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H&r block online filing Index A Addition to property, Additions and Improvements Adjusted basis, Adjusted Basis Alternative Depreciation System (ADS) Recovery periods, Recovery Periods Under ADS Required use, Required use of ADS. H&r block online filing Amended return, Filing an Amended Return Apartment Cooperative, Cooperative apartments. H&r block online filing Rental, Which Property Class Applies Under GDS? Automobile (see Passenger automobile) B Basis Adjustments, Basis adjustment for depreciation allowed or allowable. H&r block online filing , Adjustment of partner's basis in partnership. H&r block online filing , Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. H&r block online filing , Basis adjustment due to casualty loss. H&r block online filing Basis for depreciation, What Is the Basis for Depreciation? Casualty loss, Basis adjustment due to casualty loss. H&r block online filing Change in use, Property changed from personal use. H&r block online filing Cost, Cost as Basis Depreciable basis, Depreciable basis. H&r block online filing Other than cost, Other Basis Recapture of clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. H&r block online filing Term interest, Basis adjustments. H&r block online filing Unadjusted, Figuring the Unadjusted Basis of Your Property Business use of property, partial, Partial business or investment use. H&r block online filing Business-use limit, recapture of Section 179 deduction, When Must You Recapture the Deduction? Business-use requirement, listed property, What Is the Business-Use Requirement? C Car (see Passenger automobile) Carryover of section 179 deduction, Carryover of disallowed deduction. H&r block online filing Casualty loss, effect of, Basis adjustment due to casualty loss. H&r block online filing Changing accounting method, Changing Your Accounting Method Communication equipment (see Listed property) Commuting, Commuting use. H&r block online filing Computer (see Listed property) Computer software, Computer software. H&r block online filing , Off-the-shelf computer software. H&r block online filing Containers, Containers. H&r block online filing Conventions, Which Convention Applies? Cooperative apartment, Cooperative apartments. H&r block online filing Copyright, Patents and copyrights. H&r block online filing (see also Section 197 intangibles) Correcting depreciation deductions, How Do You Correct Depreciation Deductions? Cost basis, Cost as Basis D Declining balance Method, Declining Balance Method Rates, Declining balance rate. H&r block online filing Deduction limit Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Depreciation Deduction Employee, Can Employees Claim a Deduction? Listed property, Can Employees Claim a Deduction? Determinable useful life, Property Having a Determinable Useful Life Excepted property, Excepted Property Incorrect amount deducted, How Do You Correct Depreciation Deductions? Methods, Which Depreciation Method Applies? Property lasting more than one year, Property Lasting More Than One Year Property owned, Property You Own Property used in business, Property Used in Your Business or Income-Producing Activity Recapture, Revoking an election. H&r block online filing , Recapture of Excess Depreciation Depreciation allowable, Basis adjustment for depreciation allowed or allowable. H&r block online filing Depreciation allowed, Basis adjustment for depreciation allowed or allowable. H&r block online filing Depreciation deduction Listed property, What Is the Business-Use Requirement? Determinable useful life, Property Having a Determinable Useful Life Disposition Before recovery period ends, Sale or Other Disposition Before the Recovery Period Ends General asset account property, Disposing of GAA Property Section 179 deduction, When Must You Recapture the Deduction? E Election ADS, Electing ADS. H&r block online filing , Election of ADS. H&r block online filing Declining balance (150% DB) method, 150% election. H&r block online filing Exclusion from MACRS, Election To Exclude Property From MACRS General asset account, Electing To Use a GAA Not to claim special depreciation allowance, How Can You Elect Not To Claim an Allowance? Section 179 deduction, How Do You Elect the Deduction? Straight line method, Straight line election. H&r block online filing Electric vehicle, Electric Vehicles Employee Depreciation deduction, Can Employees Claim a Deduction? How to claim depreciation, Employee. H&r block online filing Employee deduction, listed property, Can Employees Claim a Deduction? Energy property, Energy property. H&r block online filing Exchange of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion F Farm Property, Depreciation Methods for Farm Property Figuring MACRS Using percentage tables, How Is the Depreciation Deduction Figured? Without using percentage tables, Figuring the Deduction Without Using the Tables Films, Films, video tapes, and recordings. H&r block online filing Free tax services, Free help with your tax return. H&r block online filing G General asset account Abusive transaction, Abusive transactions. H&r block online filing Disposing of property, Disposing of GAA Property Grouping property in, Grouping Property Nonrecognition transaction, Nonrecognition transactions. H&r block online filing General Depreciation System (GDS), recovery periods, Recovery Periods Under GDS Gift (see Basis, other than cost) H Help (see Tax help) I Idle property, Idle Property Improvements, How Do You Treat Repairs and Improvements?, Additions and Improvements Income forecast method, Income Forecast Method Incorrect depreciation deductions, How Do You Correct Depreciation Deductions? Indian reservation Defined, Indian reservation. H&r block online filing Qualified infrastructure property, Qualified infrastructure property. H&r block online filing Qualified property, Qualified property. H&r block online filing Recovery periods for qualified property, Indian Reservation Property Related person, Related person. H&r block online filing Inheritance (see Basis, other than cost) Intangible property Depreciation method, Intangible Property, Income Forecast Method Income forecast method, Income Forecast Method Straight line method, Intangible Property Inventory, Inventory. H&r block online filing Investment use of property, partial, Partial business or investment use. H&r block online filing Involuntary conversion of MACRS property, Property Acquired in a Like-kind Exchange or Involuntary Conversion L Land Not depreciable, Land Preparation costs, Land Leased property, Leased property. H&r block online filing Leasehold improvement property, defined, Qualified leasehold improvement property. H&r block online filing , Qualified leasehold improvement property. H&r block online filing Life tenant, Life tenant. H&r block online filing (see also Term interests) Limit on deduction Automobile, Do the Passenger Automobile Limits Apply? Section 179, How Much Can You Deduct? Listed property 5% owner, 5% owner. H&r block online filing Computer, Computers and Related Peripheral Equipment Condition of employment, Condition of employment. H&r block online filing Defined, What Is Listed Property? Employee deduction, Can Employees Claim a Deduction? Employer convenience, Employer's convenience. H&r block online filing Improvements to, Improvements to listed property. H&r block online filing