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

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Hawaii Department of Commerce and Consumer Affairs - Wailuku

Website: Hawaii Department of Commerce and Consumer Affairs - Wailuku

Address: Hawaii Department of Commerce and Consumer Affairs - Wailuku
Office of Consumer Protection
1063 Lower Main St., Suite C-216
Wailuku, HI 96793

Phone Number: 808-243-4648 808-587-3222 (Consumer Resource Center)

Hawaii Department of Commerce and Consumer Affairs- Hilo

Website: Hawaii Department of Commerce and Consumer Affairs- Hilo

Address: Hawaii Department of Commerce and Consumer Affairs- Hilo
Office of Consumer Protection
345 Kekuanaoa St., Suite 12
Hilo, HI 96720

Phone Number: 808-933-0910 808-587-3222 (Consumer Resource Center)

Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)

Website: Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)

Address: Hawaii Department of Commerce and Consumer Affairs - Honolulu (Main Location)
Office of Consumer Protection
Leiopapa A Kamehameha Building
235 S. Beretania St., Suite 801

Honolulu, HI 96813

Phone Number: 808-586-2630 808-587-3222 (Consumer Resource Center)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Division of Financial Institutions
PO Box 2054
Honolulu, HI 96805

Phone Number: 808-586-2820
808-274-3141 (Kauai) 808-984-2400 (Maui) 808-974-4000 (Hawaii)

Toll-free: 1-800-468-4644

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Insurance Division
PO Box 3614
Honolulu, HI 96811

Phone Number: 808-586-2790

Toll-free: 1-800-468-4644 (Lanai and Molokai)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Commerce and Consumer Affairs

Website: Department of Commerce and Consumer Affairs

Address: Department of Commerce and Consumer Affairs
Business Registration Division
Securities Enforcement Branch

PO Box 40
Honolulu, HI 96810

Phone Number: 808-586-2744

Toll-free: 1-877-447-2267

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Utilities Commission

Website: Public Utilities Commission

Address: Public Utilities Commission
465 S. King St., Room 103
Honolulu, HI 96813

Phone Number: 808-586-2020

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The H&r Block Free File Review

