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How To File 1040nr

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How To File 1040nr

How to file 1040nr Publication 575 - Main Content Table of Contents General InformationPension. How to file 1040nr Annuity. How to file 1040nr Qualified employee plan. How to file 1040nr Qualified employee annuity. How to file 1040nr Designated Roth account. How to file 1040nr Tax-sheltered annuity plan. How to file 1040nr Fixed-period annuities. How to file 1040nr Annuities for a single life. How to file 1040nr Joint and survivor annuities. How to file 1040nr Variable annuities. How to file 1040nr Disability pensions. How to file 1040nr Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. How to file 1040nr Taxation of Periodic PaymentsPeriod of participation. How to file 1040nr Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. How to file 1040nr No tax withheld. How to file 1040nr Partial rollovers. How to file 1040nr Frozen deposits. How to file 1040nr Reasonable period of time. How to file 1040nr 20% Mandatory withholding. How to file 1040nr How to report. How to file 1040nr How to report. How to file 1040nr Special rule for Roth IRAs and designated Roth accounts. How to file 1040nr Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. How to file 1040nr How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. How to file 1040nr   Some of the terms used in this publication are defined in the following paragraphs. How to file 1040nr Pension. How to file 1040nr   A pension is generally a series of definitely determinable payments made to you after you retire from work. How to file 1040nr Pension payments are made regularly and are based on such factors as years of service and prior compensation. How to file 1040nr Annuity. How to file 1040nr   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. How to file 1040nr They can be either fixed (under which you receive a definite amount) or variable (not fixed). How to file 1040nr You can buy the contract alone or with the help of your employer. How to file 1040nr Qualified employee plan. How to file 1040nr   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. How to file 1040nr It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). How to file 1040nr To determine whether your plan is a qualified plan, check with your employer or the plan administrator. How to file 1040nr Qualified employee annuity. How to file 1040nr   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. How to file 1040nr Designated Roth account. How to file 1040nr   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. How to file 1040nr Elective deferrals that are designated as Roth contributions are included in your income. How to file 1040nr However, qualified distributions (explained later) are not included in your income. How to file 1040nr You should check with your plan administrator to determine if your plan will accept designated Roth contributions. How to file 1040nr Tax-sheltered annuity plan. How to file 1040nr   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. How to file 1040nr Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. How to file 1040nr Types of pensions and annuities. How to file 1040nr   Pensions and annuities include the following types. How to file 1040nr Fixed-period annuities. How to file 1040nr   You receive definite amounts at regular intervals for a specified length of time. How to file 1040nr Annuities for a single life. How to file 1040nr   You receive definite amounts at regular intervals for life. How to file 1040nr The payments end at death. How to file 1040nr Joint and survivor annuities. How to file 1040nr   The first annuitant receives a definite amount at regular intervals for life. How to file 1040nr After he or she dies, a second annuitant receives a definite amount at regular intervals for life. How to file 1040nr The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. How to file 1040nr Variable annuities. How to file 1040nr   You receive payments that may vary in amount for a specified length of time or for life. How to file 1040nr The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. How to file 1040nr Disability pensions. How to file 1040nr   You receive disability payments because you retired on disability and have not reached minimum retirement age. How to file 1040nr More than one program. How to file 1040nr   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. How to file 1040nr If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. How to file 1040nr Also, you may be considered to have received more than one pension or annuity. How to file 1040nr Your former employer or the plan administrator should be able to tell you if you have more than one contract. How to file 1040nr Example. How to file 1040nr Your employer set up a noncontributory profit-sharing plan for its employees. How to file 1040nr The plan provides that the amount held in the account of each participant will be paid when that participant retires. How to file 1040nr Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. How to file 1040nr The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. How to file 1040nr Under the pension plan, however, a formula determines the amount of the pension benefits. How to file 1040nr The amount of contributions is the amount necessary to provide that pension. How to file 1040nr Each plan is a separate program and a separate contract. How to file 1040nr If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. How to file 1040nr Distributions from a designated Roth account are treated separately from other distributions from the plan. How to file 1040nr Qualified domestic relations order (QDRO). How to file 1040nr   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. How to file 1040nr The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. How to file 1040nr A QDRO may not award an amount or form of benefit that is not available under the plan. How to file 1040nr   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. How to file 1040nr The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. How to file 1040nr The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. How to file 1040nr The denominator is the present value of all benefits payable to the participant. How to file 1040nr   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. How to file 1040nr Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. How to file 1040nr For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. How to file 1040nr Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. How to file 1040nr The earnings are not taxed until distributed either in a withdrawal or in annuity payments. How to file 1040nr The taxable part of a distribution is treated as ordinary income. How to file 1040nr Net investment income tax. How to file 1040nr   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). How to file 1040nr For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. How to file 1040nr For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. How to file 1040nr Withdrawals. How to file 1040nr   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. How to file 1040nr The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. How to file 1040nr   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). How to file 1040nr However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. How to file 1040nr To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). How to file 1040nr   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. How to file 1040nr   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. How to file 1040nr The rest is taxable. How to file 1040nr   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. How to file 1040nr If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. How to file 1040nr Annuity payments. How to file 1040nr   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. How to file 1040nr For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. How to file 1040nr For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. How to file 1040nr For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. How to file 1040nr Death benefits. How to file 1040nr    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. How to file 1040nr If you choose to receive an annuity, the payments are subject to tax as described above. How to file 1040nr If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. How to file 1040nr See Survivors and Beneficiaries , later. How to file 1040nr Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. How to file 1040nr If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. How to file 1040nr You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. How to file 1040nr You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. How to file 1040nr Your 457(b) plan may have a designated Roth account option. How to file 1040nr If so, you may be able to roll over amounts to the designated Roth account or make contributions. How to file 1040nr Elective deferrals to a designated Roth account are included in your