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Free Federal And State Tax Filing 2012

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Free Federal And State Tax Filing 2012

Free federal and state tax filing 2012 3. Free federal and state tax filing 2012   Abandonments Table of Contents You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Free federal and state tax filing 2012 Whether an abandonment has occurred is determined in light of all the facts and circumstances. Free federal and state tax filing 2012 You must both show an intention to abandon the property and affirmatively act to abandon the property. Free federal and state tax filing 2012 A voluntary conveyance of the property in lieu of foreclosure is not an abandonment and is treated as the exchange of property to satisfy a debt. Free federal and state tax filing 2012 For more information, see Sales and Exchanges in Publication 544. Free federal and state tax filing 2012 The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Free federal and state tax filing 2012 See Publication 544 if you abandoned property that did not secure debt. Free federal and state tax filing 2012 This publication only discusses the tax consequences of abandoning property that secured a debt. Free federal and state tax filing 2012 Abandonment of property securing recourse debt. Free federal and state tax filing 2012    In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you do not have gain or loss until the later foreclosure is completed. Free federal and state tax filing 2012 For details on figuring gain or loss on the foreclosure, see chapter 2. Free federal and state tax filing 2012 Example 1—abandonment of personal-use property securing recourse debt. Free federal and state tax filing 2012 In 2009, Anne purchased a home for $200,000. Free federal and state tax filing 2012 She borrowed the entire purchase price, for which she was personally liable, and gave the bank a mortgage on the home. Free federal and state tax filing 2012 In 2013, Anne lost her job and was unable to continue making her mortgage loan payments. Free federal and state tax filing 2012 Because her mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently moving out on August 1, 2013. Free federal and state tax filing 2012 Because Anne was personally liable for the debt and the bank did not complete a foreclosure of the property in 2013, Anne has neither gain nor loss in tax year 2013 from abandoning the home. Free federal and state tax filing 2012 If the bank sells the house at a foreclosure sale in 2014, Anne will have to figure her gain or nondeductible loss for tax year 2014 as discussed earlier in chapter 2. Free federal and state tax filing 2012 Example 2—abandonment of business or investment property securing recourse debt. Free federal and state tax filing 2012 In 2009, Sue purchased business property for $200,000. Free federal and state tax filing 2012 She borrowed the entire purchase price, for which she was personally liable, and gave the lender a security interest in the property. Free federal and state tax filing 2012 In 2013, Sue was unable to continue making her loan payments. Free federal and state tax filing 2012 Because her loan balance was $185,000 and the FMV of the property was only $150,000, Sue abandoned the property on August 1, 2013. Free federal and state tax filing 2012 Because Sue was personally liable for the debt and the lender did not complete a foreclosure of the property in 2013, Sue has neither gain nor loss in tax year 2013 from abandoning the property. Free federal and state tax filing 2012 If the lender sells the property at a foreclosure sale in 2014, Sue will have to figure her gain or deductible loss for tax year 2014 as discussed earlier in chapter 2. Free federal and state tax filing 2012 Abandonment of property securing nonrecourse debt. Free federal and state tax filing 2012    If you abandon property that secures debt for which you are not personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange. Free federal and state tax filing 2012   The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. Free federal and state tax filing 2012 If the amount you realize is more than your adjusted basis, then you have a gain. Free federal and state tax filing 2012 If your adjusted basis is more than the amount you realize, then you have a loss. Free federal and state tax filing 2012 For more information on how to figure gain and loss, see Gain or Loss from Sales or Exchanges in Publication 544. Free federal and state tax filing 2012   Loss from abandonment of business or investment property is deductible as a loss. Free federal and state tax filing 2012 The character of the loss depends on the character of the property. Free federal and state tax filing 2012 The amount of deductible capital loss may be limited. Free federal and state tax filing 2012 For more information, see Treatment of Capital Losses in Publication 544. Free federal and state tax filing 2012 You cannot deduct any loss from abandonment of your home or other property held for personal use. Free federal and state tax filing 2012 Example 1—abandonment of personal-use property securing nonrecourse debt. Free federal and state tax filing 2012 In 2009, Timothy purchased a home for $200,000. Free federal and state tax filing 2012 He borrowed the entire purchase price, for which he was not personally liable, and gave the bank a mortgage on the home. Free federal and state tax filing 2012 In 2013, Timothy lost his job and was unable to continue making his mortgage loan payments. Free federal and state tax filing 2012 Because his mortgage loan balance was $185,000 and the FMV of his home was only $150,000, Timothy decided to abandon his home by permanently moving out on August 1, 2013. Free federal and state tax filing 2012 Because Timothy was not personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2013. Free federal and state tax filing 2012 Timothy's amount realized is $185,000 and his adjusted basis in the home is $200,000. Free federal and state tax filing 2012 Timothy has a $15,000 nondeductible loss in tax year 2013. Free federal and state tax filing 2012 (Had Timothy’s adjusted basis been less than the amount realized, Timothy would have had a gain that he would have to include in gross income. Free federal and state tax filing 2012 ) The bank sells the house at a foreclosure sale in 2014. Free federal and state tax filing 2012 Timothy has neither gain nor loss from the foreclosure sale. Free federal and state tax filing 2012 Because he was not personally liable for the debt, he also has no cancellation of debt income. Free federal and state tax filing 2012 Example 2—abandonment of business or investment property securing nonrecourse debt. Free federal and state tax filing 2012 In 2009, Robert purchased business property for $200,000. Free federal and state tax filing 2012 He borrowed the entire purchase price, for which he was not personally liable, and gave the lender a security interest in the property. Free federal and state tax filing 2012 In 2013, Robert was unable to continue making his loan payments. Free federal and state tax filing 2012 Because his loan balance was $185,000 and the FMV of the property was only $150,000, Robert decided to abandon the property on August 1, 2013. Free federal and state tax filing 2012 Because Robert was not personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2013. Free federal and state tax filing 2012 Robert's amount realized is $185,000 and his adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). Free federal and state tax filing 2012 Robert has a $5,000 gain in tax year 2013. Free federal and state tax filing 2012 (Had Robert’s adjusted basis been greater than the amount realized, he would have had a deductible loss. Free federal and state tax filing 2012 ) The lender sells the property at a foreclosure sale in 2014. Free federal and state tax filing 2012 Robert has neither gain nor loss from the foreclosure sale. Free federal and state tax filing 2012 Because he was not personally liable for the debt, he also has no cancellation of debt income. Free federal and state tax filing 2012 Canceled debt. Free federal and state tax filing 2012    If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Free federal and state tax filing 2012 This income is separate from any amount realized from abandonment of the property. Free federal and state tax filing 2012 You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies. Free federal and state tax filing 2012 See chapter 1 for more details. Free federal and state tax filing 2012 Forms 1099-A and 1099-C. Free federal and state tax filing 2012    In most cases, if you abandon real property (such as a home), intangible property, or tangible personal property held (wholly or partly) for use in a trade or business or for investment, that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. Free federal and state tax filing 2012 Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. Free federal and state tax filing 2012 The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free federal and state tax filing 2012 For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free federal and state tax filing 2012 Prev  Up  Next   Home   More Online Publications
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Understanding your CP16 Notice

