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Free Income Tax Software

Free income tax software 5. Free income tax software   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Free income tax software Making the election. Free income tax software Form 3115. Free income tax software Income TaxesAccrual of contested income taxes. Free income tax software Employment Taxes Other TaxesAdditional Medicare Tax. Free income tax software What's New Additional Medicare Tax. Free income tax software  Beginning in 2013, you must withhold a 0. Free income tax software 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free income tax software Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Free income tax software See Employment Taxes , and Self-employment tax , later. Free income tax software Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Free income tax software You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Free income tax software Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Free income tax software When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Free income tax software This applies whether you use the cash method or an accrual method of accounting. Free income tax software Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Free income tax software You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Free income tax software Limit on accrual of taxes. Free income tax software   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Free income tax software However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Free income tax software Example. Free income tax software Your state imposes a tax on personal property used in a trade or business conducted in the state. Free income tax software This tax is assessed and becomes a lien as of July 1 (accrual date). Free income tax software In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Free income tax software Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Free income tax software You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Free income tax software Uniform capitalization rules. Free income tax software   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Free income tax software They also apply to certain taxpayers who acquire property for resale. Free income tax software Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Free income tax software For more information, see chapter 1. Free income tax software Carrying charges. Free income tax software   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Free income tax software You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Free income tax software For more information, see chapter 7. Free income tax software Refunds of taxes. Free income tax software   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Free income tax software For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Free income tax software    You must include in income any interest you receive on tax refunds. Free income tax software Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Free income tax software The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Free income tax software Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Free income tax software See Taxes for local benefits , later. Free income tax software If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Free income tax software However, you can elect to ratably accrue the taxes during the year. Free income tax software See Electing to ratably accrue , later. Free income tax software Taxes for local benefits. Free income tax software   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Free income tax software These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Free income tax software You should increase the basis of your property by the amount of the assessment. Free income tax software   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Free income tax software If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Free income tax software Example. Free income tax software To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Free income tax software The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Free income tax software The city is paying the principal and interest with the annual payments made by the property owners. Free income tax software The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Free income tax software The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Free income tax software Charges for services. Free income tax software   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Free income tax software Purchase or sale of real estate. Free income tax software   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Free income tax software   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Free income tax software Treat the seller as paying the taxes up to but not including the date of sale. Free income tax software Treat the buyer as paying the taxes beginning with the date of sale. Free income tax software You can usually find this information on the settlement statement you received at closing. Free income tax software   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Free income tax software Example. Free income tax software Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Free income tax software He has not elected to ratably accrue property taxes. Free income tax software November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Free income tax software He sold the property on June 30, 2013. Free income tax software Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Free income tax software He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Free income tax software Electing to ratably accrue. Free income tax software   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Free income tax software Example. Free income tax software Juan Sanchez is a calendar year taxpayer who uses an accrual method. Free income tax software His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Free income tax software July 1 is the assessment and lien date. Free income tax software If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Free income tax software Separate elections. Free income tax software   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Free income tax software Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Free income tax software See Form 3115 , later. Free income tax software Making the election. Free income tax software   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Free income tax software The statement should show all the following items. Free income tax software The trades or businesses to which the election applies and the accounting method or methods used. Free income tax software The period to which the taxes relate. Free income tax software The computation of the real estate tax deduction for that first year. Free income tax software   Generally, you must file your return by the due date (including extensions). Free income tax software However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Free income tax software Attach the statement to the amended return and write “Filed pursuant to section 301. Free income tax software 9100-2” on the statement. Free income tax software File the amended return at the same address where you filed the original return. Free income tax software Form 3115. Free income tax software    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Free income tax software For more information, including applicable time frames for filing, see the Instructions for Form 3115. Free income tax software Note. Free income tax software If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Free income tax software R. Free income tax software B. Free income tax software 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Free income tax software R. Free income tax software B. Free income tax software 689, and Revenue Procedure 2012-20, 2012-14 I. Free income tax software R. Free income tax software B. Free income tax software 700, or any successor. Free income tax software Revenue Procedure 2011-14 is available at  www. Free income tax software irs. Free income tax software gov/irb/2011-04IRB/ar08. Free income tax software html. Free income tax software Income Taxes This section discusses federal, state, local, and foreign income taxes. Free income tax software Federal income taxes. Free income tax software   You cannot deduct federal income taxes. Free income tax software State and local income taxes. Free income tax software   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Free income tax software An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Free income tax software   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Free income tax software Accrual of contested income taxes. Free income tax software   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Free income tax software   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Free income tax software You cannot deduct them in the year in which the liability is finally determined. Free income tax software    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Free income tax software Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Free income tax software   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Free income tax software You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Free income tax software For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Free income tax software Foreign income taxes. Free income tax software   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Free income tax software S. Free income tax software possession. Free income tax software However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Free income tax software S. Free income tax software tax under the foreign earned income exclusion or the foreign housing exclusion. Free income tax software For information on these exclusions, see Publication 54, Tax Guide for U. Free income tax software S. Free income tax software Citizens and Resident Aliens Abroad. Free income tax software For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Free income tax software Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Free income tax software Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Free income tax software You may also need to pay certain employment taxes from your own funds. Free income tax software These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Free income tax software Note. Free income tax software Additional Medicare Tax is only imposed on the employee. Free income tax software There is no employer share of Additional Medicare Tax. Free income tax software Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Free income tax software You can deduct the employment taxes you must pay from your own funds as taxes. Free income tax software Example. Free income tax software You pay your employee $18,000 a year. Free income tax software However, after you withhold various taxes, your employee receives $14,500. Free income tax software You also pay an additional $1,500 in employment taxes. Free income tax software You should deduct the full $18,000 as wages. Free income tax software You can deduct the $1,500 you pay from your own funds as taxes. Free income tax software For more information on employment taxes, see Publication 15 (Circular E). Free income tax software Unemployment fund taxes. Free income tax software   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Free income tax software Deduct these payments as taxes. Free income tax software Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Free income tax software Excise taxes. Free income tax software   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Free income tax software However, see Fuel taxes , later. Free income tax software   For more information on excise taxes, see Publication 510. Free income tax software Franchise taxes. Free income tax software   You can deduct corporate franchise taxes as a business expense. Free income tax software Fuel taxes. Free income tax software   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Free income tax software Do not deduct these taxes as a separate item. Free income tax software   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Free income tax software For more information, see Publication 510. Free income tax software Occupational taxes. Free income tax software   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Free income tax software Personal property tax. Free income tax software   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Free income tax software Sales tax. Free income tax software   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Free income tax software If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Free income tax software If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Free income tax software If the property is depreciable, add the sales tax to the basis for depreciation. Free income tax software For more information on basis, see Publication 551. Free income tax software    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Free income tax software Also, do not include these taxes in gross receipts or sales. Free income tax software Self-employment tax. Free income tax software   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Free income tax software This deduction only affects your income tax. Free income tax software It does not affect your net earnings from self-employment or your self-employment tax. Free income tax software   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Free income tax software   For more information on self-employment tax, see Publication 334. Free income tax software Additional Medicare Tax. Free income tax software   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Free income tax software See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Free income tax software Prev  Up  Next   Home   More Online Publications
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Federal Legislative Branch