income. How to file 1040nr Qualified distributions (explained later) are not included in your income. How to file 1040nr See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. How to file 1040nr This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. How to file 1040nr For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. How to file 1040nr Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. How to file 1040nr Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. How to file 1040nr Nonelective deferred compensation plans for nonemployees (independent contractors). How to file 1040nr Deferred compensation plans maintained by churches. How to file 1040nr Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. How to file 1040nr An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. How to file 1040nr Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. How to file 1040nr 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. How to file 1040nr Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. How to file 1040nr You may be entitled to a tax credit if you were permanently and totally disabled when you retired. How to file 1040nr For information on this credit, see Publication 524. How to file 1040nr Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. How to file 1040nr Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. How to file 1040nr Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. How to file 1040nr For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. How to file 1040nr 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. How to file 1040nr The premiums can be for coverage for you, your spouse, or dependents. How to file 1040nr The distribution must be made directly from the plan to the insurance provider. How to file 1040nr You can exclude from income the smaller of the amount of the insurance premiums or $3,000. How to file 1040nr You can only make this election for amounts that would otherwise be included in your income. How to file 1040nr The amount excluded from your income cannot be used to claim a medical expense deduction. How to file 1040nr An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. How to file 1040nr If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. How to file 1040nr The amount shown in box 2a of Form 1099-R does not reflect this exclusion. How to file 1040nr Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. How to file 1040nr Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. How to file 1040nr Enter “PSO” next to the appropriate line on which you report the taxable amount. How to file 1040nr If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. How to file 1040nr Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. How to file 1040nr These categories are treated differently for income tax purposes. How to file 1040nr 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. How to file 1040nr This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. How to file 1040nr If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. How to file 1040nr S. How to file 1040nr Railroad Retirement Board (RRB). How to file 1040nr For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. How to file 1040nr The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). How to file 1040nr It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. How to file 1040nr Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. How to file 1040nr 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. How to file 1040nr (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. How to file 1040nr ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. How to file 1040nr See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. How to file 1040nr Form RRB-1099-R is used for U. How to file 1040nr S. How to file 1040nr citizens, resident aliens, and nonresident aliens. How to file 1040nr Nonresident aliens. How to file 1040nr   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. How to file 1040nr Nonresident aliens are subject to mandatory U. How to file 1040nr S. How to file 1040nr tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. How to file 1040nr A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. How to file 1040nr See Tax withholding next for more information. How to file 1040nr   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. How to file 1040nr To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. How to file 1040nr For information on filing requirements for aliens, see Publication 519, U. How to file 1040nr S. How to file 1040nr Tax Guide for Aliens. How to file 1040nr For information on tax treaties between the United States and other countries that may reduce or eliminate U. How to file 1040nr S. How to file 1040nr tax on your benefits, see Publication 901, U. How to file 1040nr S. How to file 1040nr Tax Treaties. How to file 1040nr Tax withholding. How to file 1040nr   To request or change your income tax withholding from SSEB payments, U. How to file 1040nr S. How to file 1040nr citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. How to file 1040nr To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. How to file 1040nr If you are a nonresident alien or a U. How to file 1040nr S. How to file 1040nr citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. How to file 1040nr S. How to file 1040nr tax withholding. How to file 1040nr Nonresident U. How to file 1040nr S. How to file 1040nr citizens cannot elect to be exempt from withholding on payments delivered outside of the U. How to file 1040nr S. How to file 1040nr Help from the RRB. How to file 1040nr   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. How to file 1040nr S. How to file 1040nr consulate/Embassy if you reside outside the United States. How to file 1040nr You can visit the RRB on the Internet at www. How to file 1040nr rrb. How to file 1040nr gov. How to file 1040nr Form RRB-1099-R. How to file 1040nr   The following discussion explains the items shown on Form RRB-1099-R. How to file 1040nr The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. How to file 1040nr   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. How to file 1040nr   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. How to file 1040nr To determine if any of these rules apply to your benefits, see the discussions about them later. How to file 1040nr   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. How to file 1040nr Use distribution code “7” if you are asked for a distribution code. How to file 1040nr Distribution codes are not shown on Form RRB-1099-R. How to file 1040nr   There are three copies of this form. How to file 1040nr Copy B is to be included with your income tax return if federal income tax is withheld. How to file 1040nr Copy C is for your own records. How to file 1040nr Copy 2 is filed with your state, city, or local income tax return, when required. How to file 1040nr See the illustrated Copy B (Form RRB-1099-R) above. How to file 1040nr       Each beneficiary will receive his or her own Form RRB-1099-R. How to file 1040nr If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. How to file 1040nr So that you get your form timely, make sure the RRB always has your current mailing address. How to file 1040nr Please click here for the text description of the image. How to file 1040nr Form RRB-1099-R Box 1—Claim Number and Payee Code. How to file 1040nr   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. How to file 1040nr This is the number under which the RRB paid your benefits. How to file 1040nr Your payee code follows your claim number and is the last number in this box. How to file 1040nr It is used by the RRB to identify you under your claim number. How to file 1040nr In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. How to file 1040nr Box 2—Recipient's Identification Number. How to file 1040nr   This is the recipient's U. How to file 1040nr S. How to file 1040nr taxpayer identification number. How to file 1040nr It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. How to file 1040nr If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. How to file 1040nr The Instructions for Form W-7 explain how and when to apply. How to file 1040nr Box 3—Employee Contributions. How to file 1040nr   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. How to file 1040nr This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). How to file 1040nr (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. How to file 1040nr ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. How to file 1040nr It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. How to file 1040nr If this amount has changed, the change is retroactive. How to file 1040nr You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. How to file 1040nr If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. How to file 1040nr    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. How to file 1040nr Box 4—Contributory Amount Paid. How to file 1040nr   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. How to file 1040nr (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. How