Leased, Lessee's Inclusion Amount Passenger automobile, Passenger Automobiles Qualified business use, Qualified Business Use Recordkeeping, Adequate Records Related person, Related persons. H&r block online filing Reporting on Form 4562, How Is Listed Property Information Reported? Lodging, Property used for lodging. H&r block online filing M Maximum deduction Electric vehicles, Electric Vehicles Passenger automobiles, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Mobile home (see Residential rental property) Modified ACRS (MACRS) Addition or improvement, Additions and Improvements Alternative Depreciation System (ADS), Which Depreciation System (GDS or ADS) Applies? Conventions, Which Convention Applies? Declining balance method, Declining Balance Method Depreciation methods, Which Depreciation Method Applies? Farm property, Depreciation Methods for Farm Property Figuring, short tax year, Property Placed in Service in a Short Tax Year General Depreciation System (GDS), Which Depreciation System (GDS or ADS) Applies? Percentage tables, Using the MACRS Percentage Tables Property classes, Which Property Class Applies Under GDS? Recovery periods, Which Recovery Period Applies? Short tax year, Figuring the Deduction for a Short Tax Year Straight line method, Straight Line Method N Nonresidential real property, Which Property Class Applies Under GDS? Nontaxable transfer of MACRS property, Property Acquired in a Nontaxable Transfer O Office in the home, Office in the home. H&r block online filing , Office in the home. H&r block online filing Ownership, incidents of, Incidents of ownership. H&r block online filing P Partial business use, Partial business use. H&r block online filing Passenger automobile Defined, Passenger Automobiles Electric vehicles, Electric Vehicles Limit on, Do the Passenger Automobile Limits Apply? Maximum depreciation deduction, Maximum Depreciation Deduction Trucks, Trucks and Vans Vans, Trucks and Vans Patent, Patents and copyrights. H&r block online filing (see also Section 197 intangibles) Personal property, Personal property. H&r block online filing Phonographic equipment (see Listed property) Photographic equipment (see Listed property) Placed in service Before 1987, Property You Placed in Service Before 1987 Date, What Is the Placed in Service Date? Rule, Placed in Service Property Classes, Which Property Class Applies Under GDS? Depreciable, What Property Can Be Depreciated? Idle, Idle Property Improvements, How Do You Treat Repairs and Improvements? Leased, Leased property. H&r block online filing , Leased property. H&r block online filing Listed, What Is Listed Property? Personal, Personal property. H&r block online filing Real, Real property. H&r block online filing Retired from service, Retired From Service Tangible personal, Tangible personal property. H&r block online filing Term interest, Certain term interests in property. H&r block online filing Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. H&r block online filing , Qualified leasehold improvement property. H&r block online filing Qualified property, special depreciation allowance, What Is Qualified Property? R Real property, Real property. H&r block online filing Recapture Clean-fuel vehicle deduction or credit, Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. H&r block online filing General asset account, abusive transaction, Abusive transactions. H&r block online filing Listed property, Recapture of Excess Depreciation MACRS depreciation, Revoking an election. H&r block online filing Section 179 deduction, When Must You Recapture the Deduction? Special depreciation allowance, When Must You Recapture an Allowance? Recordkeeping Listed property, Adequate Records Section 179, How Do You Elect the Deduction? Recovery periods ADS, Recovery Periods Under ADS GDS, Recovery Periods Under GDS Related persons, Related persons. H&r block online filing , Related persons. H&r block online filing , Related persons. H&r block online filing , Related persons. H&r block online filing , Related person. H&r block online filing , Related persons. H&r block online filing Rent-to-own property, defined, Qualified rent-to-own property. H&r block online filing Rental home (see Residential rental property) Rented property, improvements, Improvements to rented property. H&r block online filing Repairs, How Do You Treat Repairs and Improvements? Residential rental property, Which Property Class Applies Under GDS? Retail motor fuels outlet, Retail motor fuels outlet. H&r block online filing Revoking ADS election, Electing ADS. H&r block online filing General asset account election, Revoking an election. H&r block online filing Section 179 election, Revoking an election. H&r block online filing S Sale of property, Sale or Other Disposition Before the Recovery Period Ends Section 179 deduction Business use required, Partial business use. H&r block online filing Carryover, Carryover of disallowed deduction. H&r block online filing Dispositions, When Must You Recapture the Deduction? Electing, How Do You Elect the Deduction? Limits Business (taxable) income, Business Income Limit Business-use, recapture, When Must You Recapture the Deduction? Dollar, Dollar Limits Enterprise zone business, Enterprise Zone Businesses Partial business use, Partial business use. H&r block online filing Married filing separate returns, Married Individuals Partnership rules, Partnerships and Partners Property Eligible, Eligible Property Excepted, Excepted Property Purchase required, Property Acquired by Purchase Recapture, When Must You Recapture the Deduction? Recordkeeping, How Do You Elect the Deduction? S corporation rules, S Corporations Settlement fees, Settlement costs. H&r block online filing Short tax year Figuring depreciation, Property Placed in Service in a Short Tax Year Figuring placed-in-service date, Using the Applicable Convention in a Short Tax Year Software, computer, Computer software. H&r block online filing , Off-the-shelf computer software. H&r block online filing Sound recording, Films, video tapes, and recordings. H&r block online filing Special depreciation allowance Election not to claim, How Can You Elect Not To Claim an Allowance? Qualified property, What Is Qualified Property? Recapture, When Must You Recapture an Allowance? Stock, constructive ownership of, Constructive ownership of stock or partnership interest. H&r block online filing Straight line method, Intangible Property, Straight Line Method Created intangibles, Certain created intangibles. H&r block online filing T Tangible personal property, Tangible personal property. H&r block online filing Term interest, Certain term interests in property. H&r block online filing Trade-in of property, Trade-in of other property. H&r block online filing Trucks, Trucks and Vans U Unadjusted basis, Figuring the Unadjusted Basis of Your Property Useful life, Property Having a Determinable Useful Life V Vans, Trucks and Vans Video tape, Films, video tapes, and recordings. H&r block online filing Video-recording equipment (see Listed property) W When to use ADS, Which Depreciation System (GDS or ADS) Applies? Worksheet Leased listed property, Inclusion amount worksheet. H&r block online filing MACRS, MACRS Worksheet Prev  Up     Home   More Online Publications
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Questions and Answers on the Individual Shared Responsibility Provision


