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

Free tax preparation military Index A Adjusted basis defined, Adjusted basis defined. Free tax preparation military Administrative or management activities, Administrative or management activities. Free tax preparation military Assistance (see Tax help) Attorneys, Place To Meet Patients, Clients, or Customers B Business expenses not for use of home, Business expenses not for use of your home. Free tax preparation military Business furniture and equipment, Business Furniture and Equipment Business percentage, Business Percentage Business use of the home requirements (see Qualifying for a deduction) C Carryover of expenses, Carryover of unallowed expenses. Free tax preparation military Casualty losses, Casualty losses. Free tax preparation military Child and Adult Care Food Program reimbursements, Meals. Free tax preparation military Computer Listed property, Listed Property D Daycare facilities, Daycare Facility, Standard meal and snack rates. Free tax preparation military (see also Family daycare providers) Eligible children for standard meal and snack rates, Standard meal and snack rates. Free tax preparation military Exceptions for regular use requirement, Daycare Facility Family daycare, Standard meal and snack rates. Free tax preparation military Family daycare provider, Standard meal and snack rates. Free tax preparation military Meals, Meals. Free tax preparation military , Standard meal and snack rates. Free tax preparation military Regular use, Daycare Facility Standard meal and snack rates, Meals. Free tax preparation military , Standard meal and snack rates. Free tax preparation military Deduction limit, Deduction Limit Deduction requirements Employee use, Additional tests for employee use. Free tax preparation military Exceptions to exclusive use, Exceptions to Exclusive Use Exclusive use, Exclusive Use More than one trade or business, More Than One Trade or Business Place to meet clients, Place To Meet Patients, Clients, or Customers Principal place of business, Principal Place of Business Regular use, Regular Use Separate structure, Separate Structure Storage of inventory or product samples, Storage of inventory or product samples. Free tax preparation military Trade or business use, Trade or Business Use Deductions Figuring, Figuring the Deduction, Part 2—Figure Your Allowable Deduction Limit, Deduction Limit Part-year use, Part-year use. Free tax preparation military Qualifying for, Qualifying for a Deduction, Separate Structure Rental to employer, Rental to employer. Free tax preparation military Unreimbursed partnership expenses, Deducting unreimbursed partnership expenses. Free tax preparation military Using Actual Expenses, Using Actual Expenses Dentists, Place To Meet Patients, Clients, or Customers Depreciation, Property Bought for Business Use 5-year property, Depreciation 7-year property, Depreciation Adjusted basis, Adjusted basis defined. Free tax preparation military Fair market value, Fair market value defined. Free tax preparation military Figuring depreciation for the current year, Figuring the depreciation deduction for the current year. Free tax preparation military Furniture and equipment, Business Furniture and Equipment, Depreciation Home, Depreciating Your Home Nonresidential real property, Figuring the depreciation deduction for the current year. Free tax preparation military Percentage table for 39-year nonresidential real property, Depreciation table. Free tax preparation military Permanent improvements, Permanent improvements. Free tax preparation military , Depreciating permanent improvements. Free tax preparation military Depreciation of home, Depreciating Your Home Basis adjustment, Basis Adjustment MACRS (Table 2), Depreciation table. Free tax preparation military Property bought for business use, Depreciation Sale or exchange of home, Depreciation Doctors, Place To Meet Patients, Clients, or Customers E Employee use of home, Additional tests for employee use. Free tax preparation military Employees Adequately accounting to employer, Adequately accounting to employer. Free tax preparation military Casualty losses, Casualty losses. Free tax preparation military Mortgage interest, Deductible mortgage interest. Free tax preparation military Other expenses, Other expenses. Free tax preparation military Real estate taxes, Real estate taxes. Free tax preparation military Exclusive use, Exclusive Use Expenses Casualty losses, Casualty losses. Free tax preparation military Direct, Actual Expenses Indirect, Actual Expenses Insurance, Insurance. Free tax preparation military Mortgage interest, Deductible mortgage interest. Free tax preparation military , Qualified mortgage insurance premiums. Free tax preparation military Real estate taxes, Real estate taxes. Free tax preparation military Related to tax-exempt income, Expenses related to tax-exempt income. Free tax preparation military Rent, Rent. Free tax preparation military Repairs, Repairs. Free tax preparation military Security system, Security system. Free tax preparation military Telephone, Telephone. Free tax preparation military Types of, Actual Expenses Unrelated, Actual Expenses Utilities and services, Utilities and services. Free tax preparation military Where to deduct, Where To Deduct F Fair market value, Fair market value defined. Free tax preparation military Family daycare providers Meal and snack log (Exhibit A), Standard meal and snack rates. Free tax preparation military Standard meal and snack rates, Standard meal and snack rates. Free tax preparation military Standard meal and snack rates (Table 3), Standard meal and snack rates. Free tax preparation military Figuring the deduction Business percentage, Business Percentage Deduction limit, Deduction Limit Form, Useful Items - You may want to see:, Self-Employed Persons, Real estate taxes. Free tax preparation military 1040, Schedule F, Casualty losses. Free tax preparation military 2106, Employees 4562, Reporting and recordkeeping requirements. Free tax preparation military 4684, Casualty losses. Free tax preparation military 8829, Actual Expenses, Casualty losses. Free tax preparation military , Business Percentage, Daycare Facility W-2 