The legislative branch is the law making branch of government made up of the Senate, the House of Representatives, and agencies that support Congress.

U.S. Congress

Legislative Process Overview

Learn how the US Congress works to create laws.

Show Video Transcript

Article I of the U.S. Constitution grants all legislative powers to a bicameral Congress: a House of Representatives and a Senate that are the result of a “Great Compromise” seeking to balance the effects of popular majorities with the interests of the states. Our system currently provides for a two-year term of office for House members from the 435 population-based districts. In the Senate, voters of each state elect two Senators, who serve 6-year terms that overlap (such that only one-third of the chamber is up for election in any given election cycle).

The two chambers are fundamentally equal in their legislative roles and functions. Only the House can originate revenue legislation, and only the Senate confirms presidential nominations and approves treaties, but the enactment of law always requires both chambers to separately agree to the same bill in the same form before presenting it to the President.

Because each chamber has the constitutional authority to make its own rules, the House and Senate have developed some very different ways of processing legislation, perhaps partially flowing from their constitutional differences. In general, House rules and practices allow a numerical majority to process legislation relatively quickly. Senate rules and procedures, on the other hand, favor deliberation over quick action, as they provide significant procedural leverage to individual Senators.

Congressional action is typically planned and coordinated by party leaders in each chamber, who have been chosen by members of their own caucus or conference – that is, the group of members in a chamber who share a party affiliation. Majority party leaders in the House have important powers and prerogatives to effectively set the policy agenda and decide which proposals will receive floor consideration. In the Senate, the leader of the majority party is generally expected to propose items for consideration, but formal tools that allow a numerical majority to take action are few. Instead, majority party leadership typically must negotiate with minority party leaders (and often all Senators) to effectively conduct Senate floor action.