We sent you this notice to tell you about changes we made to your return that affect your refund. We made these changes because we believe there was a miscalculation. Our records show you owe other tax debts and we applied all or part of your refund to them.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain the changes we made to your tax return.
  • Correct the copy of your tax return that you kept for your records.
  • Contact us within 60 days of the date of your notice if you disagree with the changes we made.

You may want to...


Answers to Common Questions

How can I find out what caused my tax return to change?
Please contact us at the number listed on your notice for specific information concerning your tax return.

What should I do if I disagree with the changes you made?
If you disagree, contact us at the toll free number listed on the top right corner of your notice.

If you contact us in writing within 60 days of the date of this notice, we'll reverse the change we made to your account. However, if you're unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we'll forward your case for audit your case. This step gives you formal appeal rights, including the right to appeal our decision in court before you have to pay the additional tax. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don't contact us within the 60 day period, you'll lose your right to appeal our decision before paying the tax.

If you don't contact us within 60 days, the change won't be reversed and you must pay the additional tax. You may then file a claim for refund. You must submit the claim within three years of the date you filed the tax return, or within two years of the date of your last payment for this tax.

What if I disagree with the debt my refund was applied to?
You will need to contact us using the number provided on your notice to discuss your account information.

How can I find out if I am an injured spouse?
Review Form 8379, Injured Spouse Allocation and its instructions.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

If you have any dependent children, remember to claim the Additional Child Tax Credit the next time you file your income tax return. Complete and attach a Form 1040 Schedule 8812, Child Tax Credit to your return to claim this credit.