H&r block free file review 22. H&r block free file review   Taxes Table of Contents IntroductionIndian tribal government. H&r block free file review Useful Items - You may want to see: Tests To Deduct Any Tax Income TaxesState and Local Income Taxes Foreign Income Taxes General Sales TaxesMotor vehicles. H&r block free file review Real Estate TaxesReal estate taxes for prior years. H&r block free file review Examples. H&r block free file review Form 1099-S. H&r block free file review Real Estate-Related Items You Cannot Deduct Personal Property Taxes Taxes and Fees You Cannot Deduct Where To Deduct Introduction This chapter discusses which taxes you can deduct if you itemize deductions on Schedule A (Form 1040). H&r block free file review It also explains which taxes you can deduct on other schedules or forms and which taxes you cannot deduct. H&r block free file review This chapter covers the following topics. H&r block free file review Income taxes (federal, state, local, and foreign). H&r block free file review General sales taxes (state and local). H&r block free file review Real estate taxes (state, local, and foreign). H&r block free file review Personal property taxes (state and local). H&r block free file review Taxes and fees you cannot deduct. H&r block free file review Use Table 22-1 as a guide to determine which taxes you can deduct. H&r block free file review The end of the chapter contains a section that explains which forms you use to deduct different types of taxes. H&r block free file review Business taxes. H&r block free file review   You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. H&r block free file review For information on these taxes, see Publication 535, Business Expenses. H&r block free file review State or local taxes. H&r block free file review   These are taxes imposed by the 50 states, U. H&r block free file review S. H&r block free file review possessions, or any of their political subdivisions (such as a county or city), or by the District of Columbia. H&r block free file review Indian tribal government. H&r block free file review   An Indian tribal government recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a state for purposes of claiming a deduction for taxes. H&r block free file review Income taxes, real estate taxes, and personal property taxes imposed by that Indian tribal government (or by any of its subdivisions that are treated as political subdivisions of a state) are deductible. H&r block free file review General sales taxes. H&r block free file review   These are taxes imposed at one rate on retail sales of a broad range of classes of items. H&r block free file review Foreign taxes. H&r block free file review   These are taxes imposed by a foreign country or any of its political subdivisions. H&r block free file review Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 530 Tax Information for Homeowners Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule E (Form 1040) Supplemental Income and Loss 1116 Foreign Tax Credit Tests To Deduct Any Tax The following two tests must be met for you to deduct any tax. H&r block free file review The tax must be imposed on you. H&r block free file review You must pay the tax during your tax year. H&r block free file review The tax must be imposed on you. H&r block free file review   In general, you can deduct only taxes imposed on you. H&r block free file review   Generally, you can deduct property taxes only if you are an owner of the property. H&r block free file review If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return. H&r block free file review You must pay the tax during your tax year. H&r block free file review   If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. H&r block free file review If you pay your taxes by check, the day you mail or deliver the check is the date of payment, provided the check is honored by the financial institution. H&r block free file review If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment. H&r block free file review If you contest a tax liability and are a cash basis taxpayer, you can deduct the tax only in the year you actually pay it (or transfer money or other property to provide for satisfaction of the contested liability). H&r block free file review See Publication 538, Accounting Periods and Methods, for details. H&r block free file review    If you use an accrual method of accounting, see Publication 538 for more information. H&r block free file review Income Taxes This section discusses the deductibility of state and local income taxes (including employee contributions to state benefit funds) and foreign income taxes. H&r block free file review State and Local Income Taxes You can deduct state and local income taxes. H&r block free file review However, you can elect to deduct state and local general sales taxes instead of state and local income taxes. H&r block free file review See General Sales Taxes , later. H&r block free file review Exception. H&r block free file review    You cannot deduct state and local income taxes you pay on income that is exempt from federal income tax, unless the exempt income is interest income. H&r block free file review For example, you cannot deduct the part of a state's income tax that is on a cost-of-living allowance exempt from federal income tax. H&r block free file review What To Deduct Your deduction may be for withheld taxes, estimated tax payments, or other tax payments as follows. H&r block free file review Withheld taxes. H&r block free file review   You can deduct state and local income taxes withheld from your salary in the year they are withheld. H&r block free file review Your Form(s) W-2 will show these amounts. H&r block