In both chambers, much of the policy expertise resides in the standing committees – panels of members from both parties that typically take the lead in developing and assessing legislation. Members typically serve on a small number of committees, often for many years, allowing them to become highly knowledgeable in certain policy areas. All committees are chaired by a member of the majority party, though chairs often work closely with the committee’s ranking member, the most senior member of the minority party on the committee. In almost all cases, the ratio of majority party to minority party members on a committee roughly reflects the overall partisan ratio in the congressional chamber.

Committee members and staff focus much of their time on drafting and considering legislative proposals, but committees engage in other activities, as well. Once law is enacted, Congress has the prerogative and responsibility to provide oversight of policy implementation, and its committees take the lead in this effort. Both chambers provide their committees with significant powers and latitude for oversight and investigations into questions of public policy and its effects.

While the engine of legislative ideas and action is Congress itself, the President has influence in the legislative process, as well. The President recommends an annual budget for federal agencies and often suggests legislation. Perhaps more significantly, the power to veto legislation can affect the content of bills passed by Congress. Since it is quite unusual for law to be enacted over a presidential veto, Congress typically must accommodate the president’s position on proposed policies.

The process by which a bill becomes law is rarely predictable and can vary significantly from bill to bill. In fact, for many bills, the process will not follow the sequence of congressional stages that are often understood to make up the legislative process. The presentations on specific topics that follow present a more detailed look at each of the common stages through which a bill may move, but keep in mind that complications and variations abound in practice.

