1040x The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. File 1040x Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. File 1040x The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. File 1040x The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current employee. File 1040x A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x Exception for S corporation shareholders. File 1040x   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File 1040x A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File 1040x Exclusion from wages. File 1040x   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. File 1040x The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). File 1040x See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. File 1040x    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. File 1040x   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. File 1040x The part of the cost that is more than your allowable deduction (up to the value of the awards). File 1040x The amount by which the value of the awards exceeds your allowable deduction. File 1040x Exclude the remaining value of the awards from the employee's wages. File 1040x Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. File 1040x It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. File 1040x To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. File 1040x It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). File 1040x A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. File 1040x You give reasonable notice of the plan to eligible employees. File 1040x Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. File 1040x For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File 1040x The employee was a 5% owner at any time during the year or the preceding year. File 1040x The employee received more than $115,000 in pay for the preceding year. File 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File 1040x You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. File 1040x However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. File 1040x For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. File 1040x You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. File 1040x Use code “T” to identify this amount. File 1040x Exception for S corporation shareholders. File 1040x   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. File 1040x A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. File 1040x Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. File 1040x For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. File 1040x On-premises facility. File 1040x   The athletic facility must be located on premises you own or lease. File 1040x It does not have to be located on your business premises. File 1040x However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current employee. File 1040x A former employee who retired or left on disability. File 1040x A widow or widower of an individual who died while an employee. File 1040x A widow or widower of a former employee who retired or left on disability. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x A partner who performs services for a partnership. File 1040x De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. File 1040x A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. File 1040x Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. File 1040x Examples of de minimis benefits include the following. File 1040x Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. File 1040x See Employer-Provided Cell Phones , later in this section, for details. File 1040x Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. File 1040x Holiday gifts, other than cash, with a low fair market value. File 1040x Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. File 1040x Meals. File 1040x See Meals , later in this section, for details. File 1040x Occasional parties or picnics for employees and their guests. File 1040x Occasional tickets for theater or sporting events. File 1040x Transportation fare. File 1040x See Transportation (Commuting) Benefits , later in this section, for details. File 1040x Employee. File 1040x   For this exclusion, treat any recipient of a de minimis benefit as an employee. File 1040x Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. File 1040x The services must be for a qualifying person's care and must be provided to allow the employee to work. File 1040x These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. File 1040x For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current employee. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x Yourself (if you are a sole proprietor). File 1040x A partner who performs services for a partnership. File 1040x Exclusion from wages. File 1040x   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. File 1040x   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. File 1040x This limit is reduced to $2,500 for married employees filing separate returns. File 1040x   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. File 1040x Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. File 1040x For more information on the earned income limit, see Publication 503. File 1040x Exception for highly compensated employees. File 1040x   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. File 1040x   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File 1040x The employee was a 5% owner at any time during the year or the preceding year. File 1040x The employee received more than $115,000 in pay for the preceding year. File 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File 1040x Form W-2. File 1040x   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. File 1040x Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. File 1040x Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. File 1040x Example. File 1040x   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. File 1040x In addition, it provides occasional on-site dependent care to its employees at no cost. File 1040x Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. File 1040x In addition, Emily used the on-site dependent care several times. File 1040x The fair market value of the on-site care was $700. File 1040x Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). File 1040x Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. File 1040x Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. File 1040x The exclusion also applies to graduate level courses. File 1040x Educational assistance means amounts you pay or incur for your employees' education expenses. File 1040x These expenses generally include the cost of books, equipment, fees, supplies, and tuition. File 1040x However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. File 1040x Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. File 1040x Nor do they include the cost of lodging, meals, or transportation. File 1040x Educational assistance program. File 1040x   An educational assistance program is a separate written plan that provides educational assistance only to your employees. File 1040x The program qualifies only if all of the following tests are met. File 1040x The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. File 1040x To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. File 1040x The program does not provide more than 5% of its benefits during the year for shareholders or owners. File 1040x A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. File 1040x The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. File 1040x You give reasonable notice of the program to eligible employees. File 1040x Your program can cover former employees if their employment is the reason for the coverage. File 1040x   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File 1040x The employee was a 5% owner at any time during the year or the preceding year. File 1040x The employee received more than $115,000 in pay for the preceding year. File 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current employee. File 1040x A former employee who retired, left on disability, or was laid off. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x Yourself (if you are a sole proprietor). File 1040x A partner who performs services for a partnership. File 1040x Exclusion from wages. File 1040x   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. File 1040x Assistance over $5,250. File 1040x   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. File 1040x Working condition benefits may be excluded from wages. File 1040x Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. File 1040x See Working Condition Benefits , later, in this section. File 1040x Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. File 1040x However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current employee. File 1040x A former employee who retired or left on disability. File 1040x A widow or widower of an individual who died while an employee. File 1040x A widow or widower of an employee who retired or left on disability. File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. File 1040x A partner who performs services for a partnership. File 1040x Exclusion from wages. File 1040x   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. File 1040x For a discount on services, 20% of the price you charge nonemployee customers for the service. File 1040x For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. File 1040x   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. File 1040x To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. File 1040x Exception for highly compensated employees. File 1040x   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. File 1040x All of your employees. File 1040x A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. File 1040x   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. File 1040x The employee was a 5% owner at any time during the year or the preceding year. File 1040x The employee received more than $115,000 in pay for the preceding year. File 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File 1040x Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. File 1040x Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. File 1040x The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. File 1040x Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. File 1040x The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. File 1040x However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. File 1040x An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. File 1040x ” See Regulations section 1. File 1040x 83-7. File 1040x An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. File 1040x The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. File 1040x See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. File 1040x You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. File 1040x irs. File 1040x gov/pub/irs-irbs/irb02-19. File 1040x pdf. File 1040x See Revenue Ruling 2004-60, 2004-24 I. File 1040x R. File 1040x B. File 1040x 1051, available at www. File 1040x irs. File 1040x gov/irb/2004-24_IRB/ar13. File 1040x html. File 1040x For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. File 1040x Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. File 1040x Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. File 1040x For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. File 1040x Noncompensatory business purposes. File 1040x   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. File 1040x Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. File 1040x Cell phones provided to promote goodwill, boost morale, or attract prospective employees. File 1040x   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. File 1040x Additional information. File 1040x   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. File 1040x R. File 1040x B. File 1040x 407, available at  www. File 1040x irs. File 1040x gov/irb/2011-38_IRB/ar07. File 1040x html. File 1040x Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. File 1040x It provides a general death benefit that is not included in income. File 1040x You provide it to a group of employees. File 1040x See The 10-employee rule , later. File 1040x It provides an amount of insurance to each employee based on a formula that prevents individual selection. File 1040x This formula must use factors such as the employee's age, years of service, pay, or position. File 1040x You provide it under a policy you directly or indirectly carry. File 1040x Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. File 1040x Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. File 1040x Group-term life insurance does not include the following insurance. File 1040x Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. File 1040x Life insurance on the life of your employee's spouse or dependent. File 1040x However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. File 1040x See De Minimis (Minimal) Benefits , earlier in this section. File 1040x Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. File 1040x See Regulations section 1. File 1040x 79-1 for details. File 1040x Employee. File 1040x   For this exclusion, treat the following individuals as employees. File 1040x A current common-law employee. File 1040x A full-time life insurance agent who is a current statutory employee. File 1040x An individual who was formerly your employee under (1) or (2). File 1040x A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. File 1040x Exception for S corporation shareholders. File 1040x   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. File 1040x A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File 1040x The 10-employee rule. File 1040x   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. File 1040x   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. File 1040x For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. File 1040x However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. File 1040x A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. File 1040x Exceptions. File 1040x   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. File 1040x   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. File 1040x If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. File 1040x You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. File 1040x You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. File 1040x See Regulations section 1. File 1040x 79-1 for details. File 1040x   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. File 1040x You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. File 1040x The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. File 1040x Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. File 1040x   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. File 1040x They were 65 or older. File 1040x They customarily work 20 hours or less a week or 5 months or less in a calendar year. File 1040x They have not been employed for the waiting period given in the policy. File 1040x This waiting period cannot be more than 6 months. File 1040x Exclusion from wages. File 1040x   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. File 1040x You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. File 1040x In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. File 1040x Coverage over the limit. File 1040x   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. File 1040x Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. File 1040x Also, show it in box 12 with code “C. File 1040x ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. File 1040x   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. File 1040x For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. File 1040x You must prorate the cost from the table if less than a full month of coverage is involved. File 1040x Table 2-2. File 1040x Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . File 1040x 05 25 through 29 . File 1040x 06 30 through 34 . File 1040x 08 35 through 39 . File 1040x 09 40 through 44 . File 1040x 10 45 through 49 . File 1040x 15 50 through 54 . File 1040x 23 55 through 59 . File 1040x 43 60 through 64 . File 1040x 66 65 through 69 1. File 1040x 27 70 and older 2. File 1040x 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. File 1040x Example. File 1040x Tom's employer provides him with group-term life insurance coverage of $200,000. File 1040x Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. File 1040x Tom's employer must include $170 in his wages. File 1040x The $200,000 of insurance coverage is reduced by $50,000. File 1040x The yearly cost of $150,000 of coverage is $270 ($. File 1040x 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. File 1040x The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. File 1040x The employer also enters $170 in box 12 with code “C. File 1040x ” Coverage for dependents. File 1040x   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. File 1040x If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. File 1040x The cost of the insurance is determined by using Table 2-2. File 1040x Former employees. File 1040x   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. File 1040x You are not required to collect those taxes. File 1040x Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. File 1040x Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. File 1040x ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. File 1040x Exception for key employees. File 1040x   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. File 1040x This exception generally does not apply to church plans. File 1040x When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. File 1040x Include the cost in boxes 1, 3, and 5 of Form W-2. File 1040x However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. File 1040x   For this purpose, the cost of the insurance is the greater of the following amounts. File 1040x The premiums you pay for the employee's insurance. File 1040x See Regulations section 1. File 1040x 79-4T(Q&A 6) for more information. File 1040x The cost you figure using Table 2-2. File 1040x   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. File 1040x See section 416(i) of the Internal Revenue Code for more information. File 1040x An officer having annual pay of more than $170,000. File 1040x An individual who for 2014 was either of the following. File 1040x A 5% owner of your business. File 1040x A 1% owner of your business whose annual pay was more than $150,000. File 1040x   A former employee who was a key employee upon retirement or separation from service is also a key employee. File 1040x   Your plan does not favor key employees as to participation if at least one of the following is true. File 1040x It benefits at least 70% of your employees. File 1040x At least 85% of the participating employees are not key employees. File 1040x It benefits employees who qualify under a set of rules you set up that do not favor key employees. File 1040x   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. File 1040x   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. File 1040x S. File 1040x source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. File 1040x   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. File 1040x Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. File 1040x S corporation shareholders. File 1040x   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. File 1040x When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. File 1040x Include the cost in boxes 1, 3, and 5 of Form W-2. File 1040x However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. File 1040x Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. File 1040x Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. File 1040x Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. File 1040x The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. File 1040x For more information about HSAs, visit the Department of Treasury's website at www. File 1040x treasury. File 1040x gov and enter “HSA” in the search box. File 1040x Eligibility. File 1040x   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. File 1040x For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. File 1040x   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. File 1040x Exceptions. File 1040x   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. File 1040x Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. File 1040x However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. File 1040x For more information, see Other employee health plans in Publication 969. File 1040x Employer contributions. File 1040x   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. File 1040x For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. File 1040x   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. File 1040x For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. File 1040x No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. File 1040x Nondiscrimination rules. File 1040x    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. File 1040x Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. File 1040x   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. File 1040x 4980G-4. File 1040x Exception. File 1040x   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. File 1040x A highly compensated employee for 2014 is an employee who meets either of the following tests. File 1040x The employee was a 5% owner at any time during the year or the preceding year. File 1040x The employee received more than $115,000 in pay for the preceding year. File 1040x You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. File 1040x Partnerships and S corporations. File 1040x   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. File 1040x Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. File 1040x Cafeteria plans. File 1040x   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. File 1040x However, cafeteria plan nondiscrimination rules still apply. File 1040x For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. File 1040x Contributions that favor lower-paid employees are not prohibited. File 1040x Reporting requirements. File 1040x   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. File 1040x ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. File 1040x Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. File 1040x It is furnished on your business premises. File 1040x It is furnished for your convenience. File 1040x The employee must accept it as a condition of employment. File 1040x Different tests may apply to lodging furnished by educational institutions. File 1040x See section 119(d) of the Internal Revenue Code for details. File 1040x The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. File 1040x On your business premises. File 1040x   For this exclusion, your business premises is generally your employee's place of work. File 1040x For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. File 1040x For your convenience. File 1040x   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. File 1040x You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. File 1040x This is true even if a law or an employment contract provides that the lodging is furnished as pay. File 1040x However, a written statement that the lodging is furnished for your convenience is not sufficient. File 1040x Condition of employment. File 1040x   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. File 1040x Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. File 1040x   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. File 1040x Example. File 1040x A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. File 1040x If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. File 1040x S corporation shareholders. File 1040x   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. File 1040x A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. File 1040x Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. File 1040x Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. File 1040x De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. File 1040x The exclusion applies, for example, to the following items. File 1040x Coffee, doughnuts, or soft drinks. File 1040x Occasional meals or meal money provided to enable an employee to work overtime. File 1040x However, the exclusion does not apply to meal money figured on the basis of hours worked. File 1040x Occasional parties or picnics for employees and their guests. File 1040x This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. File 1040x For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. File 1040x If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. File 1040x The 50% limit on deductions for the cost of meals does not apply. File 1040x The deduction limit on meals is discussed in chapter 2 of Publication 535. File 1040x Employee. File 1040x   For this exclusion, treat any recipient of a de minimis meal as