free file review Forms W-2G, 1099-G, 1099-R, and 1099-MISC may also show state and local income taxes withheld. H&r block free file review Estimated tax payments. H&r block free file review   You can deduct estimated tax payments you made during the year to a state or local government. H&r block free file review However, you must have a reasonable basis for making the estimated tax payments. H&r block free file review Any estimated state or local tax payments that are not made in good faith at the time of payment are not deductible. H&r block free file review For example, you made an estimated state income tax payment. H&r block free file review However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. H&r block free file review You had no reasonable basis to believe you had any additional liability for state income taxes and you cannot deduct the estimated tax payment. H&r block free file review Refund applied to taxes. H&r block free file review   You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2013 estimated state or local income taxes. H&r block free file review    Do not reduce your deduction by either of the following items. H&r block free file review Any state or local income tax refund (or credit) you expect to receive for 2013. H&r block free file review Any refund of (or credit for) prior-year state and local income taxes you actually received in 2013. H&r block free file review   However, part or all of this refund (or credit) may be taxable. H&r block free file review See Refund (or credit) of state or local income taxes , later. H&r block free file review Separate federal returns. H&r block free file review   If you and your spouse file separate state, local, and federal income tax returns, you each can deduct on your federal return only the amount of your own state and local income tax that you paid during the tax year. H&r block free file review Joint state and local returns. H&r block free file review   If you and your spouse file joint state and local returns and separate federal returns, each of you can deduct on your separate federal return a part of the total state and local income taxes paid during the tax year. H&r block free file review You can deduct only the amount of the total taxes that is proportionate to your gross income compared to the combined gross income of you and your spouse. H&r block free file review However, you cannot deduct more than the amount you actually paid during the year. H&r block free file review You can avoid this calculation if you and your spouse are jointly and individually liable for the full amount of the state and local income taxes. H&r block free file review If so, you and your spouse can deduct on your separate federal returns the amount you each actually paid. H&r block free file review Joint federal return. H&r block free file review   If you file a joint federal return, you can deduct the total of the state and local income taxes both of you paid. H&r block free file review Contributions to state benefit funds. H&r block free file review    As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. H&r block free file review For example, certain states require employees to make contributions to state funds providing disability or unemployment insurance benefits. H&r block free file review Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), line 5. H&r block free file review Alaska Unemployment Compensation Fund. H&r block free file review California Nonoccupational Disability Benefit Fund. H&r block free file review New Jersey Nonoccupational Disability Benefit Fund. H&r block free file review New Jersey Unemployment Compensation Fund. H&r block free file review New York Nonoccupational Disability Benefit Fund. H&r block free file review Pennsylvania Unemployment Compensation Fund. H&r block free file review Rhode Island Temporary Disability Benefit Fund. H&r block free file review Washington State Supplemental Workmen's Compensation Fund. H&r block free file review    Employee contributions to private or voluntary disability plans are not deductible. H&r block free file review Refund (or credit) of state or local income taxes. H&r block free file review   If you receive a refund of (or credit for) state or local income taxes in a year after the year in which you paid them, you may have to include the refund in income on Form 1040, line 10, in the year you receive it. H&r block free file review This includes refunds resulting from taxes that were overwithheld, applied from a prior year return, not figured correctly, or figured again because of an amended return. H&r block free file review If you did not itemize your deductions in the previous year, do not include the refund in income. H&r block free file review If you deducted the taxes in the previous year, include all or part of the refund on Form 1040, line 10, in the year you receive the refund. H&r block free file review For a discussion of how much to include, see Recoveries in chapter 12. H&r block free file review Foreign Income Taxes Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. H&r block free file review S. H&r block free file review possession. H&r block free file review However, you cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. H&r block free file review S. H&r block free file review tax under the foreign earned income exclusion or the foreign housing exclusion. H&r block free file review For information on these exclusions, see Publication 54, Tax Guide for U. H&r block free file review S. H&r block free file review Citizens and Resident Aliens Abroad. H&r block free file review For information on the foreign tax credit, see Publication 514. H&r block free file review General Sales