The Free Income Tax Software

Free income tax software 2. Free income tax software   Roth IRAs Table of Contents What's New for 2013 What's New for 2014 Reminders Introduction What Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA?How Much Can Be Contributed? When Can You Make Contributions? What if You Contribute Too Much? Can You Move Amounts Into a Roth IRA?Conversions Rollover From Employer's Plan Into a Roth IRA Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments Rollover From a Roth IRA Rollover of Exxon Valdez Settlement Income Rollover of Airline Payments Are Distributions Taxable?What Are Qualified Distributions? Additional Tax on Early Distributions Ordering Rules for Distributions How Do You Figure the Taxable Part? Must You Withdraw or Use Assets?Minimum distributions. Free income tax software Recognizing Losses on Investments Distributions After Owner's Death What's New for 2013 Roth IRA contribution limit. Free income tax software  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Free income tax software If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Free income tax software However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Free income tax software For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter. Free income tax software Modified AGI limit for Roth IRA contributions increased. Free income tax software  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free income tax software Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Free income tax software Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Free income tax software Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free income tax software See Can You Contribute to a Roth IRA? in this chapter. Free income tax software Net Investment Income Tax. Free income tax software  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Free income tax software However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free income tax software Distributions from a nonqualified retirement plan are included in net investment income. Free income tax software See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Free income tax software What's New for 2014 Modified AGI limit for Roth IRA contributions increased. Free income tax software  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free income tax software Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. Free income tax software Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. Free income tax software Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free income tax software You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free income tax software Reminders Deemed IRAs. Free income tax software  For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. Free income tax software If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. Free income tax software An employee's account can be treated as a traditional IRA or a Roth IRA. Free income tax software For this purpose, a “qualified employer plan” includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), A tax-sheltered annuity plan (section 403(b) plan), and A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Free income tax software Designated Roth accounts. Free income tax software  Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. Free income tax software These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Free income tax software Designated Roth accounts are not IRAs and should not be confused with Roth IRAs. Free income tax software Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. Free income tax software A contribution to one does not impact your eligibility to contribute to the other. Free income tax software See Publication 575, for more information on designated Roth accounts. Free income tax software Introduction Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Free income tax software Contributions not reported. Free income tax software   You do not report Roth IRA contributions on your return. Free income tax software What Is a Roth IRA? A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). Free income tax software It can be either an account or an annuity. Free income tax software Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. Free income tax software To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. Free income tax software A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Free income tax software Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. Free income tax software But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Free income tax software Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live. Free income tax software Traditional IRA. Free income tax software   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Free income tax software Traditional IRAs are discussed in chapter 1. Free income tax software When Can a Roth IRA Be Opened? You can open a Roth IRA at any time. Free income tax software However, the time for making contributions for any year is limited. Free income tax software See When Can You Make Contributions , later under Can You Contribute to a Roth IRA. Free income tax software Can You Contribute to a Roth IRA? Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than: $188,000 for married filing jointly or qualifying widow(er), $127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and $10,000 for married filing separately and you lived with your spouse at any time during the year. Free income tax software You may be able to claim a credit for contributions to your Roth IRA. Free income tax software For more information, see chapter 4. Free income tax software Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age. Free income tax software Can you contribute to a Roth IRA for your spouse?   You can contribute to a Roth IRA for your spouse provided the contributions satisfy the Kay Bailey Hutchison Spousal IRA limit discussed in chapter 1 under How Much Can Be Contributed, you file jointly, and your modified AGI is less than $188,000. Free income tax software Compensation. Free income tax software   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. Free income tax software It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. Free income tax software For more information, see What Is Compensation? under Who Can Open a Traditional IRA? in chapter 1. Free income tax software Modified AGI. Free income tax software   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. Free income tax software Use Worksheet 2-1 , later, to determine your modified AGI. Free income tax software    Do not subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Free income tax software Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. Free income tax software How Much Can Be Contributed? The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. Free income tax software Worksheet 2-1. Free income tax software Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. Free income tax software 1. Free income tax software Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1. Free income tax software   2. Free income tax software Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b, Form 1040A, line 11b, or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b, Form 1040A, line 12b, or Form 1040NR, line 17b) 2. Free income tax software   3. Free income tax software Subtract line 2 from line 1 3. Free income tax software   4. Free income tax software Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4. Free income tax software   5. Free income tax software Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5. Free income tax software   6. Free income tax software Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 6. Free income tax software   7. Free income tax software Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 7. Free income tax software   8. Free income tax software Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8. Free income tax software   9. Free income tax software Enter any foreign housing deduction from Form 2555, line 50 9. Free income tax software   10. Free income tax software Enter any excludable qualified savings bond interest from Form 8815, line 14 10. Free income tax software   11. Free income tax software Enter any excluded employer-provided adoption benefits from Form 8839, line 28 11. Free income tax software   12. Free income tax software Add the amounts