to file 1040nr ) This amount is the total contributory pension paid in 2013. How to file 1040nr It may be partly taxable and partly tax free or fully taxable. How to file 1040nr If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. How to file 1040nr Box 5—Vested Dual Benefit. How to file 1040nr   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. How to file 1040nr It is fully taxable. How to file 1040nr VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. How to file 1040nr Note. How to file 1040nr The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. How to file 1040nr Box 6—Supplemental Annuity. How to file 1040nr   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. How to file 1040nr It is fully taxable. How to file 1040nr Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. How to file 1040nr Box 7—Total Gross Paid. How to file 1040nr   This is the sum of boxes 4, 5, and 6. How to file 1040nr The amount represents the total pension paid in 2013. How to file 1040nr Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. How to file 1040nr Box 8—Repayments. How to file 1040nr   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. How to file 1040nr The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. How to file 1040nr It only includes repayments of benefits that were taxable to you. How to file 1040nr This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. How to file 1040nr If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. How to file 1040nr For more information about repayments, see Repayment of benefits received in an earlier year , later. How to file 1040nr    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. How to file 1040nr Box 9—Federal Income Tax Withheld. How to file 1040nr   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. How to file 1040nr Include this on your income tax return as tax withheld. How to file 1040nr If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. How to file 1040nr Determine the total amount of U. How to file 1040nr S. How to file 1040nr federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. How to file 1040nr Box 10—Rate of Tax. How to file 1040nr   If you are taxed as a U. How to file 1040nr S. How to file 1040nr citizen or resident alien, this box does not apply to you. How to file 1040nr If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. How to file 1040nr If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. How to file 1040nr Box 11—Country. How to file 1040nr   If you are taxed as a U. How to file 1040nr S. How to file 1040nr citizen or resident alien, this box does not apply to you. How to file 1040nr If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. How to file 1040nr If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. How to file 1040nr Box 12—Medicare Premium Total. How to file 1040nr   This is for information purposes only. How to file 1040nr The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. How to file 1040nr Medicare premium refunds are not included in the Medicare total. How to file 1040nr The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). How to file 1040nr However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. How to file 1040nr If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. How to file 1040nr Repayment of benefits received in an earlier year. How to file 1040nr   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. How to file 1040nr   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. How to file 1040nr The 2%-of-adjusted-gross-income limit applies to this deduction. How to file 1040nr You cannot take this deduction if you file Form 1040A. How to file 1040nr    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. How to file 1040nr For more information, see Repayments in Publication 525. How to file 1040nr Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. How to file 1040nr However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. How to file 1040nr (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. How to file 1040nr ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. How to file 1040nr See Estimated tax , later. How to file 1040nr The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. How to file 1040nr For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. How to file 1040nr There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. How to file 1040nr Choosing no withholding. How to file 1040nr   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. How to file 1040nr You can make this choice on Form W-4P for periodic and nonperiodic payments. How to file 1040nr This choice generally remains in effect until you revoke it. How to file 1040nr   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. How to file 1040nr   To choose not to have tax withheld, a U. How to file 1040nr S. How to file 1040nr citizen or resident alien must give the payer a home address in the United States or its possessions. How to file 1040nr Without that address, the payer must withhold tax. How to file 1040nr For example, the payer has to withhold tax if the recipient has provided a U. How to file 1040nr S. How to file 1040nr address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. How to file 1040nr S. How to file 1040nr home address. How to file 1040nr   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. How to file 1040nr S. How to file 1040nr citizen, a U. How to file 1040nr S. How to file 1040nr resident alien, or someone who left the country to avoid tax. How to file 1040nr But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. How to file 1040nr This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. How to file 1040nr For details, get Publication 519. How to file 1040nr Periodic payments. How to file 1040nr   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. How to file 1040nr Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). How to file 1040nr You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). How to file 1040nr If you do not, tax will be withheld as if you were married and claiming three withholding allowances. How to file 1040nr   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. How to file 1040nr   You must file a new withholding certificate to change the amount of withholding. How to file 1040nr Nonperiodic distributions. How to file 1040nr    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. How to file 1040nr You can also ask the payer to withhold an additional amount using Form W-4P. How to file 1040nr The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. How to file 1040nr Eligible rollover distribution. How to file 1040nr    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. How to file 1040nr You cannot choose not to have tax withheld from an eligible rollover distribution. How to file 1040nr However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. How to file 1040nr For more information about eligible rollover distributions, see Rollovers , later. How to file 1040nr Estimated tax. How to file 1040nr   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. How to file 1040nr Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. How to file 1040nr If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. How to file 1040nr For more information, get Publication 505, Tax Withholding and Estimated Tax. How to file 1040nr In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. How to file 1040nr See Publication 915. How to file 1040nr You can choose to have income tax withheld from those benefits. How to file 1040nr Use Form W-4V to make this choice. How to file 1040nr Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). How to file 1040nr If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. How to file 1040nr Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. How to file 1040nr In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). How to file 1040nr To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. How to file 1040nr This includes the amounts your employer contributed that were taxable to you when paid. How to file 1040nr (However, see Foreign employment contributions , later. How to file 1040nr ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). How to file 1040nr It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). How to file 1040nr From this total cost you must subtract the following amounts. How to file 1040nr Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. How to file 1040nr Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). How to file 1040nr If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. How to file 1040nr (See Simplified Method , later, for information on its required use. How to file 1040nr ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. How to file 1040nr (See General Rule , later, for information on its use. How to file 1040nr ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. How to file 1040nr For more information, see Publication 939. How to file 1040nr The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . How to file 1040nr Form 1099-R. How to file 1040nr