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File 2012 Income Tax

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File 2012 Income Tax

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

File 2012 income tax 3. File 2012 income tax   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. File 2012 income tax Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. File 2012 income tax In addition, you will contribute matching or nonelective contributions. File 2012 income tax SIMPLE plans can only be maintained on a calendar-year basis. File 2012 income tax A SIMPLE plan can be set up in either of the following ways. File 2012 income tax Using SIMPLE IRAs (SIMPLE IRA plan). File 2012 income tax As part of a 401(k) plan (SIMPLE 401(k) plan). File 2012 income tax Many financial institutions will help you set up a SIMPLE plan. File 2012 income tax SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. File 2012 income tax Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. File 2012 income tax For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. File 2012 income tax Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. File 2012 income tax You meet the employee limit. File 2012 income tax You do not maintain another qualified plan unless the other plan is for collective bargaining employees. File 2012 income tax Employee limit. File 2012 income tax   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. File 2012 income tax Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. File 2012 income tax Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). File 2012 income tax   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. File 2012 income tax Grace period for employers who cease to meet the 100-employee limit. File 2012 income tax   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. File 2012 income tax   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. File 2012 income tax Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. File 2012 income tax Coverage under the plan has not significantly changed during the grace period. File 2012 income tax The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. File 2012 income tax    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. File 2012 income tax Other qualified plan. File 2012 income tax   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. File 2012 income tax Exception. File 2012 income tax   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. File 2012 income tax Who Can Participate in a SIMPLE IRA Plan? Eligible employee. File 2012 income tax   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. File 2012 income tax The term “employee” includes a self-employed individual who received earned income. File 2012 income tax   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. File 2012 income tax For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. File 2012 income tax However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. File 2012 income tax Excludable employees. File 2012 income tax   The following employees do not need to be covered under a SIMPLE IRA plan. File 2012 income tax Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. File 2012 income tax Nonresident alien employees who have received no U. File 2012 income tax S. File 2012 income tax source wages, salaries, or other personal services compensation from you. File 2012 income tax Compensation. File 2012 income tax   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. File 2012 income tax Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. File 2012 income tax If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. File 2012 income tax How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. File 2012 income tax Each form is a model savings incentive match plan for employees (SIMPLE) plan document. File 2012 income tax Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. File 2012 income tax Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. File 2012 income tax Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. File 2012 income tax The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. File 2012 income tax Keep the original form. File 2012 income tax Do not file it with the IRS. File 2012 income tax Other uses of the forms. File 2012 income tax   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. File 2012 income tax Meeting employer notification requirements for the SIMPLE IRA plan. File 2012 income tax Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. File 2012 income tax Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. File 2012 income tax Deadline for setting up a SIMPLE IRA plan. File 2012 income tax   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. File 2012 income tax This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. File 2012 income tax If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. File 2012 income tax A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. File 2012 income tax Setting up a SIMPLE IRA. File 2012 income tax   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. File 2012 income tax A SIMPLE IRA must be set up for each eligible employee. File 2012 income tax Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. File 2012 income tax   A SIMPLE IRA cannot be a Roth IRA. File 2012 income tax Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. File 2012 income tax Deadline for setting up a SIMPLE IRA. File 2012 income tax   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. File 2012 income tax See Time limits for contributing funds , later, under Contribution Limits. File 2012 income tax Credit for startup costs. File 2012 income tax   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. File 2012 income tax For more information, see Credit for startup costs under Reminders, earlier. File 2012 income tax Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. File 2012 income tax The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. File 2012 income tax Your decision to make either matching contributions or nonelective contributions (discussed later). File 2012 income tax A summary description provided by the financial institution. File 2012 income tax Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. File 2012 income tax Election period. File 2012 income tax   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). File 2012 income tax However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. File 2012 income tax   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. File 2012 income tax For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. File 2012 income tax Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. File 2012 income tax Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. File 2012 income tax You, as the employer, must make either matching contributions or nonelective contributions, defined later. File 2012 income tax No other contributions can be made to the SIMPLE IRA plan. File 2012 income tax These contributions, which you can deduct, must be made timely. File 2012 income tax See Time limits for contributing funds , later. File 2012 income tax Salary reduction contributions. File 2012 income tax   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. File 2012 income tax These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. File 2012 income tax