Reimbursed expenses, Employees Free tax services, Free help with your tax return. Free tax preparation military Furniture and equipment, Business Furniture and Equipment H Help (see Tax help) Home Business percentage, Business Percentage Depreciation, Depreciating Your Home Sale of, Sale or Exchange of Your Home Home expenses, Can you deduct business use of, Figure A, , Principal Place of Business I Improvements (see Permanent improvements) Insurance, Insurance. Free tax preparation military Inventory, storage of, Storage of inventory or product samples. Free tax preparation military L Listed property Computers, Listed Property Defined, Listed Property Employee requirements, Employee. Free tax preparation military Reporting and recordkeeping requirements, Reporting and recordkeeping requirements. Free tax preparation military Years following the year placed in service, Years following the year placed in service. Free tax preparation military M MACRS percentage table 39-year nonresidential real property, Depreciation table. Free tax preparation military Meals, Meals. Free tax preparation military Meeting with patients, clients, or customers on premises, Place To Meet Patients, Clients, or Customers More than one place of business, More than one place of business. Free tax preparation military More than one trade or business, More Than One Trade or Business More-than-50%-use test, More-than-50%-use test. Free tax preparation military Mortgage interest, Deductible mortgage interest. Free tax preparation military , Qualified mortgage insurance premiums. Free tax preparation military P Partners, Partners Partnership expenses, unreimbursed, Deducting unreimbursed partnership expenses. Free tax preparation military Permanent improvements, Permanent improvements. Free tax preparation military , Depreciating permanent improvements. Free tax preparation military Personal property converted to business use, Personal Property Converted to Business Use Place of business, more than one, More than one place of business. Free tax preparation military Principal place of business, Principal Place of Business Product samples, Storage of inventory or product samples. Free tax preparation military Property bought for business use Depreciation, Depreciation Section 179 deduction, Property Bought for Business Use, Section 179 Deduction Property converted to business use, Personal, Personal Property Converted to Business Use Publications, Useful Items - You may want to see: (see Tax help) Q Qualifying for a deduction, Qualifying for a Deduction R Real estate taxes, Real estate taxes. Free tax preparation military Recordkeeping, Recordkeeping Recordkeeping requirements Business furniture and equipment, Reporting and recordkeeping requirements. Free tax preparation military Family daycare provider meal and snack log (Exhibit A), Standard meal and snack rates. Free tax preparation military Regular use, Regular Use Reminders, Reminders Rent, Rent. Free tax preparation military Repairs, Repairs. Free tax preparation military Reporting requirements Business furniture and equipment, Reporting and recordkeeping requirements. Free tax preparation military S Sale or exchange of your home, Sale or Exchange of Your Home Basis adjustment, Basis Adjustment Depreciation taken, Depreciation Ownership and use tests, Ownership and use tests. Free tax preparation military Section 179, Section 179 Deduction Furniture and equipment, Business Furniture and Equipment, Listed Property Listed property, Business Furniture and Equipment, Listed Property Personal property converted to business use, Personal Property Converted to Business Use Property bought for business use, Property Bought for Business Use Security system, Security system. Free tax preparation military Self-employed persons Deduction of expenses, Self-Employed Persons Separate structure, Separate Structure Simplified Method Actual expenses and depreciation of your home, Actual expenses and depreciation of your home. Free tax preparation military Allowable area, Allowable area. Free tax preparation military Business expenses not related to use of the home, Business expenses not related to use of the home. Free tax preparation military Electing the simplified method, Electing the Simplified Method More than one home, More than one home. Free tax preparation military More than one qualified business use, More than one qualified business use. Free tax preparation military Shared use, Shared use. Free tax preparation military Expenses deductible without regard to business use, Expenses deductible without regard to business use. Free tax preparation military No carryover of unallowed expenses, No deduction of carryover of actual expenses. Free tax preparation military Simplified amount, Simplified Amount Space used regularly for daycare, Space used regularly for daycare. Free tax preparation military Using the simplified method, Using the Simplified Method Standard meal and snack rates, Standard meal and snack rates. Free tax preparation military Storage of inventory, Storage of inventory or product samples. Free tax preparation military T Tables and figures MACRS Depreciation of home (Table 2), Depreciation table. Free tax preparation military Qualifying for deduction (Figure A), Standard meal and snack rates (Table 3), Table 3. Free tax preparation military Standard Meal and Snack Rates1 Types of expenses (Table 1), Actual Expenses Tax help, How To Get Tax Help Telephone, Telephone. Free tax preparation military Trade or business use, Trade or Business Use TTY/TDD information, How To Get Tax Help Types of expenses, Actual Expenses U Utilities, Utilities and services. Free tax preparation military W Where to deduct expenses, Where To Deduct Employees, Employees Self-employed, Self-Employed Persons Worksheets Area Adjustment Worksheet (for simplified method), Area Adjustment Worksheet (for simplified method) Worksheets to figure the deduction for business use of your home (simplified method), Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Daycare facility worksheet (for simplified method), Daycare Facility Worksheet (for simplified method) Simplified method worksheet, Simplified Method Worksheet Prev  Up     Home   More Online Publications