on lines 3 through 11 12. Free income tax software   13. Free income tax software Enter: $188,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $127,000 for all others 13. Free income tax software   Is the amount on line 12 more than the amount on line 13? If yes, see the note below. Free income tax software  If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes. Free income tax software       Note. Free income tax software If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. Free income tax software (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI. Free income tax software ) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. Free income tax software If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above. Free income tax software Roth IRAs only. Free income tax software   If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation. Free income tax software   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced . Free income tax software Roth IRAs and traditional IRAs. Free income tax software   If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Free income tax software Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. Free income tax software   This means that your contribution limit is the lesser of: $5,500 ($6,500 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs. Free income tax software   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained below under Contribution limit reduced . Free income tax software   Simplified employee pensions (SEPs) are discussed in Publication 560. Free income tax software Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3. Free income tax software Repayment of reservist distributions. Free income tax software   You can repay qualified reservist distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. Free income tax software However, the total repayments cannot be more than the amount of your distribution. Free income tax software Note. Free income tax software If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. Free income tax software For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. Free income tax software Contribution limit reduced. Free income tax software   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Free income tax software Use Table 2-1, later, to determine if this reduction applies to you. Free income tax software Table 2-1. Free income tax software Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI). Free income tax software IF you have taxable compensation and your filing status is . Free income tax software . Free income tax software . Free income tax software AND your modified AGI is . Free income tax software . Free income tax software . Free income tax software THEN . Free income tax software . Free income tax software . Free income tax software married filing jointly or  qualifying widow(er) less than $178,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free income tax software at least $178,000 but less than $188,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free income tax software $188,000 or more you cannot contribute to a Roth IRA. Free income tax software married filing separately and you lived with your spouse at any time during the year zero (-0-) you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free income tax software more than zero (-0-) but less than $10,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free income tax software $10,000 or more you cannot contribute to a Roth IRA. Free income tax software single, head of household,  or married filing separately and you did not live with your spouse at any time during the year less than $112,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free income tax software at least $112,000 but less than $127,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free income tax software $127,000 or more you cannot contribute to a Roth IRA. Free income tax software Figuring the reduction. Free income tax software   If the amount you can contribute must be reduced, use Worksheet 2-2, later, to figure your reduced contribution limit. Free income tax software Worksheet 2-2. Free income tax software Determining Your Reduced Roth IRA Contribution Limit Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Free income tax software If it is, use this worksheet to determine how much it is reduced. Free income tax software 1. Free income tax software Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Free income tax software   2. Free income tax software Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Free income tax software   3. Free income tax software Subtract line 2 from line 1 3. Free income tax software   4. Free income tax software Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Free income tax software   5. Free income tax software Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Free income tax software If the result is 1. Free income tax software 000 or more, enter 1. Free income tax software 000 5. Free income tax software   6. Free income tax software Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Free income tax software   7. Free income tax software Multiply line 5 by line 6 7. Free income tax software   8. Free income tax software Subtract line 7 from line 6. Free income tax software Round the result up to the nearest $10. Free income tax software If the result is less than $200, enter $200 8. Free income tax software   9. Free income tax software Enter contributions for the year to other IRAs 9. Free income tax software   10. Free income tax software Subtract line 9 from line 6 10. Free income tax software   11. Free income tax software Enter the lesser of line 8 or line 10. Free income tax software This is your reduced Roth IRA contribution limit 11. Free income tax software      Round your reduced contribution limit up to the nearest $10. Free income tax software If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. Free income tax software Example. Free income tax software You are a 45-year-old, single individual with taxable compensation of $113,000. Free income tax software You want to make the maximum allowable contribution to your Roth IRA for 2013. Free income tax software Your modified AGI for 2013 is $113,000. Free income tax software You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,500. Free income tax software You figure your reduced Roth IRA contribution of $5,140 as shown on Worksheet 2-2. Free income tax software Example—Illustrated, later. Free income tax software   Worksheet 2-2. Free income tax software Example—Illustrated Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Free income tax software If it is, use this worksheet to determine how much it is reduced. Free income tax software 1. Free income tax software Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Free income tax software 113,000 2. Free income tax software Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Free income tax software 112,000 3. Free income tax software Subtract line 2 from line 1 3. Free income tax software 1,000 4. Free income tax software Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Free income tax software 15,000 5. Free income tax software Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Free income tax software If the result is 1. Free income tax software 000 or more, enter 1. Free income tax software 000 5. Free income tax software . Free income tax software 067 6. Free income tax software Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Free income tax software 5,500 7. Free income tax software Multiply line 5 by line 6 7. Free income tax software 369 8. Free income tax software Subtract line 7 from line 6. Free income tax software Round the result up to the nearest $10. Free income tax software If the result is less than $200, enter $200 8. Free income tax software 5,140 9. Free income tax software Enter contributions for the year to other IRAs 9. Free income tax software 0 10. Free income tax software Subtract line 9 from line 6 10. Free income tax software 5,500 11. Free income tax software Enter the lesser of line 8 or line 10. Free income tax software This is your reduced Roth IRA contribution limit 11. Free income tax software 5,140 When Can You Make Contributions? You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). Free income tax software You can make contributions for 2013 by the due date (not including extensions) for filing your 2013 