You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. File 2012 income tax   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. File 2012 income tax Catch-up contributions. File 2012 income tax   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. File 2012 income tax The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. File 2012 income tax Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. File 2012 income tax However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. File 2012 income tax The catch-up contribution limit. File 2012 income tax The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. File 2012 income tax Employer matching contributions. File 2012 income tax   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. File 2012 income tax This requirement does not apply if you make nonelective contributions as discussed later. File 2012 income tax Example. File 2012 income tax In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. File 2012 income tax Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. File 2012 income tax You make 3% matching contributions. File 2012 income tax The total contribution you make for John is $2,000, figured as follows. File 2012 income tax Salary reduction contributions ($25,000 × . File 2012 income tax 05) $1,250 Employer matching contribution ($25,000 × . File 2012 income tax 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. File 2012 income tax Salary reduction contributions ($40,000 × . File 2012 income tax 10) $4,000 Employer matching contribution ($40,000 × . File 2012 income tax 03) 1,200 Total contributions $5,200 Lower percentage. File 2012 income tax   If you choose a matching contribution less than 3%, the percentage must be at least 1%. File 2012 income tax You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. File 2012 income tax You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. File 2012 income tax Nonelective contributions. File 2012 income tax   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. File 2012 income tax If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. File 2012 income tax Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). File 2012 income tax   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. File 2012 income tax Example 1. File 2012 income tax In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. File 2012 income tax Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. File 2012 income tax You make a 2% nonelective contribution. File 2012 income tax Both of you are under age 50. File 2012 income tax The total contribution you make for Jane is $4,320, figured as follows. File 2012 income tax Salary reduction contributions ($36,000 × . File 2012 income tax 10) $3,600 2% nonelective contributions ($36,000 × . File 2012 income tax 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. File 2012 income tax Salary reduction contributions ($50,000 × . File 2012 income tax 10) $5,000 2% nonelective contributions ($50,000 × . File 2012 income tax 02) 1,000 Total contributions $6,000 Example 2. File 2012 income tax Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. File 2012 income tax Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . File 2012 income tax 02) 1,500 Total contributions $13,500 Time limits for contributing funds. File 2012 income tax   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. File 2012 income tax You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. File 2012 income tax Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. File 2012 income tax When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. File 2012 income tax You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. File 2012 income tax Example 1. File 2012 income tax Your tax year is the fiscal year ending June 30. File 2012 income tax Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. File 2012 income tax Example 2. File 2012 income tax You are a sole proprietor whose tax year is the calendar year. File 2012 income tax Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. File 2012 income tax Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. File 2012 income tax For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. File 2012 income tax Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. File 2012 income tax (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. File 2012 income tax ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. File 2012 income tax SIMPLE IRA plan contributions are not subject to federal income tax withholding. File 2012 income tax However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. File 2012 income tax Matching and nonelective contributions are not subject to these taxes. File 2012 income tax Reporting on Form W-2. File 2012 income tax   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. File 2012 income tax You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. File 2012 income tax You must also include them in box 12. File 2012 income tax Mark the “Retirement plan” checkbox in box 13. File 2012 income tax For more information, see the Form W-2 instructions. File 2012 income tax Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. File 2012 income tax Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. File 2012 income tax However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. File 2012 income tax Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. File 2012 income tax Early withdrawals generally are subject to a 10% additional tax. File 2012 income tax However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. File 2012 income tax More information. File 2012 income tax   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. File 2012 income tax More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. File 2012 income tax SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. File 2012 income tax A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. File 2012 income tax However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. File 2012 income tax Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. File 2012 income tax If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. File 2012 income tax See Catch-up contributions , earlier under Contribution Limits. File 2012 income tax You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. File 2012 income tax No other contributions can be made to the trust. File 2012 income tax No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. File 2012 income tax The employee's rights to any contributions are nonforfeitable. File 2012 income tax No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). File 2012 income tax Compensation is defined earlier in this chapter. File 2012 income tax Employee notification. File 2012 income tax   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. File 2012 income tax See Notification Requirement in this chapter. File 2012 income tax Credit for startup costs. File 2012 income tax   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. File 2012 income tax For more information, see Credit for startup costs under Reminders, earlier. File 2012 income tax Note on Forms. File 2012 income tax   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. File 2012 income tax To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. File 2012 income tax Prev  Up  Next   Home   More Online Publications