Basic Information

1. What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

2. Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

3. When does the individual shared responsibility provision go into effect?

The provision goes into effect on Jan. 1, 2014. It applies to each month in the calendar year. 

4.  Is transition relief available in certain circumstances?

Yes. Notice 2013-42, published on June 26, 2013, provides transition relief from the shared responsibility payment for individuals who are eligible to enroll in eligible employer-sponsored health plans with a plan year other than a calendar year (non-calendar year plans) if the plan year begins in 2013 and ends in 2014 (2013-2014 plan year). The transition relief applies to an employee, or an individual having a relationship to the employee. The transition relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.

In addition, Notice 2014-10, published on Jan. 23, 2014, provides transition relief for individuals covered under certain limited-benefit government-sponsored programs. Coverage under these programs is not minimum essential coverage unless it is designated as such by the Department of Health and Human Services. Under Notice 2014-10, individuals who have coverage under these government-sponsored programs will not be held liable for the shared responsibility payment for months in 2014 when they have that coverage. The specific government-sponsored programs are optional family planning coverage of family services under title XIX of the Social Security Act, optional coverage of tuberculosis-related services under title XIX of the Social Security Act, coverage of pregnancy-related services under title XIX of the Social Security Act, coverage limited to treatment of emergency medical conditions (in accordance with section 1611(b)(12)(A) of title 8 of the United States Code) under title XIX of the Social Security Act, coverage for medically needy individuals under title XIX of the Social Security Act, coverage authorized under section 1115(a)(2) of the Social Security Act, limited-benefit TRICARE coverage of space available care provided under chapter 55 of title 10 of the United States Code and limited-benefit TRICARE coverage of line of duty care under chapter 55 of title 10 of the United States Code.  

5. What counts as minimum essential coverage?

Minimum essential coverage includes the following:

  • Employer-sponsored coverage, including self-insured plans, COBRA coverage and retiree coverage
  • Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace 
  • Medicare Part A coverage and Medicare Advantage plans
  • Most Medicaid coverage
  • Children's Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans Administration
  • Most types of TRICARE coverage under chapter 55 of title 10 of the United States Code
  • Coverage provided to Peace Corps volunteers
  • Coverage under the Nonappropriated Fund Health Benefit Program
  • Refugee Medical Assistance supported by the Administration for Children and Families
  • Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
  • State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)
  • Other coverage recognized by the Secretary of HHS as minimum essential coverage

Minimum essential coverage does not include coverage providing only limited benefits, such as the following:

  • Coverage consisting solely of excepted benefits, such as:
    • Stand-alone vision care or dental care
    • Workers' compensation
    • Accident or disability policies
  • Medicaid providing only family planning services
  • Medicaid providing only tuberculosis-related services
  • Medicaid providing only coverage limited to treatment of emergency medical conditions
  •  Pregnancy-related Medicaid coverage*
  • Medicaid coverage for the medically needy*
  • Section 1115 Medicaid demonstration projects*
  • Space available TRICARE coverage provided under chapter 55 of title 10 of the United States Code for individuals who are not eligible for TRICARE coverage for health care services from private sector providers*
  • Line of duty TRICARE coverage provided under chapter 55 of title 10 of the United States Code*

* These categories of coverage are generally not minimum essential coverage. However, to the extent that certain programs within these categories provide comprehensive coverage, the Secretary of HHS may recognize these programs as minimum essential coverage in the future. The IRS in Notice 2014-10 announced relief from the shared responsibility payment for months in 2014 in which individuals are covered under any of these programs to the extent that they are not minimum essential coverage. Information will be made available later about how the income tax return will take account of coverage under one of these programs. 

6. What are the statutory exemptions from the requirement to obtain minimum essential coverage?

  1. Religious conscience. You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Health care sharing ministry. You are a member of a recognized health care sharing ministry.
  3. Indian tribes. You are (1) a member of a federally recognized Indian tribe or (2) an individual eligible for services through an Indian care provider.
  4. Income below the income tax return filing requirement. Your income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age and types and amounts of income. To find out if you are required to file a federal tax return, use the IRS Interactive Tax Assistant (ITA).
  5. Short coverage gap. You went without coverage for less than three consecutive months during the year. For more information, see question 22.
  6. Hardship. You have suffered a hardship that makes you unable to obtain coverage, as defined in final regulations issued by the Department of Health and Human Services. See question 21 for more information on claiming hardship exemptions..
  7. Affordability. You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
  8. Incarceration. You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
  9. Not lawfully present. You are not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S.

7. What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?

The vast majority of coverage that people have today counts as minimum essential coverage. For those who do not have coverage, who anticipate discontinuing the coverage they have currently, or who want to explore whether more affordable options are available, the Health Insurance Marketplace is open in every state and the District of Columbia. The Marketplace helps individuals compare available coverage options, assess their eligibility for financial assistance and find minimum essential coverage that fits their budget.

For those seeking an exemption from the individual responsibility provision, the Marketplace is able to provide certificates of exemption for many of the exemption categories. HHS has issued final regulations on how the Health Insurance Marketplace grants these exemptions. Individuals will also be able to claim certain exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return because their gross income falls below the return filing threshold do not need to take any further action to secure an exemption. See question 21 for further information on how to claim an exemption.