Taxes You can elect to deduct state and local general sales taxes, instead of state and local income taxes, as an itemized deduction on Schedule A (Form 1040), line 5b. H&r block free file review You can use either your actual expenses or the state and local sales tax tables to figure your sales tax deduction. H&r block free file review Actual expenses. H&r block free file review   Generally, you can deduct the actual state and local general sales taxes (including compensating use taxes) if the tax rate was the same as the general sales tax rate. H&r block free file review However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. H&r block free file review If you paid sales tax on a motor vehicle at a rate higher than the general sales tax rate, you can deduct only the amount of tax that you would have paid at the general sales tax rate on that vehicle. H&r block free file review If you use the actual expenses method, you must have receipts to show the general sales taxes paid. H&r block free file review Do not include sales taxes paid on items used in your trade or business. H&r block free file review Motor vehicles. H&r block free file review   For purposes of this section, motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. H&r block free file review This also includes sales taxes on a leased motor vehicle, but not on vehicles used in your trade or business. H&r block free file review Optional sales tax tables. H&r block free file review   Instead of using your actual expenses, you can figure your state and local general sales tax deduction using the state and local sales tax tables in the Instructions for Schedule A (Form 1040). H&r block free file review You may also be able to add the state and local general sales taxes paid on certain specified items. H&r block free file review   Your applicable table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. H&r block free file review Your income is your adjusted gross income plus any nontaxable items such as the following. H&r block free file review Tax-exempt interest. H&r block free file review Veterans' benefits. H&r block free file review Nontaxable combat pay. H&r block free file review Workers' compensation. H&r block free file review Nontaxable part of social security and railroad retirement benefits. H&r block free file review Nontaxable part of IRA, pension, or annuity distributions, excluding rollovers. H&r block free file review Public assistance payments. H&r block free file review If you lived in different states during the same tax year, you must prorate your applicable table amount for each state based on the days you lived in each state. H&r block free file review See the Instructions for Schedule A (Form 1040), line 5, for details. H&r block free file review Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. H&r block free file review You can deduct these taxes only if they are based on the assessed value of the real property and charged uniformly against all property under the jurisdiction of the taxing authority. H&r block free file review Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. H&r block free file review They also do not include itemized charges for services (such as trash collection) assessed against specific property or certain people, even if the charge is paid to the taxing authority. H&r block free file review For more information about taxes and charges that are not deductible, see Real Estate-Related Items You Cannot Deduct , later. H&r block free file review Tenant-shareholders in a cooperative housing corporation. H&r block free file review   Generally, if you are a tenant-stockholder in a cooperative housing corporation, you can deduct the amount paid to the corporation that represents your share of the real estate taxes the corporation paid or incurred for your dwelling unit. H&r block free file review The corporation should provide you with a statement showing your share of the taxes. H&r block free file review For more information, see Special Rules for Cooperatives in Publication 530. H&r block free file review Division of real estate taxes between buyers and sellers. H&r block free file review   If you bought or sold real estate during the year, the real estate taxes must be divided between the buyer and the seller. H&r block free file review   The buyer and the seller must divide the real estate taxes according to the number of days in the real property tax year (the period to which the tax is imposed relates) that each owned the property. H&r block free file review The seller is treated as paying the taxes up to, but not including, the date of sale. H&r block free file review The buyer is treated as paying the taxes beginning with the date of sale. H&r block free file review This applies regardless of the lien dates under local law. H&r block free file review Generally, this information is included on the settlement statement provided at the closing. H&r block free file review    If you (the seller) cannot deduct taxes until they are paid because you use the cash method of accounting, and the buyer of your property is personally liable for the tax, you are considered to have paid your part of the tax at the time of the sale. H&r block free file review This lets you deduct the part of the tax to the date of sale even though you did not actually pay it. H&r block free file review However, you must also include the amount of that tax in the selling price of the property. H&r block free file review The buyer must include the same amount in his or her cost of the property. H&r block free file review   You figure your deduction for taxes on each property bought or sold during the real property tax year as follows. H&r block free