Page Last Reviewed or Updated: 20-Feb-2014

The Free Federal And State Tax Filing 2012

Free federal and state tax filing 2012 Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Full-time student. Free federal and state tax filing 2012 Adjusted gross income. Free federal and state tax filing 2012 More information. Free federal and state tax filing 2012 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). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Free federal and state tax filing 2012 You are a member of a religious order who has taken a vow of poverty. Free federal and state tax filing 2012 You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Free federal and state tax filing 2012 See Exemption From Self-Employment (SE) Tax , later. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 See Ministerial Services , later. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Free federal and state tax filing 2012 For the specific services covered, see Ministerial Services , later. Free federal and state tax filing 2012 Ministers defined. Free federal and state tax filing 2012   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Employment status for other tax purposes. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Free federal and state tax filing 2012 Common-law employee. Free federal and state tax filing 2012   Under common-law rules, you are considered either an employee or a self-employed person. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 A church hires and pays you a salary to perform ministerial services subject to its control. Free federal and state tax filing 2012 Under the common-law rules, you are an employee of the church while performing those services. Free federal and state tax filing 2012 Form SS-8. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 See Ministerial Services , later. Free federal and state tax filing 2012 However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Free federal and state tax filing 2012 Vow of poverty. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 You do not need to request a separate exemption. Free federal and state tax filing 2012 For income tax purposes, the earnings are tax free to you. Free federal and state tax filing 2012 Your earnings are considered the income of the religious order. Free federal and state tax filing 2012 Services covered under FICA at the election of the order. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   The order or subdivision elects coverage by filing Form SS-16. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Free federal and state tax filing 2012 You do not pay any of the FICA tax. Free federal and state tax filing 2012 Services performed outside the order. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Free federal and state tax filing 2012 You may, however, be able to take a charitable deduction for the amount you turn over to the order. Free federal and state tax filing 2012 See Publication 526, Charitable Contributions. Free federal and state tax filing 2012 Rulings. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Free federal and state tax filing 2012 R. Free federal and state tax filing 2012 B. Free federal and state tax filing 2012 1, available at www. Free federal and state tax filing 2012 irs. Free federal and state tax filing 2012 gov/irb/2014-1_IRB/ar05. Free federal and state tax filing 2012 html. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Free federal and state tax filing 2012 Practitioners. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 State law specifically exempts Christian Science practitioners from licensing requirements. Free federal and state tax filing 2012   Some Christian Science practitioners also are Christian Science teachers or lecturers. Free federal and state tax filing 2012 Income from teaching or lecturing is considered the same as income from their work as practitioners. Free federal and state tax filing 2012 Readers. Free federal and state tax filing 2012   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Some exceptions are discussed next. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Free federal and state tax filing 2012 28 during the tax year. Free federal and state tax filing 2012 However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Free federal and state tax filing 2012 Churches and church organizations make this election by filing two copies of Form 8274. Free federal and state tax filing 2012 For more information about making this election, see Form 8274. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Free federal and state tax filing 2012 Make this choice by filing Form 4029. Free federal and state tax filing 2012 See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Free federal and state tax filing 2012 U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 social security system. Free federal and state tax filing 2012 To determine your alien status, see Publication 519, U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Tax Guide for Aliens. Free federal and state tax filing 2012 Residents of Puerto Rico, the U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Virgin Islands, Guam, the CNMI, and American Samoa. Free federal and state tax filing 2012   If you are a resident of one of these U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 possessions but not a U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Free federal and state tax filing 2012 For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Free federal and state tax filing 2012 Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Free federal and state tax filing 2012 The exemption does not apply to any other income. Free federal and state tax filing 2012 The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Free federal and state tax filing 2012 Ministers Most services you perform as a minister, priest, rabbi, etc. Free federal and state tax filing 2012 , are ministerial services. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Services for nonreligious organizations. Free federal and state tax filing 2012   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Free federal and state tax filing 2012 Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Services that are not part of your ministry. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 The following are not ministerial services. Free federal and state tax filing 2012 Services you perform for nonreligious organizations other than the services stated above. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Free federal and state tax filing 2012 (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Free federal and state tax filing 2012 ) Services you perform in a government-owned and operated hospital. Free federal and state tax filing 2012 (These services are considered performed by a government employee, not by a minister as part of the ministry. Free federal and state tax filing 2012 ) 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. Free federal and state tax filing 2012 Books or articles. Free federal and state tax filing 2012   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Free federal and state tax filing 2012   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The services are considered ministerial because you perform them as an agent of the order. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Effect of employee status. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 This result is true even if you have taken a vow of poverty. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Free federal and state tax filing 2012 They renounce all claims to their earnings. Free federal and state tax filing 2012 The earnings belong to the order. Free federal and state tax filing 2012 Pat is a licensed attorney. Free federal and state tax filing 2012 The superiors of the order instructed her to get a job with a law firm. Free federal and state tax filing 2012 Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Free federal and state tax filing 2012 Chris is a secretary. Free federal and state tax filing 2012 The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Free federal and state tax filing 2012 Chris took the job and gave all his earnings to the order. Free federal and state tax filing 2012 Pat's services are not duties required by the order. Free federal and state tax filing 2012 Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Free federal and state tax filing 2012 Chris' services are duties required by the order. Free federal and state tax filing 2012 He is acting as an agent of the order and not as an employee of a third party. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Free federal and state tax filing 2012 Amounts you receive for performing these services are generally subject to SE tax. Free federal and state tax filing 2012 You may request an exemption from SE tax, discussed next, which applies only to those services. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 They do not have to request the exemption. Free federal and state tax filing 2012 Who cannot be exempt. Free federal and state tax filing 2012   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Free federal and state tax filing 2012 These elections are irrevocable. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You elected before 1968 to be covered under social security for your ministerial services. Free federal and state tax filing 2012 Requesting exemption. Free federal and state tax filing 2012    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Free federal and state tax filing 2012 More detailed explanations follow. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 It does not apply to any other self-employment income. Free federal and state tax filing 2012 Table 2. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You file Form 4361, described below under Requesting Exemption—Form 4361 . Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You file for other than economic reasons. Free federal and state tax filing 2012 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). Free federal and state tax filing 2012 This requirement does not apply to Christian Science practitioners or readers. Free federal and state tax filing 2012 You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Free federal and state tax filing 2012 You establish that the organization is a church or a convention or association of churches. Free federal and state tax filing 2012 You did not make an election discussed earlier under Who cannot be exempt . Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Free federal and state tax filing 2012 The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Free federal and state tax filing 2012 If it is approved, keep the approved copy of Form 4361 in your permanent records. Free federal and state tax filing 2012 When to file. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 You have net earnings from self-employment of at least $400. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The 2 years do not have to be consecutive tax years. Free federal and state tax filing 2012    The approval process can take some time, so you should file Form 4361 as soon as possible. Free federal and state tax filing 2012 Example 1. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Free federal and state tax filing 2012 He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Free federal and state tax filing 2012 However, if Rev. Free federal and state tax filing 2012 Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Free federal and state tax filing 2012 Example 2. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Example 3. Free federal and state tax filing 2012 In 2011, Rev. Free federal and state tax filing 2012 David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Free federal and state tax filing 2012 In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Free federal and state tax filing 2012 Therefore, he had no net self-employment earnings as a minister in 2012. Free federal and state tax filing 2012 Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Free federal and state tax filing 2012 In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Free federal and state tax filing 2012 Death of individual. Free federal and state tax filing 2012   The right to file an application for exemption ends with an individual's death. Free federal and state tax filing 2012 A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Free federal and state tax filing 2012 Effective date of exemption. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Once the exemption is approved, it is irrevocable. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Free federal and state tax filing 2012 She files an application for exemption on February 20, 2014. Free federal and state tax filing 2012 If an exemption is granted, it is effective for 2010 and the following years. Free federal and state tax filing 2012 Refunds of SE tax. Free federal and state tax filing 2012   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Exception. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 However, if you pay your benefits back, you may be considered for exemption. Free federal and state tax filing 2012 Contact your local Social Security Administration office to find out the amount you must pay back. Free federal and state tax filing 2012 Eligibility requirements. Free federal and state tax filing 2012   To claim this exemption from SE tax, all the following requirements must be met. Free federal and state tax filing 2012 You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The sect or division must complete part of the form. Free federal and state tax filing 2012 The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Free federal and state tax filing 2012 If it is approved, keep the approved copy of Form 4029 in your permanent records. Free federal and state tax filing 2012 When to file. Free federal and state tax filing 2012   You can file Form 4029 at any time. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 See Effective date of exemption next for information on when the newly approved exemption would become effective. Free federal and state tax filing 2012    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. Free federal and state tax filing 2012 Effective date of exemption. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 (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. Free federal and state tax filing 2012 )   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Free federal and state tax filing 2012 Refunds of SE tax paid. Free federal and state tax filing 2012    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Free federal and state tax filing 2012 For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Free federal and state tax filing 2012 Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Information for employers. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Form W-2. Free federal and state tax filing 2012   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Free federal and state tax filing 2012 ” Do not make any entries in boxes 3, 4, 5, or 6. Free federal and state tax filing 2012 Forms 941, 943, and 944. Free federal and state tax filing 2012   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Free federal and state tax filing 2012 Instead, follow the instructions given below. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Effective date. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Regular method. Free federal and state tax filing 2012 Nonfarm optional method. Free federal and state tax filing 2012 You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Free federal and state tax filing 2012 Blank worksheets are in the back of this publication, after the Comprehensive Example. Free federal and state tax filing 2012 Regular Method Most people use the regular method. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Then, subtract your allowable business deductions and multiply the difference by 92. Free federal and state tax filing 2012 35% (. Free federal and state tax filing 2012 9235). Free federal and state tax filing 2012 Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 35% (. Free federal and state tax filing 2012 9235). Free federal and state tax filing 2012 Do not reduce your wages by any business deductions when making this computation. Free federal and state tax filing 2012 Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Amounts included in gross income. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 , 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. Free federal and state tax filing 2012 This amount is also subject to income tax. Free federal and state tax filing 2012   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Free federal and state tax filing 2012 The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Free federal and state tax filing 2012 His church owns a parsonage that has a fair rental value of $12,000 per year. Free federal and state tax filing 2012 The church gives Pastor Adams the use of the parsonage. Free federal and state tax filing 2012 He is not exempt from SE tax. Free federal and state tax filing 2012 He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Overseas duty. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 citizen or resident alien serving abroad and living in a foreign country. Free federal and state tax filing 2012   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Diane Jones was the minister of a U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 church in Mexico. Free federal and state tax filing 2012 She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Free federal and state tax filing 2012 The United States does not have a social security agreement with Mexico, so Mrs. Free federal and state tax filing 2012 Jones is subject to U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 SE tax and must include $35,000 when figuring net earnings from self-employment. Free federal and state tax filing 2012 Specified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 possessions. Free federal and state tax filing 2012    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Free federal and state tax filing 2012 Also see Residents of Puerto Rico, the U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Citizens and Resident and Nonresident Aliens. Free federal and state tax filing 2012 Amounts not included in gross income. Free federal and state tax filing 2012   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Free federal and state tax filing 2012 Offerings that others made to the church. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Pension payments or retirement allowances you receive for your past ministerial services. Free federal and state tax filing 2012 The rental value of a parsonage or a parsonage allowance provided to you after you retire. Free federal and state tax filing 2012 Allowable deductions. Free federal and state tax filing 2012   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Free federal and state tax filing 2012 These are ministerial expenses you incurred while working other than as a common-law employee of the church. Free federal and state tax filing 2012 They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   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 . Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Do not complete Schedule C or C-EZ (Form 1040). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Employee reimbursement arrangements. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Free federal and state tax filing 2012 Accountable plans. Free federal and state tax filing 2012   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You must adequately account to your employer for these expenses within a reasonable period of time. Free federal and state tax filing 2012 You must return any excess reimbursement or allowance within a reasonable period of time. Free federal and state tax filing 2012   The reimbursement is not reported on your Form W-2. Free federal and state tax filing 2012 Generally, if your expenses equal your reimbursement, you have no deduction. Free federal and state tax filing 2012 If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Free federal and state tax filing 2012 Nonaccountable plan. Free federal and state tax filing 2012   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Free federal and state tax filing 2012 In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Free federal and state tax filing 2012 Excess reimbursements you fail to return to your employer. Free federal and state tax filing 2012 Reimbursement of nondeductible expenses related to your employer's business. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The tax rate for the social security part is 12. Free federal and state tax filing 2012 4%. Free federal and state tax filing 2012 In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Free federal and state tax filing 2012 This tax rate is 2. Free federal and state tax filing 2012 9%. Free federal and state tax filing 2012 The combined self-employment tax rate is 15. Free federal and state tax filing 2012 3%. Free federal and state tax filing 2012 Additional Medicare Tax. Free federal and state tax filing 2012   Beginning in 2013, a 0. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Free federal and state tax filing 2012 A self-employment loss is not considered for purposes of this tax. Free federal and state tax filing 2012 RRTA compensation is separately compared to the threshold. Free federal and state tax filing 2012 For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Free federal and state tax filing 2012 Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You may use the nonfarm optional method if you meet all the following tests. Free federal and state tax filing 2012 You are self-employed on a regular basis. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 The net earnings can be from either farm or nonfarm earnings or both. Free federal and state tax filing 2012 You have used this method less than 5 prior years. Free federal and state tax filing 2012 (There is a 5-year lifetime limit. Free federal and state tax filing 2012 ) The years do not have to be consecutive. Free federal and state tax filing 2012 Your net nonfarm profits were: Less than $5,024, and Less than 72. Free federal and state tax filing 2012 189% of your gross nonfarm income. Free federal and state tax filing 2012 If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Free federal and state tax filing 2012 Table 3. Free federal and state tax filing 2012 Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 THEN your net earnings are equal to . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 $6,960 or less Two-thirds of your gross nonfarm income. Free federal and state tax filing 2012 More than $6,960 $4,640. Free federal and state tax filing 2012 Actual net earnings. Free federal and state tax filing 2012   Multiply your total earnings subject to SE tax by 92. Free federal and state tax filing 2012 35% (. Free federal and state tax filing 2012 9235) to get actual net earnings. Free federal and state tax filing 2012 Actual net earnings are equivalent to net earnings under the “Regular Method. Free federal and state tax filing 2012 ” More information. Free federal and state tax filing 2012   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 , in addition to your salary. Free federal and state tax filing 2012 If the offering is made to the religious institution, it is not taxable to you. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Free federal and state tax filing 2012 For more information, see Publication 526. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 This exclusion applies only for income tax purposes. Free federal and state tax filing 2012 It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Free federal and state tax filing 2012 Designation requirement. Free federal and state tax filing 2012   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Free federal and state tax filing 2012 It must designate a definite amount. Free federal and state tax filing 2012 It cannot determine the amount of the housing allowance at a later date. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 The local congregation must officially designate the part of your salary that is a housing allowance. Free federal and state tax filing 2012 However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Free federal and state tax filing 2012 Rental allowances. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Free federal and state tax filing 2012 Fair rental value of parsonage. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 However, the exclusion cannot be more than the reasonable pay for your services. Free federal and state tax filing 2012 If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 Joanna Baker is a full-time minister. Free federal and state tax filing 2012 The church allows her to use a parsonage that has an annual fair rental value of $24,000. Free federal and state tax filing 2012 The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Free federal and state tax filing 2012 Her actual utility costs during the year were $7,000. Free federal and state tax filing 2012 For income tax purposes, Rev. Free federal and state tax filing 2012 Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Free federal and state tax filing 2012 She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Free federal and state tax filing 2012 Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Free federal and state tax filing 2012 Home ownership. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Excess rental allowance. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012   Include in the total on Form 1040, line 7. Free federal and state tax filing 2012 On the dotted line next to line 7, enter “Excess allowance” and the amount. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Free federal and state tax filing 2012 Retired ministers. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Teachers or administrators. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012    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. Free federal and state tax filing 2012 In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Theological students. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 Traveling evangelists. Free federal and state tax filing 2012   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Free federal and state tax filing 2012 You are an ordained minister. Free federal and state tax filing 2012 You perform ministerial services at churches located away from your community. Free federal and state tax filing 2012 You actually use the rental allowance to maintain your permanent home. Free federal and state tax filing 2012 Cantors. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 See Members of Religious Orders , earlier, under Social Security Coverage. Free federal and state tax filing 2012 Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 possession. Free federal and state tax filing 2012 Publication 54 discusses the foreign earned income exclusion. Free federal and state tax filing 2012 Publication 570, Tax Guide for Individuals With Income From U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Possessions, covers the rules for taxpayers with income from U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 possessions. Free federal and state tax filing 2012 You can get these free publications from the Internal Revenue Service at IRS. Free federal and state tax filing 2012 gov or from most U. Free federal and state tax filing 2012 S. Free federal and state tax filing 2012 Embassies or consulates. Free federal and state tax filing 2012 Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Free federal and state tax filing 2012 You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Free federal and state tax filing 2012 See Publication 529 for more information on this limit. Free federal and state tax filing 2012 However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Free federal and state tax filing 2012 Exception. Free federal and state tax filing 2012   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Free federal and state tax filing 2012 Figuring the allocation. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Free federal and state tax filing 2012 Example. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Free federal and state tax filing 2012 $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. Free federal and state tax filing 2012 Rev. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Free federal and state tax filing 2012 The statement must contain all of the following information. Free federal and state tax filing 2012 A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Free federal and state tax filing 2012 ) plus the amount. Free federal and state tax filing 2012 A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Free federal and state tax filing 2012 A list of each item of otherwise deductible ministerial expenses plus the amount. Free federal and state tax filing 2012 How you figured the nondeductible part of your otherwise deductible expenses. Free federal and state tax filing 2012 A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Free federal and state tax filing 2012   See the attachments prepared for the Comprehensive Example , later. Free federal and state tax filing 2012 Following the example, you will find blank worksheets for your own use. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Free federal and state tax filing 2012 See the Instructions for Form 1040 to figure your deduction. Free federal and state tax filing 2012 The following special rules apply to the self-employed health insurance deduction. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Free federal and state tax filing 2012 The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Free federal and state tax filing 2012 Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Free federal and state tax filing 2012 More information. Free federal and state tax filing 2012   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Free federal and state tax filing 2012 Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Free federal and state tax filing 2012 This is an income tax deduction only, on Form 1040, line 27. Free federal and state tax filing 2012 Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Free federal and state tax filing 2012 Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Free federal and state tax filing 2012 You must pay the tax as you earn or receive income during the year. Free federal and state tax filing 2012 An employee usually has income tax withheld from his or her wages or salary. Free federal and state tax filing 2012 However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Your salary is for ministerial services (see Ministerial Services , earlier). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Free federal and state tax filing 2012 Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Free federal and state tax filing 2012 See Form 1040-ES for the different payment methods. Free federal and state tax filing 2012 The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Free federal and state tax filing 2012 For more information, see chapter 2 of Publication 505. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Table 4. Free federal and state tax filing 2012 2013 Filing Requirements for Most Taxpayers IF your filing status is . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 AND at the end of 2013 you were* . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 THEN file a return if your gross income** was at least . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 . Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 ** 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). Free federal and state tax filing 2012 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). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Free federal and state tax filing 2012 Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 *** 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. Free federal and state tax filing 2012 Additional requirements. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Free federal and state tax filing 2012 Self-employment tax. Free federal and state tax filing 2012   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Free federal and state tax filing 2012 You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Free federal and state tax filing 2012 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). Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 Note. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012 You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Free federal and state tax filing 2012 Exemption from SE tax. Free federal and state tax filing 2012   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). Free federal and state tax filing 2012 Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012    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). Free federal and state tax filing 2012 Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Free federal and state tax filing 2012 More information. Free federal and state tax filing 2012   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Free federal and state tax filing 2012 Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Free federal and state tax filing 2012 You generally can deduct your contributions to the plan. Free federal and state tax filing 2012 Your contributions and the earnings on them are not taxed until they are distributed. Free federal and state tax filing 2012 Retirement plans for the self-employed. Free federal and state tax filing 2012   To set up one of the following plans you must be self-employed. Free federal and state tax filing 2012 SEP (simplified employee pension) plan. Free federal and state tax filing 2012 SIMPLE (savings incentive match plan for employees) plan. Free federal and state tax filing 2012 Qualified retirement plan (also called a Keogh or H. Free federal and state tax filing 2012 R. Free federal and state tax filing 2012 10 plan). Free federal and state tax filing 2012   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Free federal and state tax filing 2012 See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Free federal and state tax filing 2012 This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 You are not a self-employed person for purposes of setting up a retirement plan. Free federal and state tax filing 2012 This result is true even if your salary is subject to SE tax. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012   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). Free federal and state tax filing 2012 Individual retirement arrangements (IRAs). Free federal and state tax filing 2012   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Free federal and state tax filing 2012 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). Free federal and state tax filing 2012   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Free federal and state tax filing 2012 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. Free federal and state tax filing 2012   If you contribute to a traditional IRA, your contribution may be deductible. Free federal and state tax filing 2012 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). Free federal and state tax filing 2012   For more information on IRAs, see Publication 590. Free federal and state tax filing 2012 Tax-sheltered annuity plans. Free federal and state tax filing 2012   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. Free federal and state tax filing 2012 For more