For more information about the Marketplace, visit the Health Insurance Marketplace website. For more information about financial assistance, see our Questions and Answers on the premium tax credit.

8. Is more detailed information available about the individual shared responsibility provision?

Yes. The Treasury Department and the IRS have issued final regulations on the new individual shared responsibility provision, and the IRS has created an individual shared responsibility page. In addition, the Treasury Department and the IRS have issued proposed regulations, which provide guidance on additional issues that were identified in the preamble to the final regulations. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the Department of Health and Human Services and in a Shared Responsibility Provision Question and Answer issued by the Centers for Medicare & Medicaid Services

Who is Affected?

9. Are children subject to the individual shared responsibility provision?

Yes. Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will generally owe a shared responsibility payment for the child..

10. Are senior citizens subject to the individual shared responsibility provision?

Yes. Senior citizens must have minimum essential coverage or qualify for an exemption for each month in a calendar year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) qualify as minimum essential coverage.  

11. Are all individuals living in the United States subject to the individual shared responsibility provision?

All U.S. citizens living in the United States are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return. The IRS has more information available on when a foreign national becomes a resident alien for federal income tax purposes.

12. Are US citizens living abroad subject to the individual shared responsibility provision?

Yes. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these are individuals who qualify for a foreign earned income exclusion under section 911 of the Internal Revenue Code. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income because, for example, they are employees of the United States. Individuals that qualify for this rule need take no further action to comply with the individual shared responsibility provision during the months when they qualify. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for further information on the foreign earned income exclusion.  

U.S. citizens who meet neither the physical presence nor residency requirements will need to maintain minimum essential coverage, qualify for an exemption or make a shared responsibility payment for each month of the year. For this purpose, minimum essential coverage includes a group health plan provided by an overseas employer. One exemption that may be particularly relevant to U.S. citizens living abroad for a small part of a year is the exemption for a short coverage gap. This exemption provides that no shared responsibility payment will be due for a once-per-year gap in coverage that lasts less than three months.  

13. Are residents of the territories subject to the individual shared responsibility provision?

All bona fide residents of the United States territories are treated by law as having minimum essential coverage. They are not required to take any action to comply with the individual shared responsibility provision.

Minimum Essential Coverage

14. If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?

Yes. Employer-sponsored coverage is generally minimum essential coverage. (See question 5 for information on specialized types of coverage that are not minimum essential coverage.) If an employee enrolls in employer-sponsored coverage that provides minimum value for himself and his family, the employee and all of the covered family members have minimum essential coverage.

15. Do my spouse and dependent children have to be covered under the same policy or plan that covers me?

No. You, your spouse and your dependent children do not have to be covered under the same policy or plan. However, you, your spouse and each dependent child for whom you may claim a personal exemption on your federal income tax return must have minimum essential coverage or qualify for an exemption, or you will owe a shared responsibility payment when you file a return.

16. My employer tells me that our company’s health plan is “grandfathered.” Does my employer’s plan provide minimum essential coverage?

Yes. Grandfathered group health plans provide minimum essential coverage.

17. I am a retiree, and I am too young to be eligible for Medicare. I receive my health coverage through a retiree plan made available by my former employer. Is the retiree plan minimum essential coverage?

Yes. Retiree health plans are generally minimum essential coverage.

18. I work for a local government that provides me with health coverage. Is my coverage minimum essential coverage?

Yes. Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit or for-profit entity.

19. Do I have to be covered for an entire calendar month to avoid the shared responsibility payment liability for not having minimum essential coverage for that month?

No. You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.

20. If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?

Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment. See question 22 for more information on the exemption for a short coverage gap.

Exemptions

21. If I think I qualify for an exemption, how do I obtain it?

It depends upon the exemption for which you qualify.

  • The religious conscience exemption and most hardship exemptions are available only by going to the Health Insurance Marketplace and applying for an exemption certificate. Information on obtaining these exemptions is available in final rules issued by the Department of Health and Human Services.
  • The exemptions for members of federally recognized Indian tribes, members of health care sharing ministries and individuals who are incarcerated are available either by going to a Marketplace or Exchange and applying for an exemption certificate or by claiming the exemption as part of filing a federal income tax return.
  • The exemptions for lack of affordable coverage, a short coverage gap, certain hardships, household income below the filing threshold and individuals who are not lawfully present in the United States may be claimed only as part of filing a federal income tax return.

22. What qualifies as a short coverage gap?

In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first gap.

23. If my income is so low that I am not required to file a federal income tax return, do I need to do anything special to claim an exemption from the individual shared responsibility provision?

No. If you are not required to file a federal income tax return for a year because your gross income is below your return filing threshold, you are automatically exempt from the shared responsibility provision for that year and do not need to take any further action to secure an exemption. If you are not required to file a tax return for a year but file one anyway, you will be able to claim the exemption on your tax return.

24. If I am exempt from the shared responsibility payment, can I still be eligible for the premium tax credit?

In many cases, yes, but it depends upon the exemption. If you are exempt because you are incarcerated or because you are not lawfully present in the United States, you are not eligible to enroll in a qualified health plan through the Marketplace and therefore cannot claim a premium tax credit. However, individuals with other types of exemptions may obtain coverage through the Marketplace and claim a premium tax credit if they otherwise qualify for the credit.

Reporting Coverage or Exemptions or Making Payments

25. Will I have to do something on my federal income tax return to show that I had coverage or an exemption?

The individual shared responsibility provision goes into effect in 2014. You will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. Information will be made available later about how the income tax return will take account of coverage and exemptions. Insurers will be required to provide everyone that they cover each year with information that will help them demonstrate they had coverage beginning with the 2015 tax year.

26. What happens if I do not have minimum essential coverage or an exemption, and I cannot afford to make the shared responsibility payment when filing my tax return?

The IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The law prohibits the IRS from using liens or levies to collect any individual shared responsibility payment. However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund that may be due to you.