If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. How to file 1040nr Annuity starting date defined. How to file 1040nr   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. How to file 1040nr Example. How to file 1040nr On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. How to file 1040nr The annuity starting date is July 1. How to file 1040nr This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. How to file 1040nr Designated Roth accounts. How to file 1040nr   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. How to file 1040nr Your cost will also include any in-plan Roth rollovers you included in income. How to file 1040nr Foreign employment contributions. How to file 1040nr   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. How to file 1040nr The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. How to file 1040nr Foreign employment contributions while a nonresident alien. How to file 1040nr   In determining your cost, special rules apply if you are a U. How to file 1040nr S. How to file 1040nr citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. How to file 1040nr Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. How to file 1040nr Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. How to file 1040nr Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). How to file 1040nr These payments are also known as amounts received as an annuity. How to file 1040nr If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. How to file 1040nr In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. How to file 1040nr The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). How to file 1040nr Designated Roth accounts. How to file 1040nr   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. How to file 1040nr This applies to both your cost in the account and income earned on that account. How to file 1040nr A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. How to file 1040nr   If the distribution is not a qualified distribution, the rules discussed in this section apply. How to file 1040nr The designated Roth account is treated as a separate contract. How to file 1040nr Period of participation. How to file 1040nr   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. How to file 1040nr Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. How to file 1040nr   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. How to file 1040nr   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. How to file 1040nr This is known as an in-plan Roth rollover. How to file 1040nr For more details, see In-plan Roth rollovers , later. How to file 1040nr Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). How to file 1040nr You did not pay anything or are not considered to have paid anything for your pension or annuity. How to file 1040nr Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. How to file 1040nr Your employer did not withhold contributions from your salary. How to file 1040nr You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). How to file 1040nr Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. How to file 1040nr You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. How to file 1040nr Deductible voluntary employee contributions. How to file 1040nr   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. How to file 1040nr Accumulated deductible voluntary employee contributions include net earnings on the contributions. How to file 1040nr If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. How to file 1040nr Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. How to file 1040nr 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. How to file 1040nr The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). How to file 1040nr You figure the tax-free part of the payment using one of the following methods. How to file 1040nr Simplified Method. How to file 1040nr 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). How to file 1040nr You cannot use this method if your annuity is paid under a nonqualified plan. How to file 1040nr General Rule. How to file 1040nr You must use this method if your annuity is paid under a nonqualified plan. How to file 1040nr You generally cannot use this method if your annuity is paid under a qualified plan. How to file 1040nr 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. How to file 1040nr If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. How to file 1040nr Qualified plan annuity starting before November 19, 1996. How to file 1040nr   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. How to file 1040nr If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. How to file 1040nr If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. How to file 1040nr Exclusion limit. How to file 1040nr   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. How to file 1040nr Once your annuity starting date is determined, it does not change. How to file 1040nr If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. How to file 1040nr That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. How to file 1040nr Exclusion limited to cost. How to file 1040nr   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. How to file 1040nr 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. How to file 1040nr This deduction is not subject to the 2%-of-adjusted-gross-income limit. How to file 1040nr Example 1. How to file 1040nr Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. How to file 1040nr The total cost of your annuity is $12,000. How to file 1040nr Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). How to file 1040nr After that, your annuity payments are generally fully taxable. How to file 1040nr Example 2. How to file 1040nr The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. How to file 1040nr You have recovered tax free only $9,600 (8 × $1,200) of your cost. How to file 1040nr An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. How to file 1040nr Exclusion not limited to cost. How to file 1040nr   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. How to file 1040nr 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. How to file 1040nr The total exclusion may be more than your cost. How to file 1040nr Simplified Method 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. How to file 1040nr For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. How to file 1040nr For any other annuity, this number is the number of monthly annuity payments under the contract. How to file 1040nr Who must use the Simplified Method. How to file 1040nr   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. How to file 1040nr You receive your pension or annuity payments from any of the following plans. How to file 1040nr A qualified employee plan. How to file 1040nr A qualified employee annuity. How to file 1040nr A tax-sheltered annuity plan (403(b) plan). How to file 1040nr On your annuity starting date, at least one of the following conditions applies to you. How to file 1040nr You are under age 75. How to file 1040nr You are entitled to less than 5 years of guaranteed payments. How to file 1040nr Guaranteed payments. How to file 1040nr   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. How to file 1040nr 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. How to file 1040nr Annuity starting before November 19, 1996. How to file 1040nr   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. How to file 1040nr You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . How to file 1040nr Who cannot use the Simplified Method. How to file 1040nr   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. How to file 1040nr See General Rule , later. How to file 1040nr How to use the Simplified Method. How to file 1040nr    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. How to file 1040nr Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. How to file 1040nr   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. How to file 1040nr How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. How to file 1040nr 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. How to file 1040nr    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. How to file 1040nr Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. How to file 1040nr Single-life annuity. How to file 1040nr   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. How to file 1040nr Enter on line 3 the number shown for your age on your annuity starting date. How to file 1040nr This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. How to file 1040nr Multiple-lives annuity. How to file 1040nr   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. How to file 1040nr Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. How to file 1040nr 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. How to file 1040nr 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. How to file 1040nr Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. How to file 1040nr   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. How to file 1040nr 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. How to