file review Worksheet 22-1. H&r block free file review Figuring Your Real Estate Tax Deduction 1. H&r block free file review Enter the total real estate taxes for the real property tax year   2. H&r block free file review Enter the number of days in the real property tax year that you owned the property   3. H&r block free file review Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block free file review 4. H&r block free file review Multiply line 1 by line 3. H&r block free file review This is your deduction. H&r block free file review Enter it on Schedule A (Form 1040), line 6   Note. H&r block free file review Repeat steps 1 through 4 for each property you bought or sold during the real property tax year. H&r block free file review Your total deduction is the sum of the line 4 amounts for all of the properties. H&r block free file review Real estate taxes for prior years. H&r block free file review   Do not divide delinquent taxes between the buyer and seller if the taxes are for any real property tax year before the one in which the property is sold. H&r block free file review Even if the buyer agrees to pay the delinquent taxes, the buyer cannot deduct them. H&r block free file review The buyer must add them to the cost of the property. H&r block free file review The seller can deduct these taxes paid by the buyer. H&r block free file review However, the seller must include them in the selling price. H&r block free file review Examples. H&r block free file review   The following examples illustrate how real estate taxes are divided between buyer and seller. H&r block free file review Example 1. H&r block free file review Dennis and Beth White's real property tax year for both their old home and their new home is the calendar year, with payment due August 1. H&r block free file review The tax on their old home, sold on May 7, was $620. H&r block free file review The tax on their new home, bought on May 3, was $732. H&r block free file review Dennis and Beth are considered to have paid a proportionate share of the real estate taxes on the old home even though they did not actually pay them to the taxing authority. H&r block free file review On the other hand, they can claim only a proportionate share of the taxes they paid on their new property even though they paid the entire amount. H&r block free file review Dennis and Beth owned their old home during the real property tax year for 126 days (January 1 to May 6, the day before the sale). H&r block free file review They figure their deduction for taxes on their old home as follows. H&r block free file review Worksheet 22-1. H&r block free file review Figuring Your Real Estate Tax Deduction — Taxes on Old Home 1. H&r block free file review Enter the total real estate taxes for the real property tax year $620 2. H&r block free file review Enter the number of days in the real property tax year that you owned the property 126 3. H&r block free file review Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block free file review 3452 4. H&r block free file review Multiply line 1 by line 3. H&r block free file review This is your deduction. H&r block free file review Enter it on Schedule A (Form 1040), line 6 $214 Since the buyers of their old home paid all of the taxes, Dennis and Beth also include the $214 in the selling price of the old home. H&r block free file review (The buyers add the $214 to their cost of the home. H&r block free file review ) Dennis and Beth owned their new home during the real property tax year for 243 days (May 3 to December 31, including their date of purchase). H&r block free file review They figure their deduction for taxes on their new home as follows. H&r block free file review Worksheet 22-1. H&r block free file review Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. H&r block free file review Enter the total real estate taxes for the real property tax year $732 2. H&r block free file review Enter the number of days in the real property tax year that you owned the property 243 3. H&r block free file review Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block free file review 6658 4. H&r block free file review Multiply line 1 by line 3. H&r block free file review This is your deduction. H&r block free file review Enter it on Schedule A (Form 1040), line 6 $487 Since Dennis and Beth paid all of the taxes on the new home, they add $245 ($732 paid less $487 deduction) to their cost of the new home. H&r block free file review (The sellers add this $245 to their selling price and deduct the $245 as a real estate tax. H&r block free file review ) Dennis and Beth's real estate tax deduction for their old and new homes is the sum of $214 and $487, or $701. H&r block free file review They will enter this amount on Schedule A (Form 1040), line 6. H&r block free file review Example 2. H&r block free file review George and Helen Brown bought a new home on May 3, 2013. H&r block free file review Their real property tax year for the new home is the calendar year. H&r block free file review Real estate taxes for 2012 were assessed in their state on January 1, 2013. H&r block free file review The taxes became due on May 31, 2013, and October 31, 2013. H&r block free file review The Browns agreed to pay all taxes due after the date of purchase. H&r block free file review Real estate taxes for 2012 were $680. H&r block free file review They paid $340 on May 31, 2013, and $340 on October 31, 2013. H&r block free file review These taxes were for the 2012 real property tax year. H&r block free file review The Browns cannot deduct them since they did not own the property until 2013. H&r block free file review Instead, they must add $680 to the cost of their new