Page Last Reviewed or Updated: 25-Mar-2014

The H&r Block Online Filing

H&r block online filing 2. H&r block online filing   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. H&r block online filing Surviving spouse. H&r block online filing Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. H&r block online filing Payments from a state fund for victims of crime. H&r block online filing Home Affordable Modification Program (HAMP). H&r block online filing Mortgage assistance payments. H&r block online filing Payments to reduce cost of winter energy use. H&r block online filing Nutrition Program for the Elderly. H&r block online filing Reemployment Trade Adjustment Assistance (RTAA). H&r block online filing Generally, income is taxable unless it is specifically exempt (not taxed) by law. H&r block online filing Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. H&r block online filing Under special provisions of the law, certain items are partially or fully exempt from tax. H&r block online filing Provisions that are of special interest to older taxpayers are discussed in this chapter. H&r block online filing Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. H&r block online filing In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. H&r block online filing You need not receive the compensation in cash for it to be taxable. H&r block online filing Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. H&r block online filing Volunteer work. H&r block online filing   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. H&r block online filing Retired Senior Volunteer Program (RSVP). H&r block online filing Foster Grandparent Program. H&r block online filing Senior Companion Program. H&r block online filing Service Corps of Retired Executives (SCORE). H&r block online filing Unemployment compensation. H&r block online filing   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. H&r block online filing More information. H&r block online filing   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. H&r block online filing Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. H&r block online filing A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. H&r block online filing A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. H&r block online filing A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. H&r block online filing More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. H&r block online filing Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. H&r block online filing Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. H&r block online filing These are discussed in Publication 590. H&r block online filing If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. H&r block online filing If you do not file Form 8606 with your return, you may have to pay a $50 penalty. H&r block online filing Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. H&r block online filing Early distributions. H&r block online filing   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. H&r block online filing You must include early distributions of taxable amounts in your gross income. H&r block online filing These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. H&r block online filing For purposes of the additional 10% tax, an IRA is a qualified retirement plan. H&r block online filing For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. H&r block online filing After age 59½ and before age 70½. H&r block online filing   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. H&r block online filing Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. H&r block online filing Required distributions. H&r block online filing   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. H&r block online filing See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. H&r block online filing If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. H&r block online filing For purposes of the 50% excise tax, an IRA is a qualified retirement plan. H&r block online filing For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. H&r block online filing See also Excess Accumulations (Insufficient Distributions) in Publication 590. H&r block online filing Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. H&r block online filing However, see Insurance Premiums for Retired Public Safety Officers , later. H&r block online filing If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). H&r block online filing This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. H&r block online filing The rest of each payment is taxable. H&r block online filing However, see Insurance Premiums for Retired Public Safety Officers , later. H&r block online filing You figure the tax-free part of the payment using one of the following methods. H&r block online filing Simplified Method. H&r block online filing You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). H&r block online filing You cannot use this method if your annuity is paid under a nonqualified plan. H&r block online filing General Rule. H&r block online filing You must use this method if your annuity is paid under a nonqualified plan. H&r block online filing You generally cannot use this method if your annuity is paid under a qualified plan. H&r block online filing Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. H&r block online filing You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. H&r block online filing Exclusion limit. H&r block online filing   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. H&r block online filing Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. H&r block online filing This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. H&r block online filing   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. H&r block online filing If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. H&r block online filing The total exclusion may be more than your cost. H&r block online filing Cost. H&r block online filing   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). H&r block online filing Your total cost in the plan includes everything that you paid. H&r block online filing It also includes amounts your employer contributed that were taxable to you when paid. H&r block online filing However, see Foreign employment contributions , later. H&r block online filing   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. H&r block online filing   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. H&r block online filing    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. H&r block online filing , that you receive. H&r block online filing Foreign employment contributions. H&r block online filing   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. H&r block online filing For details, see Foreign employment contributions in Publication 575. H&r block online filing Withholding. H&r block online filing   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. H&r block online filing However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. H&r block online filing (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. H&r block online filing ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. H&r block online filing   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. H&r block online filing Simplified Method. H&r block online filing   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. H&r block online filing For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. H&r block online filing For any other annuity, this number is the number of monthly annuity payments under the contract. H&r block online filing Who must use the Simplified Method. H&r block online filing   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). H&r block online filing   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. H&r block online filing If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. H&r block online filing Guaranteed payments. H&r block online filing   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. H&r block online filing If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. H&r block online filing Who cannot use the Simplified Method. H&r block online filing   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). H&r block online filing   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. H&r block online filing If you did not have to use the General Rule, you could have chosen to use it. H&r block online filing You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. H&r block online filing   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. H&r block online filing   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. H&r block online filing Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. H&r block online filing   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. H&r block online filing How to use the Simplified Method. H&r block online filing   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. H&r block online filing Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. H&r block online filing   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. H&r block online filing How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. H&r block online filing For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. H&r block online filing    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. H&r block online filing Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. H&r block online filing Single-life annuity. H&r block online filing   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. H&r block online filing Enter on line 3 the number shown for your age on your annuity starting date. H&r block online filing This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. H&r block online filing Multiple-lives annuity. H&r block online filing   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. H&r block online filing Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. H&r block online filing For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. H&r block online filing For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. H&r block online filing Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. H&r block online filing   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. H&r block online filing Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. H&r block online filing This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. H&r block online filing Fixed-period annuities. H&r block online filing   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. H&r block online filing Line 6. H&r block online filing   The amount on line 6 should include all amounts that could have been recovered in prior years. H&r block online filing If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. H&r block online filing    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. H&r block online filing Example. H&r block online filing Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. H&r block online filing Bill's annuity starting date is January 1, 2013. H&r block online filing The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. H&r block online filing Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. H&r block online filing Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. H&r block online