tax return. Free income tax software This means that most people can make contributions for 2013 by April 15, 2014. Free income tax software What if You Contribute Too Much? A 6% excise tax applies to any excess contribution to a Roth IRA. Free income tax software Excess contributions. Free income tax software   These are the contributions to your Roth IRAs for a year that equal the total of: Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed? ), plus Any excess contributions for the preceding year, reduced by the total of: Any distributions out of your Roth IRAs for the year, plus Your contribution limit for the year minus your contributions to all your IRAs for the year. Free income tax software Withdrawal of excess contributions. Free income tax software   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. Free income tax software This treatment only applies if any earnings on the contributions are also withdrawn. Free income tax software The earnings are considered earned and received in the year the excess contribution was made. Free income tax software   If you timely filed your 2013 tax return without withdrawing a contribution that you made in 2013, you can still have the contribution returned to you within 6 months of the due date of your 2013 tax return, excluding extensions. Free income tax software If you do, file an amended return with “Filed pursuant to section 301. Free income tax software 9100-2” written at the top. Free income tax software Report any related earnings on the amended return and include an explanation of the withdrawal. Free income tax software Make any other necessary changes on the amended return. Free income tax software Applying excess contributions. Free income tax software    If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Free income tax software Can You Move Amounts Into a Roth IRA? You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Free income tax software You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. Free income tax software You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. Free income tax software You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. Free income tax software Conversions You can convert a traditional IRA to a Roth IRA. Free income tax software The conversion is treated as a rollover, regardless of the conversion method used. Free income tax software Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Free income tax software However, the 1-year waiting period does not apply. Free income tax software Conversion methods. Free income tax software   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways. Free income tax software Rollover. Free income tax software You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution. Free income tax software Trustee-to-trustee transfer. Free income tax software You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA. Free income tax software Same trustee transfer. Free income tax software If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA. Free income tax software Same trustee. Free income tax software   Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract. Free income tax software Income. Free income tax software   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Free income tax software These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Free income tax software If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free income tax software See Publication 505, Tax Withholding and Estimated Tax. Free income tax software More information. Free income tax software   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Free income tax software Rollover From Employer's Plan Into a Roth IRA You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan); Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Free income tax software Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. Free income tax software See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Free income tax software Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. Free income tax software Rollover methods. Free income tax software   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways. Free income tax software Rollover. Free income tax software You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. Free income tax software Since the distribution is paid directly to you, the payer generally must withhold 20% of it. Free income tax software Direct rollover option. Free income tax software Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Free income tax software Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA. Free income tax software Rollover by nonspouse beneficiary. Free income tax software   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a Roth IRA. Free income tax software You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. Free income tax software   You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. Free income tax software For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Publication 575. Free income tax software Income. Free income tax software   You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. Free income tax software You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid. Free income tax software These amounts are normally included in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. Free income tax software If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free income tax software See Publication 505, Tax Withholding and Estimated Tax. Free income tax software For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1. Free income tax software Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. Free income tax software The contribution is treated as a qualified rollover contribution. Free income tax software The amount you can roll over to your Roth IRA cannot exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Free income tax software Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. Free income tax software The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. Free income tax software The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Free income tax software Rollover From a Roth IRA You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Free income tax software Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Free income tax software However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. Free income tax software A rollover from a Roth IRA to an employer retirement plan is not allowed. Free income tax software A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. Free income tax software If you roll over an amount from one Roth IRA to another Roth IRA, the 5-year period used to determine qualified distributions does not change. Free income tax software The 5-year period begins with the first taxable year for which the contribution was made to the initial Roth IRA. Free income tax software See What are Qualified Distributions , later. Free income tax software Rollover of Exxon Valdez Settlement Income If you are a qualified taxpayer (defined in chapter 1, earlier) and you received qualified settlement income (defined in chapter 1, earlier), you can contribute all or part of the amount received to an eligible retirement plan which includes a Roth IRA. Free income tax software The rules for contributing qualified settlement income to a Roth IRA are the same as the rules for contributing qualified settlement income to a traditional IRA with the following exception. Free income tax software Qualified settlement income that is contributed to a Roth IRA, or to a designated Roth account, will be: Included in your taxable income for the year the qualified settlement income was received, and Treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Free income tax software For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1. Free income tax software Rollover of Airline Payments If you are a qualified airline employee (defined next), you may contribute any portion of an airline payment (defined below) you receive to a Roth IRA. Free income tax software The contribution must be made within 180 days from the date you received the payment. Free income tax software The contribution will be treated as a qualified rollover contribution. Free income tax software The rollover contribution is included in income to the extent it would be included in income if it were not part of the rollover