home. H&r block free file review In January 2014, the Browns receive their 2013 property tax statement for $752, which they will pay in 2014. H&r block free file review The Browns owned their new home during the 2013 real property tax year for 243 days (May 3 to December 31). H&r block free file review They will figure their 2014 deduction for taxes as follows. H&r block free file review Worksheet 22-1. H&r block free file review Figuring Your Real Estate Tax Deduction — Taxes on New Home 1. H&r block free file review Enter the total real estate taxes for the real property tax year $752 2. H&r block free file review Enter the number of days in the real property tax year that you owned the property 243 3. H&r block free file review Divide line 2 by 365 (for leap years, divide line 2 by 366) . H&r block free file review 6658 4. H&r block free file review Multiply line 1 by line 3. H&r block free file review This is your deduction. H&r block free file review Claim it on Schedule A (Form 1040), line 6 $501 The remaining $251 ($752 paid less $501 deduction) of taxes paid in 2014, along with the $680 paid in 2013, is added to the cost of their new home. H&r block free file review Because the taxes up to the date of sale are considered paid by the seller on the date of sale, the seller is entitled to a 2013 tax deduction of $931. H&r block free file review This is the sum of the $680 for 2012 and the $251 for the 122 days the seller owned the home in 2013. H&r block free file review The seller must also include the $931 in the selling price when he or she figures the gain or loss on the sale. H&r block free file review The seller should contact the Browns in January 2014 to find out how much real estate tax is due for 2013. H&r block free file review Form 1099-S. H&r block free file review   For certain sales or exchanges of real estate, the person responsible for closing the sale (generally the settlement agent) prepares Form 1099-S, Proceeds From Real Estate Transactions, to report certain information to the IRS and to the seller of the property. H&r block free file review Box 2 of Form 1099-S is for the gross proceeds from the sale and should include the portion of the seller's real estate tax liability that the buyer will pay after the date of sale. H&r block free file review The buyer includes these taxes in the cost basis of the property, and the seller both deducts this amount as a tax paid and includes it in the sales price of the property. H&r block free file review   For a real estate transaction that involves a home, any real estate tax the seller paid in advance but that is the liability of the buyer appears on Form 1099-S, box 5. H&r block free file review The buyer deducts this amount as a real estate tax, and the seller reduces his or her real estate tax deduction (or includes it in income) by the same amount. H&r block free file review See Refund (or rebate) , later. H&r block free file review Taxes placed in escrow. H&r block free file review   If your monthly mortgage payment includes an amount placed in escrow (put in the care of a third party) for real estate taxes, you may not be able to deduct the total amount placed in escrow. H&r block free file review You can deduct only the real estate tax that the third party actually paid to the taxing authority. H&r block free file review If the third party does not notify you of the amount of real estate tax that was paid for you, contact the third party or the taxing authority to find the proper amount to show on your return. H&r block free file review Tenants by the entirety. H&r block free file review   If you and your spouse held property as tenants by the entirety and you file separate federal returns, each of you can deduct only the taxes each of you paid on the property. H&r block free file review Divorced individuals. H&r block free file review   If your divorce or separation agreement states that you must pay the real estate taxes for a home owned by you and your spouse, part of your payments may be deductible as alimony and part as real estate taxes. H&r block free file review See Taxes and insurance in chapter 18 for more information. H&r block free file review Ministers' and military housing allowances. H&r block free file review   If you are a minister or a member of the uniformed services and receive a housing allowance that you can exclude from income, you still can deduct all of the real estate taxes you pay on your home. H&r block free file review Refund (or rebate). H&r block free file review   If you received a refund or rebate in 2013 of real estate taxes you paid in 2013, you must reduce your deduction by the amount refunded to you. H&r block free file review If you received a refund or rebate in 2013 of real estate taxes you deducted in an earlier year (either as an itemized deduction or an increase to your standard deduction), you generally must include the refund or rebate in income in the year you receive it. H&r block free file review However, the amount you include in income is limited to the amount of the deduction that reduced your tax in the earlier year. H&r block free file review For more information, see Recoveries in chapter 12. H&r block free file review Table 22-1. H&r block free file review Which Taxes Can You Deduct? Type of Tax You Can Deduct You Cannot Deduct Fees and Charges Fees and charges that are expenses of your trade or business or of producing income. H&r block free file review Fees and charges that are not expenses of your trade or business or of producing income, such as fees for driver's licenses, car inspections, parking, or charges for water bills (see Taxes and Fees You Cannot Deduct ). H&r block free file review     Fines and