filing Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. H&r block online filing See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. H&r block online filing You can find a blank version of this worksheet in Publication 575. H&r block online filing (The references in the illustrated worksheet are to sections in Publication 575). H&r block online filing His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. H&r block online filing Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). H&r block online filing Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. H&r block online filing The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. H&r block online filing If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. H&r block online filing This deduction is not subject to the 2%-of-adjusted-gross-income limit. H&r block online filing Worksheet 2-A. H&r block online filing Simplified Method Worksheet—Illustrated 1. H&r block online filing Enter the total pension or annuity payments received this year. H&r block online filing Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. H&r block online filing $ 14,400 2. H&r block online filing Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. H&r block online filing 31,000   Note. H&r block online filing If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). H&r block online filing Otherwise, go to line 3. H&r block online filing     3. H&r block online filing Enter the appropriate number from Table 1 below. H&r block online filing But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. H&r block online filing 310 4. H&r block online filing Divide line 2 by the number on line 3 4. H&r block online filing 100 5. H&r block online filing Multiply line 4 by the number of months for which this year's payments were made. H&r block online filing If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. H&r block online filing Otherwise, go to line 6 5. H&r block online filing 1,200 6. H&r block online filing Enter any amount previously recovered tax free in years after 1986. H&r block online filing This is the amount shown on line 10 of your worksheet for last year 6. H&r block online filing 0 7. H&r block online filing Subtract line 6 from line 2 7. H&r block online filing 31,000 8. H&r block online filing Enter the smaller of line 5 or line 7 8. H&r block online filing 1,200 9. H&r block online filing Taxable amount for year. H&r block online filing Subtract line 8 from line 1. H&r block online filing Enter the result, but not less than zero. H&r block online filing Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. H&r block online filing Note. H&r block online filing If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. H&r block online filing If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. H&r block online filing 9. H&r block online filing $ 13,200 10. H&r block online filing Was your annuity starting date before 1987? □ Yes. H&r block online filing STOP. H&r block online filing Do not complete the rest of this worksheet. H&r block online filing  ☑ No. H&r block online filing Add lines 6 and 8. H&r block online filing This is the amount you have recovered tax free through 2013. H&r block online filing You will need this number if you need to fill out this worksheet next year. H&r block online filing 10. H&r block online filing 1,200 11. H&r block online filing Balance of cost to be recovered. H&r block online filing Subtract line 10 from line 2. H&r block online filing If zero, you will not have to complete this worksheet next year. H&r block online filing The payments you receive next year will generally be fully taxable 11. H&r block online filing $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. H&r block online filing   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . H&r block online filing . H&r block online filing . H&r block online filing   BEFORE November 19, 1996, enter on line 3 . H&r block online filing . H&r block online filing . H&r block online filing AFTER November 18, 1996, enter on line 3 . H&r block online filing . H&r block online filing . H&r block online filing   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . H&r block online filing . H&r block online filing . H&r block online filing   THEN enter on line 3 . H&r block online filing . H&r block online filing . H&r block online filing         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. H&r block online filing   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. H&r block online filing   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. H&r block online filing The retiree's cost has already been recovered tax free. H&r block online filing   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. H&r block online filing The resulting tax-free amount will then remain fixed. H&r block online filing Any increases in the survivor annuity are fully taxable. H&r block online filing   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. H&r block online filing See Simplified Method , earlier. H&r block online filing How to report. H&r block online filing   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. H&r block online filing If your pension or annuity is fully taxable, enter it on line 16b. H&r block online filing Do not make an entry on line 16a. H&r block online filing   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. H&r block online filing If your pension or annuity is fully taxable, enter it on line 12b. H&r block online filing Do not make an entry on line 12a. H&r block online filing   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. H&r block online filing If your pension or annuity is fully taxable, enter it on line 17b. H&r block online filing Do not make an entry on line 17a. H&r block online filing Example. H&r block online filing You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. H&r block online filing You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). H&r block online filing The entire $1,200 is taxable. H&r block online filing You include $1,200 only on Form 1040, line 16b. H&r block online filing Joint return. H&r block online filing   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. H&r block online filing Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. H&r block online filing Form 1099-R. H&r block online filing   You should receive a Form 1099-R for your pension or annuity. H&r block online filing Form 1099-R shows your pension or annuity for the year and any income tax withheld. H&r block online filing You should receive a Form W-2 if you receive distributions from certain nonqualified plans. H&r block online filing You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. H&r block online filing Generally, you should be sent these forms by January 31, 2014. H&r block online filing Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. H&r block online filing Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. H&r block online filing For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. H&r block online filing The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. H&r block online filing See Tax on Early Distributions, later. H&r block online filing Lump-sum distributions. H&r block online filing   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. H&r block online filing The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. H&r block online filing The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. H&r block online filing You may be able to use the 10-year tax option to figure tax on the ordinary income part. H&r block online filing Form 1099-R. H&r block online filing   If you receive a total distribution from a plan, you should receive a Form 1099-R. H&r block online filing If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. H&r block online filing The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. H&r block online filing More information. H&r block online filing   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. H&r block online filing Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. H&r block online filing The tax applies to the taxable part of the distribution. H&r block online filing For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). H&r block online filing  An IRA is also a qualified retirement plan for purposes of this tax. H&r block online filing General exceptions to tax. H&r block online filing   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. H&r block online filing Additional exceptions. H&r block online filing   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. H&r block online filing See Publication 575 for details. H&r block online filing Reporting tax. H&r block online filing   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. H&r block online filing 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. H&r block online filing See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. H&r block online filing Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. H&r block online filing Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. H&r block online filing However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. H&r block online filing For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). H&r block online filing  An IRA is also a qualified retirement plan for purposes of this tax. H&r block online filing An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. H&r block online filing 5% owners. H&r block online filing   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. H&r block online filing See Publication 575 for more information. H&r block online filing Amount of tax. H&r block online filing   If you do not receive the required minimum distribution, you are subject to an additional tax. H&r block online filing The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. H&r block online filing You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. H&r block online filing Form 5329. H&r block online filing   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. H&r block online filing Additional information. H&r block online filing   For more detailed information on the tax on excess accumulation, see Publication 575. H&r block online filing Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. H&r block online filing The premiums can be for coverage for you, your spouse, or dependent(s). H&r block online filing The distribution must be made directly from the plan to the insurance provider. H&r block online filing You can exclude from income the smaller of the amount of the insurance premiums or $3,000. H&r block online filing You can only make this election for amounts that would otherwise be included in your income. H&r block online filing The amount excluded from your income cannot be used to claim a medical expense deduction. H&r block online filing An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. H&r block online filing If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. H&r block online filing The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. H&r block online filing Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. H&r block online filing Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. H&r block online filing Enter “PSO” next to the appropriate line on which you report the taxable amount. H&r block online filing Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. H&r