file 1040nr This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. How to file 1040nr Fixed-period annuity. How to file 1040nr   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. How to file 1040nr Line 6. How to file 1040nr   The amount on line 6 should include all amounts that could have been recovered in prior years. How to file 1040nr If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. How to file 1040nr Example. How to file 1040nr Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. How to file 1040nr Bill's annuity starting date is January 1, 2013. How to file 1040nr The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. How to file 1040nr Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. How to file 1040nr 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. How to file 1040nr 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. How to file 1040nr Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. How to file 1040nr His completed worksheet is shown later. How to file 1040nr Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. How to file 1040nr Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. How to file 1040nr The full amount of any annuity payments received after 310 payments are paid must be included in gross income. How to file 1040nr 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. How to file 1040nr This deduction is not subject to the 2%-of-adjusted-gross-income limit. How to file 1040nr Worksheet A. How to file 1040nr Simplified Method Worksheet for Bill Smith 1. How to file 1040nr Enter the total pension or annuity payments received this year. How to file 1040nr Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. How to file 1040nr $14,400 2. How to file 1040nr Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. How to file 1040nr * See Cost (Investment in the Contract) , earlier 2. How to file 1040nr 31,000   Note. How to file 1040nr 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). How to file 1040nr Otherwise, go to line 3. How to file 1040nr     3. How to file 1040nr Enter the appropriate number from Table 1 below. How to file 1040nr 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. How to file 1040nr 310 4. How to file 1040nr Divide line 2 by the number on line 3 4. How to file 1040nr 100 5. How to file 1040nr Multiply line 4 by the number of months for which this year's payments were made. How to file 1040nr If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. How to file 1040nr Otherwise, go to line 6 5. How to file 1040nr 1,200 6. How to file 1040nr Enter any amount previously recovered tax free in years after 1986. How to file 1040nr This is the amount shown on line 10 of your worksheet for last year 6. How to file 1040nr -0- 7. How to file 1040nr Subtract line 6 from line 2 7. How to file 1040nr 31,000 8. How to file 1040nr Enter the smaller of line 5 or line 7 8. How to file 1040nr 1,200 9. How to file 1040nr Taxable amount for year. How to file 1040nr Subtract line 8 from line 1. How to file 1040nr Enter the result, but not less than zero. How to file 1040nr Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. How to file 1040nr Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. How to file 1040nr 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 9. How to file 1040nr $13,200 10. How to file 1040nr Was your annuity starting date before 1987? □ Yes. How to file 1040nr STOP. How to file 1040nr Do not complete the rest of this worksheet. How to file 1040nr  ☑ No. How to file 1040nr Add lines 6 and 8. How to file 1040nr This is the amount you have recovered tax free through 2013. How to file 1040nr You will need this number if you need to fill out this worksheet next year 10. How to file 1040nr 1,200 11. How to file 1040nr Balance of cost to be recovered. How to file 1040nr Subtract line 10 from line 2. How to file 1040nr If zero, you will not have to complete this worksheet next year. How to file 1040nr The payments you receive next year will generally be fully taxable 11. How to file 1040nr $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. How to file 1040nr           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. How to file 1040nr . How to file 1040nr . How to file 1040nr BEFORE November 19, 1996, enter on line 3. How to file 1040nr . How to file 1040nr . How to file 1040nr AFTER November 18, 1996, enter on line 3. How to file 1040nr . How to file 1040nr . How to file 1040nr     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. How to file 1040nr . How to file 1040nr . How to file 1040nr THEN enter on line 3. How to file 1040nr . How to file 1040nr . How to file 1040nr     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. How to file 1040nr   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. How to file 1040nr Figure your share by taking the following steps. How to file 1040nr Complete your worksheet through line 4 to figure the monthly tax-free amount. How to file 1040nr Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. How to file 1040nr Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. How to file 1040nr The result is your share of the monthly tax-free amount. How to file 1040nr   Replace the amount on line 4 of the worksheet with the result in (3) above. How to file 1040nr Enter that amount on line 4 of your worksheet each year. How to file 1040nr General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. How to file 1040nr Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. How to file 1040nr To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. How to file 1040nr Who must use the General Rule. How to file 1040nr   You 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 your annuity payments are guaranteed for at least 5 years. How to file 1040nr Annuity starting before November 19, 1996. How to file 1040nr   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. How to file 1040nr You also had to use it for any fixed-period annuity. How to file 1040nr If you did not have to use the General Rule, you could have chosen to use it. How to file 1040nr If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. How to file 1040nr   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. How to file 1040nr Who cannot use the General Rule. How to file 1040nr   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. How to file 1040nr See Simplified Method , earlier. How to file 1040nr More information. How to file 1040nr   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. How to file 1040nr Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. How to file 1040nr Nonperiodic distributions are also known as amounts not received as an annuity. How to file 1040nr They include all payments other than periodic payments and corrective distributions. How to file 1040nr For example, the following items are treated as nonperiodic distributions. How to file 1040nr Cash withdrawals. How to file 1040nr Distributions of current earnings (dividends) on your investment. How to file 1040nr However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. How to file 1040nr Certain loans. How to file 1040nr See Loans Treated as Distributions , later. How to file 1040nr The value of annuity contracts transferred without full and adequate consideration. How to file 1040nr See Transfers of Annuity Contracts , later. How to file 1040nr Corrective distributions of excess plan contributions. How to file 1040nr   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. How to file 1040nr To correct an excess, your plan may distribute it to you (along with any income earned on the excess). How to file 1040nr Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. How to file 1040nr It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. How to file 1040nr    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. How to file 1040nr   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. How to file 1040nr Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. How to file 1040nr If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. How to file 1040nr If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. How to file 1040nr You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. How to file 1040nr See Rollovers, later. How to file 1040nr If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. How to file 1040nr See Lump-Sum Distributions, later. How to file 1040nr Annuity starting date. How to file 1040nr   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. How to file 1040nr Distributions of employer securities. How to file 1040nr    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. How to file 1040nr The NUA is the net increase in the securities' value while they were in the trust. How to file 1040nr This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. How to file 1040nr   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. How to file 1040nr    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. How to file 1040nr    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und
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Understanding your CP22E Notice