penalties. H&r block free file review Income Taxes State and local income taxes. H&r block free file review Federal income taxes. H&r block free file review   Foreign income taxes. H&r block free file review     Employee contributions to state funds listed under Contributions to state benefit funds . H&r block free file review Employee contributions to private or voluntary disability plans. H&r block free file review     State and local general sales taxes if you choose to deduct state and local income taxes. H&r block free file review General Sales Taxes State and local general sales taxes, including compensating use taxes. H&r block free file review State and local income taxes if you choose to deduct state and local general sales taxes. H&r block free file review Other Taxes Taxes that are expenses of your trade or business. H&r block free file review Federal excise taxes, such as tax on gasoline, that are not expenses of your trade or business or of producing income. H&r block free file review   Taxes on property producing rent or royalty income. H&r block free file review Per capita taxes. H&r block free file review   Occupational taxes. H&r block free file review See chapter 28. H&r block free file review     One-half of self-employment tax paid. H&r block free file review   Personal Property Taxes State and local personal property taxes. H&r block free file review Customs duties that are not expenses of your trade or business or of producing income. H&r block free file review Real Estate Taxes State and local real estate taxes. H&r block free file review Real estate taxes that are treated as imposed on someone else (see Division of real estate taxes between buyers and sellers ). H&r block free file review   Foreign real estate taxes. H&r block free file review Taxes for local benefits (with exceptions). H&r block free file review See Real Estate-Related Items You Cannot Deduct . H&r block free file review   Tenant's share of real estate taxes paid by  cooperative housing corporation. H&r block free file review Trash and garbage pickup fees (with exceptions). H&r block free file review See Real Estate-Related Items You Cannot Deduct . H&r block free file review     Rent increase due to higher real estate taxes. H&r block free file review     Homeowners' association charges. H&r block free file review Real Estate-Related Items You Cannot Deduct Payments for the following items generally are not deductible as real estate taxes. H&r block free file review Taxes for local benefits. H&r block free file review Itemized charges for services (such as trash and garbage pickup fees). H&r block free file review Transfer taxes (or stamp taxes). H&r block free file review Rent increases due to higher real estate taxes. H&r block free file review Homeowners' association charges. H&r block free file review Taxes for local benefits. H&r block free file review   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. H&r block free file review These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. H&r block free file review You should increase the basis of your property by the amount of the assessment. H&r block free file review   Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. H&r block free file review If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. H&r block free file review If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible. H&r block free file review    Taxes for local benefits may be included in your real estate tax bill. H&r block free file review If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. H&r block free file review You should use the rules above to determine if the local benefit tax is deductible. H&r block free file review Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. H&r block free file review Itemized charges for services. H&r block free file review    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. H&r block free file review For example, you cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance). H&r block free file review    You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. H&r block free file review If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. H&r block free file review Exception. H&r block free file review   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if: The fees or charges are imposed at a like rate against all property in the taxing jurisdiction, The funds collected are not earmarked; instead, they are commingled with general revenue funds, and Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected. H&r block free file review Transfer taxes (or stamp taxes). H&r block free file review   Transfer taxes and similar taxes and charges on the sale of a personal home are not deductible. H&r block free file review If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. H&r block free file review If paid by the buyer, they are included in the cost basis of the property. H&r block free file review Rent increase due to higher real estate taxes. H&r block free file review   If your landlord increases your rent in the form of a tax surcharge because of increased real estate taxes, you cannot deduct the increase as taxes. H&r block free file review Homeowners' association charges. H&r block free file review   These charges are not deductible because they are imposed by the homeowners' association, rather than the state or local government. H&r block free file review Personal Property Taxes Personal property tax is deductible if it is a state or local tax that is: Charged on personal property, Based only on the value of the personal property, and Charged on a yearly basis, even if it is collected more or less than once a year. H&r block free file review