block online filing These categories are treated differently for income tax purposes. H&r block online filing Social security equivalent benefits. H&r block online filing   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. H&r block online filing This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. H&r block online filing (See Social Security and Equivalent Railroad Retirement Benefits , later. H&r block online filing ) Non-social security equivalent benefits. H&r block online filing   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). H&r block online filing It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. H&r block online filing This category of benefits is treated as an amount received from a qualified employee plan. H&r block online filing This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. H&r block online filing Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. H&r block online filing More information. H&r block online filing   For more information about railroad retirement benefits, see Publication 575. H&r block online filing Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. H&r block online filing But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. H&r block online filing For more information, including information about veterans' benefits and insurance, see Publication 525. H&r block online filing Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. H&r block online filing Social security benefits include monthly retirement, survivor, and disability benefits. H&r block online filing They do not include supplemental security income (SSI) payments, which are not taxable. H&r block online filing Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. H&r block online filing They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. H&r block online filing If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. H&r block online filing Are Any of Your Benefits Taxable? Note. H&r block online filing When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. H&r block online filing  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. H&r block online filing When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. H&r block online filing S. H&r block online filing savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. H&r block online filing Figuring total income. H&r block online filing   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. H&r block online filing If that total amount is more than your base amount, part of your benefits may be taxable. H&r block online filing If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. H&r block online filing Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. H&r block online filing If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. H&r block online filing If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. H&r block online filing Worksheet 2-B. H&r block online filing A Quick Way To Check if Your Benefits May Be Taxable A. H&r block online filing Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. H&r block online filing Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. H&r block online filing (If you received more than one form, combine the amounts from box 5  and enter the total. H&r block online filing ) A. H&r block online filing     Note. H&r block online filing If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. H&r block online filing     B. H&r block online filing Enter one-half of the amount on line A B. H&r block online filing   C. H&r block online filing Enter your taxable pensions, wages, interest, dividends, and other taxable income C. H&r block online filing   D. H&r block online filing Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. H&r block online filing S. H&r block online filing savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. H&r block online filing   E. H&r block online filing Add lines B, C, and D and enter the total E. H&r block online filing   F. H&r block online filing If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. H&r block online filing   G. H&r block online filing Is the amount on line F less than or equal to the amount on line E? □ No. H&r block online filing None of your benefits are taxable this year. H&r block online filing  □ Yes. H&r block online filing Some of your benefits may be taxable. H&r block online filing To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. H&r block online filing     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. H&r block online filing Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. H&r block online filing It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. H&r block online filing If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. H&r block online filing Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. H&r block online filing Your repayments are shown in box 4. H&r block online filing The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). H&r block online filing Use the amount in box 5 to figure whether any of your benefits are taxable. H&r block online filing Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. H&r block online filing If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. H&r block online filing If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. H&r block online filing For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. H&r block online filing How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. H&r block online filing Generally, the higher that total amount, the greater the taxable part of your benefits. H&r block online filing Maximum taxable part. H&r block online filing   The taxable part of your benefits usually cannot be more than 50%. H&r block online filing However, up to 85% of your benefits can be taxable if either of the following situations applies to you. H&r block online filing The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). H&r block online filing You are married filing separately and lived with your spouse at any time during 2013. H&r block online filing   If you are a nonresident alien, 85% of your benefits are taxable. H&r block online filing However, this income is exempt under some tax treaties. H&r block online filing Which worksheet to use. H&r block online filing   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. H&r block online filing However, you will need to use a different worksheet(s) if any of the following situations applies to you. H&r block online filing You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. H&r block online filing In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. H&r block online filing Situation (1) does not apply and you take one or more of the following exclusions. H&r block online filing Interest from qualified U. H&r block online filing S. H&r block online filing savings bonds (Form 8815). H&r block online filing Employer-provided adoption benefits (Form 8839). H&r block online filing Foreign earned income or housing (Form 2555 or Form 2555-EZ). H&r block online filing Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. H&r block online filing In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. H&r block online filing You received a lump-sum payment for an earlier year. H&r block online filing In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. H&r block online filing See Lump-Sum Election , later. H&r block online filing How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. H&r block online filing You cannot use Form 1040EZ. H&r block online filing Reporting on Form 1040. H&r block online filing   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. H&r block online filing If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. H&r block online filing Reporting on Form 1040A. H&r block online filing   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. H&r block online filing If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. H&r block online filing Reporting on Form 1040NR. H&r block online filing   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. H&r block online filing Benefits not taxable. H&r block online filing   If you are filing Form 1040EZ, do not report any benefits on your tax return. H&r block online filing If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. H&r block online filing Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. H&r block online filing If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. H&r block online filing Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. H&r block online filing This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. H&r block online filing No part of the lump-sum death benefit is subject to tax. H&r block online filing For more information about the lump-sum death benefit, visit the Social Security Administration website at www. H&r block online filing SSA. H&r block online filing gov, and use keyword: death benefit. H&r block online filing Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. H&r block online filing However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. H&r block online filing You can elect this method if it lowers your taxable benefits. H&r block online filing See Publication 915 for more information. H&r block online filing Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. H&r block online filing If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. H&r block online filing If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. H&r block online filing If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. H&r block online filing S. H&r block online filing Railroad Retirement Board field office. H&r block online filing Joint return. H&r block online filing   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. H&r block online filing You do this to get your net benefits when figuring if your combined benefits are taxable. H&r block online filing Repayment of benefits received in an earlier year. H&r block online filing   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. H&r block online filing   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. H&r block online filing Claim it on Schedule A (Form 1040), line 23. H&r block online filing   If this deduction is more than $3,000, you have to follow some special instructions. H&r block online filing See Publication 915 for those instructions. H&r block online filing Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. H&r block online filing If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. H&r block online filing However, certain payments may not be taxable to you. H&r block online filing Some of these payments are discussed later in this section. H&r block online filing Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. H&r block online filing Cost paid by you. H&r block online filing   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. H&r block online filing If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. H&r block online filing Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. H&r block online filing You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. H&r block online filing Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. H&r block online filing If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. H&r block online filing See Credit for the Elderly or the Disabled, later. H&r block online