As a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

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

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


What you need to do

  • Read your notice and audit report carefully ― these will explain why you owe money on your taxes.
  • Pay the amount owed by the date on the notice's payment coupon.
  • Make payment arrangements if you can't pay the full amount you owe.
  • Contact us if you disagree with the change(s) we made.
  • Correct the copy of your tax return that you kept for your records.

You may want to...


Answers to Common Questions

What should I do if I disagree with the changes you made?
If you've information relevant to your audit that we've not already considered and you've not already paid your bill in full, you may request an Audit Reconsideration. Refer to Publication 3598, What You Should Know About the Audit Reconsideration Process for additional information.

If you've already paid the amount due in full, you must file a formal claim using Form 1040X, Amended U.S. Individual Income Tax Return.

If you don't have additional information to provide, but you disagree with the results of your audit, you may appeal your case to the Appeals Office of the IRS. Refer to Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree for additional information.

What happens if I can't pay the full amount I owe?
You can arrange to make a payment plan with us if you can't pay the full amount you owe.

Am I charged interest on the money I owe?
If you don't full pay the amount you owe by the date on the payment coupon, interest will accrue on the unpaid balance after that date.

Will I receive a penalty if I can’t pay the full amount?
Yes, you'll receive a late payment penalty. You can contact us at the number listed on your notice if you’re unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.

Can I set up a payment plan?
Yes. Call the toll-free number listed on the top right corner of your notice to discuss payment options or check out more information on payment options and how to make a payment arrangement.

There are other options, such as paying by credit card. Note: There may be a fee to pay by credit card.

What if I need to make another correction to my account?
You'll need to file Form 1040X, Amended U.S. Individual Income Tax Return.

What if I have tried to get answers and after contacting IRS several times have not been successful?
Call Taxpayer Advocate at 1-877-777-4778 or for TTY/TDD 1-800-829-4059.

The changes you have proposed are the result of actions by my spouse that I knew nothing about. Am I responsible for paying this bill?
You may qualify for innocent spouse relief. To request relief, you must file Form 8857, Request for Innocent Spouse Relief no later than 2 years after the date on which the IRS first attempted to collect the tax from you. Refer to Publication 971, Innocent Spouse Relief for additional information.

 