A tax that meets the above requirements can be considered charged on personal property even if it is for the exercise of a privilege. H&r block free file review For example, a yearly tax based on value qualifies as a personal property tax even if it is called a registration fee and is for the privilege of registering motor vehicles or using them on the highways. H&r block free file review If the tax is partly based on value and partly based on other criteria, it may qualify in part. H&r block free file review Example. H&r block free file review Your state charges a yearly motor vehicle registration tax of 1% of value plus 50 cents per hundredweight. H&r block free file review You paid $32 based on the value ($1,500) and weight (3,400 lbs. H&r block free file review ) of your car. H&r block free file review You can deduct $15 (1% × $1,500) as a personal property tax because it is based on the value. H&r block free file review The remaining $17 ($. H&r block free file review 50 × 34), based on the weight, is not deductible. H&r block free file review Taxes and Fees You Cannot Deduct Many federal, state, and local government taxes are not deductible because they do not fall within the categories discussed earlier. H&r block free file review Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. H&r block free file review See Table 22-1. H&r block free file review Taxes and fees that are generally not deductible include the following items. H&r block free file review Employment taxes. H&r block free file review This includes social security, Medicare, and railroad retirement taxes withheld from your pay. H&r block free file review However, one-half of self-employment tax you pay is deductible. H&r block free file review In addition, the social security and other employment taxes you pay on the wages of a household worker may be included in medical expenses that you can deduct or child care expenses that allow you to claim the child and dependent care credit. H&r block free file review For more information, see chapters 21 and 32. H&r block free file review Estate, inheritance, legacy, or succession taxes. H&r block free file review However, you can deduct the estate tax attributable to income in respect of a decedent if you, as a beneficiary, must include that income in your gross income. H&r block free file review In that case, deduct the estate tax as a miscellaneous deduction that is not subject to the 2%-of-adjusted-gross-income limit. H&r block free file review For more information, see Publication 559, Survivors, Executors, and Administrators. H&r block free file review Federal income taxes. H&r block free file review This includes income taxes withheld from your pay. H&r block free file review Fines and penalties. H&r block free file review You cannot deduct fines and penalties paid to a government for violation of any law, including related amounts forfeited as collateral deposits. H&r block free file review Gift taxes. H&r block free file review License fees. H&r block free file review You cannot deduct license fees for personal purposes (such as marriage, driver's, and dog license fees). H&r block free file review Per capita taxes. H&r block free file review You cannot deduct state or local per capita taxes. H&r block free file review Many taxes and fees other than those listed above are also nondeductible, unless they are ordinary and necessary expenses of a business or income producing activity. H&r block free file review For other nondeductible items, see Real Estate-Related Items You Cannot Deduct , earlier. H&r block free file review Where To Deduct You deduct taxes on the following schedules. H&r block free file review State and local income taxes. H&r block free file review    These taxes are deducted on Schedule A (Form 1040), line 5, even if your only source of income is from business, rents, or royalties. H&r block free file review Check box a on line 5. H&r block free file review General sales taxes. H&r block free file review   Sales taxes are deducted on Schedule A (Form 1040), line 5. H&r block free file review You must check box b on line 5. H&r block free file review If you elect to deduct sales taxes, you cannot deduct state and local income taxes on Schedule A (Form 1040), line 5, box a. H&r block free file review Foreign income taxes. H&r block free file review   Generally, income taxes you pay to a foreign country or U. H&r block free file review S. H&r block free file review possession can be claimed as an itemized deduction on Schedule A (Form 1040), line 8, or as a credit against your U. H&r block free file review S. H&r block free file review income tax on Form 1040, line 47. H&r block free file review To claim the credit, you may have to complete and attach Form 1116. H&r block free file review For more information, see chapter 37, the Form 1040 instructions, or Publication 514. H&r block free file review Real estate taxes and personal property taxes. H&r block free file review    Real estate and personal property taxes are deducted on Schedule A (Form 1040), lines 6 and 7, respectively, unless they are paid on property used in your business, in which case they are deducted on Schedule C, Schedule C-EZ, or Schedule F (Form 1040). H&r block free file review Taxes on property that produces rent or royalty income are deducted on Schedule E (Form 1040). H&r block free file review Self-employment tax. H&r block free file review    Deduct one-half of your self-employment tax on Form 1040, line 27. H&r block free file review Other taxes. H&r block free file review    All other deductible taxes are deducted on Schedule A (Form 1040), line 8. H&r block free file review Prev  Up  Next   Home   More Online Publications