filing For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. H&r block online filing Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. H&r block online filing Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. H&r block online filing For more information on pensions and annuities, see Publication 575. H&r block online filing Retirement and profit-sharing plans. H&r block online filing   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. H&r block online filing The payments must be reported as a pension or annuity. H&r block online filing Accrued leave payment. H&r block online filing   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. H&r block online filing The payment is not a disability payment. H&r block online filing Include it in your income in the tax year you receive it. H&r block online filing Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. H&r block online filing Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. H&r block online filing However, the amount you can exclude may be limited. H&r block online filing Long-term care insurance contracts are discussed in more detail in Publication 525. H&r block online filing Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. H&r block online filing The exemption also applies to your survivors. H&r block online filing The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. H&r block online filing If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. H&r block online filing For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. H&r block online filing Return to work. H&r block online filing   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. H&r block online filing Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. H&r block online filing Federal Employees' Compensation Act (FECA). H&r block online filing   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. H&r block online filing However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. H&r block online filing Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. H&r block online filing Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. H&r block online filing    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. H&r block online filing For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. H&r block online filing Other compensation. H&r block online filing   Many other amounts you receive as compensation for sickness or injury are not taxable. H&r block online filing These include the following amounts. H&r block online filing Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. H&r block online filing Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. H&r block online filing Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). H&r block online filing This compensation must be based only on the injury and not on the period of your absence from work. H&r block online filing These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. H&r block online filing Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. H&r block online filing This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. H&r block online filing Proceeds not received in installments. H&r block online filing   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. H&r block online filing If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. H&r block online filing Proceeds received in installments. H&r block online filing   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. H&r block online filing   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. H&r block online filing Include anything over this excluded part in your income as interest. H&r block online filing Installments for life. H&r block online filing   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. H&r block online filing If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. H&r block online filing Surviving spouse. H&r block online filing   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. H&r block online filing If you remarry, you can continue to take the exclusion. H&r block online filing Surrender of policy for cash. H&r block online filing   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. H&r block online filing In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. H&r block online filing You should receive a Form 1099-R showing the total proceeds and the taxable part. H&r block online filing Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. H&r block online filing Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. H&r block online filing Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. H&r block online filing To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. H&r block online filing Include in your income the part of the lump-sum payment that is more than your cost. H&r block online filing Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. H&r block online filing The tax treatment of an annuity is explained in Publication 575. H&r block online filing For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. H&r block online filing This election must be made within 60 days after the lump-sum payment first becomes payable to you. H&r block online filing Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. H&r block online filing However, see Exception , later. H&r block online filing For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. H&r block online filing Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. H&r block online filing In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. H&r block online filing Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. H&r block online filing To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. H&r block online filing Terminally or chronically ill defined. H&r block online filing   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. H&r block online filing A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. H&r block online filing The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. H&r block online filing The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. H&r block online filing Exception. H&r block online filing   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. H&r block online filing Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. H&r block online filing Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. H&r block online filing You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. H&r block online filing Main home. H&r block online filing   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. H&r block online filing Repaying the first-time homebuyer credit because you sold your home. H&r block online filing   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. H&r block online filing For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. H&r block online filing   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. H&r block online filing If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. H&r block online filing If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. H&r block online filing   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. H&r block online filing Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. H&r block online filing You meet the ownership test. H&r block online filing You meet the use test. H&r block online filing During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. H&r block online filing You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . H&r block online filing Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. H&r block online filing This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). H&r block online filing Exception to ownership and use tests. H&r block online filing   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. H&r block online filing Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. H&r block online filing The maximum amount you can exclude will be reduced. H&r block online filing See Publication 523, Selling Your Home, for more information. H&r block online filing Exception to use test for individuals with a disability. H&r block online filing   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. H&r block online filing Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. H&r block online filing   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. H&r block online filing Exception to ownership test for property acquired in a like-kind exchange. H&r block online filing   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. H&r block online filing This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. H&r block online filing A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. H&r block online filing See Publication 523 for more information. H&r block online filing Period of nonqualified use. H&r block online filing   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. H&r block online filing Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. H&r block online filing See Publication 523 for more information. H&r block online filing Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. H&r block online filing However, see Special rules for joint returns , next. H&r block online filing Special rules for joint returns. H&r block online filing   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. H&r block online filing You are married and file a joint return for the year. H&r block online filing Either you or your spouse meets the ownership test. H&r block online filing Both you and your spouse meet the use test. H&r block online filing During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. H&r block online filing Sale of home by surviving spouse. H&r block online filing   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. H&r block online filing   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. H&r block online filing The sale or exchange took place no more than 2 years after the date of death of your spouse. H&r block online filing You have not remarried. H&r block online filing You and your spouse met the use test at the time of your spouse's death. H&r block online filing You or your spouse met the ownership test at the time of your spouse's death. H&r block online filing Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. H&r block online filing Home transferred from spouse. H&r block online filing   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. H&r block online filing Use of home after divorce. H&r block online filing   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. H&r block online filing Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. H&r block online filing However, you must meet the ownership and use tests. H&r block online filing See Publication 523 for more information. H&r block online filing Depreciation after May 6, 1997. H&r block online filing   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. H&r block online filing See Publication 523 for more information. H&r block online filing Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. H&r block online filing If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. H&r block online filing Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. H&r block online filing If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. H&r block online filing See Publication 523 for more information. H&r block online filing Reverse Mortgages A revers