Page Last Reviewed or Updated: 03-Mar-2014

The How To File 1040nr

How to file 1040nr 2. How to file 1040nr   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. How to file 1040nr You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. How to file 1040nr This chapter discusses accounting methods. How to file 1040nr For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. How to file 1040nr Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. How to file 1040nr Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. How to file 1040nr Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. How to file 1040nr A material item is one that affects the proper time for inclusion of income or allowance of a deduction. How to file 1040nr An item considered material for financial statement purposes is generally also considered material for income tax purposes. How to file 1040nr See Publication 538 for more information. How to file 1040nr You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. How to file 1040nr If you later want to change your accounting method, you generally must get IRS approval. How to file 1040nr How to obtain IRS approval is discussed later under Changes in Methods of Accounting . How to file 1040nr Types of accounting methods. How to file 1040nr   Generally, you can use any of the following accounting methods. How to file 1040nr Each method is discussed in detail below. How to file 1040nr Cash method. How to file 1040nr Accrual method. How to file 1040nr Special methods of accounting for certain items of income and expenses. How to file 1040nr Combination (hybrid) method using elements of two or more of the above. How to file 1040nr Business and other items. How to file 1040nr   You can account for business and personal items using different accounting methods. How to file 1040nr For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. How to file 1040nr Two or more businesses. How to file 1040nr   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. How to file 1040nr Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. How to file 1040nr Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. How to file 1040nr However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. How to file 1040nr See Accrual Method Required , later. How to file 1040nr Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. How to file 1040nr Items of income include money received as well as property or services received. How to file 1040nr If you receive property or services, you must include the fair market value (FMV) of the property or services in income. How to file 1040nr See chapter 3 for information on how to report farm income on your income tax return. How to file 1040nr Constructive receipt. How to file 1040nr   Income is constructively received when an amount is credited to your account or made available to you without restriction. How to file 1040nr You do not need to have possession of the income for it to be treated as income for the tax year. How to file 1040nr If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. How to file 1040nr Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. How to file 1040nr Direct payments and counter-cyclical payments. How to file 1040nr   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. How to file 1040nr Delaying receipt of income. How to file 1040nr   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. How to file 1040nr You must report the income in the year the money or property is received or made available to you without restriction. How to file 1040nr Example. How to file 1040nr Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. How to file 1040nr She was told in December that her payment was available. How to file 1040nr She requested not to be paid until January 2014. How to file 1040nr However, she must still include this payment in her 2013 income because it was made available to her in 2013. How to file 1040nr Debts paid by another person or canceled. How to file 1040nr   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. How to file 1040nr If you receive income in this way, you constructively receive the income when the debt is canceled or paid. How to file 1040nr See Cancellation of Debt in chapter 3. How to file 1040nr Deferred payment contract. How to file 1040nr   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. How to file 1040nr However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. How to file 1040nr Example. How to file 1040nr You are a farmer who uses the cash method and a calendar tax year. How to file 1040nr You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. How to file 1040nr You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. How to file 1040nr However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. How to file 1040nr Repayment of income. How to file 1040nr   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. How to file 1040nr If the repayment is more than $3,000, a special rule applies. How to file 1040nr For details, see Repayments in chapter 11 of Publication 535, Business Expenses. How to file 1040nr Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. How to file 1040nr This includes business expenses for which you contest liability. How to file 1040nr However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. How to file 1040nr See chapter 4 for information on how to deduct farm business expenses on your income tax return. How to file 1040nr Prepayment. How to file 1040nr   Generally, you cannot deduct expenses paid in advance. How to file 1040nr This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. How to file 1040nr Example. How to file 1040nr On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. How to file 1040nr In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. How to file 1040nr In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. How to file 1040nr An exception applies if the expense qualifies for the 12-month rule. How to file 1040nr See Publication 538 for more information and examples. How to file 1040nr See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. How to file 1040nr Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. How to file 1040nr The purpose of an accrual method of accounting is to correctly match income and expenses. How to file 1040nr Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. How to file 1040nr See Accrual Method Required and Farm Inventory , later. How to file 1040nr Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. How to file 1040nr Under this rule, include an amount in income on the earliest of the following dates. How to file 1040nr When you receive payment. How to file 1040nr When the income amount is due to you. How to file 1040nr When you earn the income. How to file 1040nr When title passes. How to file 1040nr If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. How to file 1040nr Inventory. How to file 1040nr   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. How to file 1040nr An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. How to file 1040nr See Publication 538 for more information. How to file 1040nr Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. How to file 1040nr Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. How to file 1040nr The all-events test has been met. How to file 1040nr This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. How to file 1040nr Economic performance has occurred. How to file 1040nr Economic performance. How to file 1040nr   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. How to file 1040nr If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. How to file 1040nr If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. How to file 1040nr Example. How to file 1040nr Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. How to file 1040nr She entered into a contract with ABC Farm Consulting in 2012. How to file 1040nr The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. How to file 1040nr It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. How to file 1040nr Jane paid ABC Farm Consulting $2,000 in December 2012. How to file 1040nr Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. How to file 1040nr Economic performance for Jane's liability in the contract occurs as the services are provided. How to file 1040nr Jane incurs the $2,000 cost in 2013. How to file 1040nr An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. How to file 1040nr For more information, see Economic Performance in Publication 538. How to file 1040nr Special rule for related persons. How to file 1040nr   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. How to file 1040nr Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. How to file 1040nr For more information, see Internal Revenue Code section 267. How to file 1040nr Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. How to file 1040nr A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. How to file 1040nr A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. How to file 1040nr A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. How to file 1040nr A tax shelter. How to file 1040nr Note. How to file 1040nr Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). How to file 1040nr Family corporation. How to file 1040nr   A family