contribution. Free income tax software Also, any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can contribute to your Roth IRA. Free income tax software Qualified airline employee. Free income tax software    A current or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier which was terminated or became subject to restrictions under Section 402(b) of the Pension Protection Act of 2006. Free income tax software These provisions also apply to surviving spouses of qualified airline employees. Free income tax software Airline payment. Free income tax software    An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. Free income tax software The payment also must be made both: Under the approval of an order of federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and In respect of the qualified airline employee’s interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount. Free income tax software Any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can roll over to your traditional IRA. Free income tax software Also, an airline payment shall not include any amount payable on the basis of the airline carrier’s future earnings or profits. Free income tax software Are Distributions Taxable? You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). Free income tax software You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. Free income tax software You may have to include part of other distributions in your income. Free income tax software See Ordering Rules for Distributions , later. Free income tax software Basis of distributed property. Free income tax software   The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution. Free income tax software Withdrawals of contributions by due date. Free income tax software   If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. Free income tax software If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. Free income tax software The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions. Free income tax software What Are Qualified Distributions? A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. Free income tax software It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and The payment or distribution is: Made on or after the date you reach age 59½, Made because you are disabled (defined earlier), Made to a beneficiary or to your estate after your death, or One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit). Free income tax software Additional Tax on Early Distributions If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs. Free income tax software Distributions of conversion and certain rollover contributions within 5-year period. Free income tax software   If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. Free income tax software You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). Free income tax software A separate 5-year period applies to each conversion and rollover. Free income tax software See Ordering Rules for Distributions , later, to determine the recapture amount, if any. Free income tax software   The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. Free income tax software See What Are Qualified Distributions , earlier. Free income tax software   For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2013, and makes a regular contribution for 2012 on the same date, the 5-year period for the conversion begins January 1, 2013, while the 5-year period for the regular contribution begins on January 1, 2012. Free income tax software   Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover. Free income tax software   You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. Free income tax software You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions. Free income tax software Other early distributions. Free income tax software   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. Free income tax software Exceptions. Free income tax software   You may not have to pay the 10% additional tax in the following situations. Free income tax software You have reached age 59½. Free income tax software You are totally and permanently disabled. Free income tax software You are the beneficiary of a deceased IRA owner. Free income tax software You use the distribution to buy, build, or rebuild a first home. Free income tax software The distributions are part of a series of substantially equal payments. Free income tax software You have unreimbursed medical expenses that are more than 10% (or 7. Free income tax software 5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year. Free income tax software You are paying medical insurance premiums during a period of unemployment. Free income tax software The distributions are not more than your qualified higher education expenses. Free income tax software The distribution is due to an IRS levy of the qualified plan. Free income tax software The distribution is a qualified reservist distribution. Free income tax software Most of these exceptions are discussed earlier in chapter 1 under Early Distributions . Free income tax software Please click here for the text description of the image. Free income tax software Is Roth Distributions a Qualified Distribution? Ordering Rules for Distributions If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. Free income tax software There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. Free income tax software For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much ). Free income tax software Order the distributions as follows. Free income tax software Regular contributions. Free income tax software Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). Free income tax software See Aggregation (grouping and adding) rules, later. Free income tax software Take these conversion and rollover contributions into account as follows: Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the Nontaxable portion. Free income tax software Earnings on contributions. Free income tax software Disregard rollover contributions from other Roth IRAs for this purpose. Free income tax software Aggregation (grouping and adding) rules. Free income tax software   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows. Free income tax software Add all distributions from all your Roth IRAs during the year together. Free income tax software Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Free income tax software Add this total to the total undistributed regular contributions made in prior years. Free income tax software Add all conversion and rollover contributions made during the year together. Free income tax software For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2013 and the conversion or rollover contribution is made in 2014, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2014. Free income tax software Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA. Free income tax software   Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Free income tax software Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose. Free income tax software Example. Free income tax software On October 15, 2009, Justin converted all $80,000 in his traditional IRA to his Roth IRA. Free income tax software His Forms 8606 from prior years show that $20,000 of the amount converted is his basis. Free income tax software Justin included $60,000 ($80,000 − $20,000) in his gross income. Free income tax software On February 23, 2013, Justin made a regular contribution of $5,000 to a Roth IRA. Free income tax software On November 8, 2013, at age 60, Justin took a $7,000 distribution from his Roth IRA. Free income tax software The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income. Free income tax software The next $2,000 of the distribution is not includible in income because it was included previously. Free income tax software Figuring your recapture amount. Free income tax software   If you had an early distribution from your Roth IRAs in 2013, you must allocate the early distribution by using the Recapture Amount—Allocation Chart, later. Free income tax software Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19   Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Free income tax software   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Free income tax software The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Free income tax software Note. Free income tax software Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Free