corporation is generally a corporation that meets one of the following ownership requirements. How to file 1040nr Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. How to file 1040nr Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. How to file 1040nr Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. How to file 1040nr For more information on family corporations, see Internal Revenue Code section 447. How to file 1040nr Tax shelter. How to file 1040nr   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. How to file 1040nr Its principal purpose is the avoidance or evasion of federal income tax. How to file 1040nr It is a farming syndicate. How to file 1040nr A farming syndicate is an entity that meets either of the following tests. How to file 1040nr Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. How to file 1040nr More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. How to file 1040nr   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. How to file 1040nr   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. How to file 1040nr Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. How to file 1040nr This record should show the actual count or measurement of the inventory. How to file 1040nr It should also show all factors that enter into its valuation, including quality and weight, if applicable. How to file 1040nr Hatchery business. How to file 1040nr   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. How to file 1040nr Products held for sale. How to file 1040nr   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. How to file 1040nr , must be included in inventory. How to file 1040nr Supplies. How to file 1040nr   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. How to file 1040nr Deduct the cost of supplies in the year used or consumed in operations. How to file 1040nr Do not include incidental supplies in inventory as these are deductible in the year of purchase. How to file 1040nr Livestock. How to file 1040nr   Livestock held primarily for sale must be included in inventory. How to file 1040nr Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. How to file 1040nr See also Unit-livestock-price method , later. How to file 1040nr If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. How to file 1040nr Growing crops. How to file 1040nr   Generally, growing crops are not required to be included in inventory. How to file 1040nr However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. How to file 1040nr See Uniform capitalization rules below. How to file 1040nr Also see Uniform Capitalization Rules in  chapter 6. How to file 1040nr Items to include in inventory. How to file 1040nr   Your inventory should include all items held for sale, or for use as feed, seed, etc. How to file 1040nr , whether raised or purchased, that are unsold at the end of the year. How to file 1040nr Uniform capitalization rules. How to file 1040nr   The following applies if you are required to use an accrual method of accounting. How to file 1040nr The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. How to file 1040nr The costs of animals are subject to the uniform capitalization rules. How to file 1040nr Inventory valuation methods. How to file 1040nr   The following methods, described below, are those generally available for valuing inventory. How to file 1040nr The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. How to file 1040nr Cost. How to file 1040nr Lower of cost or market. How to file 1040nr Farm-price method. How to file 1040nr Unit-livestock-price method. How to file 1040nr Cost and lower of cost or market methods. How to file 1040nr   See Publication 538 for information on these valuation methods. How to file 1040nr If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. How to file 1040nr However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. How to file 1040nr Farm-price method. How to file 1040nr   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. How to file 1040nr Market price is the current price at the nearest market in the quantities you usually sell. How to file 1040nr Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. How to file 1040nr If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. How to file 1040nr Unit-livestock-price method. How to file 1040nr   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. How to file 1040nr You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. How to file 1040nr The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. How to file 1040nr Unit prices and classifications are subject to approval by the IRS on examination of your return. How to file 1040nr You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. How to file 1040nr IRS approval is not required for these adjustments. How to file 1040nr Any other changes in unit prices or classifications do require IRS approval. How to file 1040nr   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. How to file 1040nr This method accounts only for the increase in cost of raising an animal to maturity. How to file 1040nr It does not provide for any decrease in the animal's market value after it reaches maturity. How to file 1040nr Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. How to file 1040nr   Do not include sold or lost animals in the year-end inventory. How to file 1040nr If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. How to file 1040nr The animals on hand at the end of the year are considered those most recently acquired. How to file 1040nr   You must include in inventory all livestock purchased primarily for sale. How to file 1040nr You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. How to file 1040nr However, you must be consistent from year to year, regardless of the method you have chosen. How to file 1040nr You cannot change your method without obtaining approval from the IRS. How to file 1040nr   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. How to file 1040nr If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. How to file 1040nr However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. How to file 1040nr This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. How to file 1040nr It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. How to file 1040nr Uniform capitalization rules. How to file 1040nr   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. How to file 1040nr This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. How to file 1040nr Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. How to file 1040nr Example 1. How to file 1040nr You are a farmer who uses an accrual method of accounting. How to file 1040nr You keep your books on the calendar year basis. How to file 1040nr You sell grain in December 2013 but you are not paid until January 2014. How to file 1040nr Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. How to file 1040nr Example 2. How to file 1040nr Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. How to file 1040nr Under this method, you include the sales proceeds in income for 2014, the year you receive payment. How to file 1040nr Deduct the costs of producing the grain in the year you pay for them. How to file 1040nr Special Methods of Accounting There are special methods of accounting for certain items of income and expense. How to file 1040nr Crop method. How to file 1040nr   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. How to file 1040nr You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. How to file 1040nr Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. How to file 1040nr    See chapter 4 for details on deducting the costs of operating a farm. How to file 1040nr Also see Regulations section 1. How to file 1040nr 162-12. How to file 1040nr Other special methods. How to file 1040nr   Other special methods of accounting apply to the following items. How to file 1040nr Amortization, see chapter 7. How to file 1040nr Casualties, see chapter 11. How to file 1040nr Condemnations, see chapter 11. How to file 1040nr Depletion, see chapter 7. How to file 1040nr Depreciation, see chapter 7. How to file 1040nr Farm business expenses, see chapter 4. How to file 1040nr Farm income, see chapter 3. How to file 1040nr Installment sales, see chapter 10. How to file 1040nr Soil and water conservation expenses, see chapter 5. How to file 1040nr Thefts, see chapter 11. How to file 1040nr Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. How to file 1040nr However, the following restrictions apply. How to file 1040nr If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. How to file 1040nr If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. How to file 1040nr Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). How to file 1040nr Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. How to file 1040nr You may also have to pay a fee. How to file 1040nr To obtain approval, you must generally file Form 3115. How to file 1040nr There are instances when you can obtain automatic consent to change certain methods of accounting. How to file 1040nr See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. How to file 1040nr For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. How to file 1040nr Also see Publication 538. How to file 1040nr Prev  Up  Next   Home   More Online Publications