income tax software See the Example , earlier. Free income tax software Tax Year Your Form 2013 Form 8606, line 20   Form 8606, line 22   1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18   Form 8606, line 17   2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Free income tax software  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Free income tax software Amount to include on Form 5329, line 1. Free income tax software   Include on line 1 of your 2013 Form 5329 the following four amounts from the Recapture Amount—Allocation Chart that you filled out. Free income tax software The amount you allocated to line 20 of your 2013 Form 8606. Free income tax software The amount(s) allocated to your 2009 through 2013 Forms 8606, line 18, and your 2010 Form 8606, line 23. Free income tax software The amount(s) allocated to your 2009, 2011, 2012, and 2013 Forms 1040, line 16b; Forms 1040A, line 12b; and Forms 1040NR, line 17b. Free income tax software The amount from your 2013 Form 8606, line 25. Free income tax software   Also, include any amount you allocated to line 20 of your 2013 Form 8606 on your 2013 Form 5329, line 2, and enter exception number 09. Free income tax software Example. Free income tax software Ishmael, age 32, opened a Roth IRA in 2000. Free income tax software He made the maximum contributions to it every year. Free income tax software In addition, he made the following transactions into his Roth IRA. Free income tax software In 2005, he converted $10,000 from his traditional IRA into his Roth IRA. Free income tax software He filled out a 2005 Form 8606 and attached it with his 2005 Form 1040. Free income tax software He entered $0 on line 17 of Form 8606 because he took a deduction for all the contributions to the traditional IRA, therefore he has no basis. Free income tax software He entered $10,000 on line 18 of Form 8606. Free income tax software In 2011, he rolled over the entire balance of his qualified retirement plan, $20,000, into a Roth IRA when he changed jobs. Free income tax software He used a 2011 Form 1040 to file his taxes. Free income tax software He entered $20,000 on line 16a of Form 1040 because that was the amount reported in box 1 of his 2011 Form 1099-R. Free income tax software Box 5 of his 2011 Form 1099-R reported $0 since he did not make any after-tax contributions to the qualified retirement plan. Free income tax software He entered $20,000 on line 16b of Form 1040 since that is the taxable amount that was rolled over in 2011. Free income tax software The total balance in his Roth IRA as of January 1, 2013 was $105,000 ($50,000 in contributions from 2000 through 2012 + $10,000 from the 2005 conversion + $20,000 from the 2011 rollover + $25,000 from earnings). Free income tax software He has not taken any early distribution from his Roth IRA before 2013. Free income tax software In 2013, he made the maximum contribution of $5,500 to his Roth IRA. Free income tax software In August of 2013, he took a $85,500 early distribution from his Roth IRA to use as a down payment on the purchase of his first home. Free income tax software See his filled out Illustrated Recapture Amount—Allocation Chart, later, to see how he allocated the amounts from the above transactions. Free income tax software Based on his allocation, he would enter $20,000 on his 2013 Form 5329, line 1 (see Amount to include on Form 5329, line 1 , above). Free income tax software He should also report $10,000 on his 2013 Form 5329, line 2, and enter exception 09 since that amount is not subject to the 10% additional tax on early distributions. Free income tax software Illustrated Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19 $85,500 Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Free income tax software   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Free income tax software The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Free income tax software Note. Free income tax software Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Free income tax software See the Example , earlier. Free income tax software Tax Year Your Form 2013 Form 8606, line 20 $10,000 Form 8606, line 22 $55,500 1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18 $10,000 Form 8606, line 17 $-0- 2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b* $10,000 Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Free income tax software  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Free income tax software How Do You Figure the Taxable Part? To figure the taxable part of a distribution that is not a qualified distribution, complete Form 8606, Part III. Free income tax software Must You Withdraw or Use Assets? You are not required to take distributions from your Roth IRA at any age. Free income tax software The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. Free income tax software However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death . Free income tax software Minimum distributions. Free income tax software   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Free income tax software Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. Free income tax software See Distributions to beneficiaries , later. Free income tax software Recognizing Losses on Investments If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. Free income tax software Your basis is the total amount of contributions in your Roth IRAs. Free income tax software You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Free income tax software Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax. Free income tax software Distributions After Owner's Death If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. Free income tax software See When Can You Withdraw or Use Assets? in chapter 1. Free income tax software Distributions to beneficiaries. Free income tax software   Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. Free income tax software (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. Free income tax software )   If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Free income tax software Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent. Free income tax software   If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½ or treat the Roth IRA as his or her own. Free income tax software Combining with other Roth IRAs. Free income tax software   A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either: Inherited the other Roth IRA from the same decedent, or Was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA. Free income tax software Distributions that are not qualified distributions. Free income tax software   If a distribution to a beneficiary is not a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive. Free income tax software   If the owner of a Roth IRA dies before the end of: The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA, each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. Free income tax software See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable. Free income tax software Example. Free income tax software When Ms. Free income tax software Hibbard died in 2013, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2009, and earnings of $2,000. Free income tax software No distributions had been made from her IRA. Free income tax software She had no basis in the conversion contribution in 2009. Free income tax software When she established this Roth IRA (her first) in 2009, she named each of her four children as equal beneficiaries. Free income tax software Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. Free income tax software An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings. Free income tax software In this case, because the distributions are made before the end of the applicable 5-year period for a qualified distribution, each beneficiary includes $500 in income for 2013. Free income tax software The 10% additional tax on early distributions does not apply because the distribution was made to the beneficiaries as a result of the death of the IRA owner. Free income tax software If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. Free income tax software For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. Free income tax software If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion. Free income tax software Prev  Up  Next   Home   More Online Publications