Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Irs Gov 1040ez

2010 Irs Form 1040ezIrs Form1040xIrs Tax Forms 2011 DownloadFree Tax PrepFree Tax Filing OnlineHow To Fill Out A 1040x Form2013 State Tax Return1090 EzFreefile Irs Gov1040ez 2012 Tax FormFile State Tax OnlineVita Tax ServiceH And R Block For MilitaryTax Tips For 2012How To File 2011 Taxes Late1040x Tax FormFree E File Tax ExtensionFree Tax Filing 2013 TurbotaxHow To File An Amended Return For 2011Irs Gov Forms2010 New Car Tax Credit1040x TurbotaxAmending Tax Returns OnlineForm 1040ez InstructionsIrs FormsFile State Income Tax OnlyHr Block Online Free Tax FilingWhere Mail 1040x Amended ReturnFiling Taxes For Military2012 Federal Tax ReturnTaxslayer For Military2012 State Tax FormFree Tax Filing 20141040x IrsFederal Tax Form 1040ezI Need To Amend My 2012 Tax ReturnHow To File Irs Form 1040x1040nr Ez DownloadFile State And Federal Taxes Free2012 Irs Forms 1040

Irs Gov 1040ez

Irs gov 1040ez Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Irs gov 1040ez S. Irs gov 1040ez Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Irs gov 1040ez S. Irs gov 1040ez Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Irs gov 1040ez S. Irs gov 1040ez Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Irs gov 1040ez Employee business expenses. Irs gov 1040ez Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Irs gov 1040ez You can change your choice for each year's taxes. Irs gov 1040ez To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Irs gov 1040ez S. Irs gov 1040ez tax return. Irs gov 1040ez However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Irs gov 1040ez See How To Figure the Credit , later. Irs gov 1040ez To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Irs gov 1040ez Figure your tax both ways—claiming the credit and claiming the deduction. Irs gov 1040ez Then fill out your return the way that benefits you more. Irs gov 1040ez See Why Choose the Credit, later. Irs gov 1040ez Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Irs gov 1040ez If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Irs gov 1040ez You cannot deduct any of them. Irs gov 1040ez Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Irs gov 1040ez You cannot take a credit for any of them. Irs gov 1040ez See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Irs gov 1040ez There are exceptions to this general rule, which are described next. Irs gov 1040ez Exceptions for foreign taxes not allowed as a credit. Irs gov 1040ez   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Irs gov 1040ez Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Irs gov 1040ez S. Irs gov 1040ez tax purposes. Irs gov 1040ez For more information, see Internal Revenue Code section 901(m). Irs gov 1040ez The IRS intends to issue guidance that will explain this provision in greater detail. Irs gov 1040ez   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Irs gov 1040ez Foreign taxes that are not income taxes. Irs gov 1040ez   In most cases, only foreign income taxes qualify for the foreign tax credit. Irs gov 1040ez Other taxes, such as foreign real and personal property taxes, do not qualify. Irs gov 1040ez But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Irs gov 1040ez   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Irs gov 1040ez However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Irs gov 1040ez Carrybacks and carryovers. Irs gov 1040ez   There is a limit on the credit you can claim in a tax year. Irs gov 1040ez If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Irs gov 1040ez If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Irs gov 1040ez That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Irs gov 1040ez   For more information on the limit, see How To Figure the Credit , later. Irs gov 1040ez For more information on carrybacks and carryovers, see Carryback and Carryover , later. Irs gov 1040ez Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Irs gov 1040ez You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Irs gov 1040ez Example. Irs gov 1040ez You paid foreign taxes for the last 13 years and chose to deduct them on your U. Irs gov 1040ez S. Irs gov 1040ez income tax returns. Irs gov 1040ez You were timely in both filing your returns and paying your U. Irs gov 1040ez S. Irs gov 1040ez tax liability. Irs gov 1040ez In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Irs gov 1040ez Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Irs gov 1040ez Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Irs gov 1040ez Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Irs gov 1040ez If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Irs gov 1040ez Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Irs gov 1040ez Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Irs gov 1040ez However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Irs gov 1040ez You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Irs gov 1040ez See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Irs gov 1040ez Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Irs gov 1040ez In most cases, if the foreign tax rate is higher than the U. Irs gov 1040ez S. Irs gov 1040ez rate, there will be no U. Irs gov 1040ez S. Irs gov 1040ez tax on the foreign income. Irs gov 1040ez If the foreign tax rate is lower than the U. Irs gov 1040ez S. Irs gov 1040ez rate, U. Irs gov 1040ez S. Irs gov 1040ez tax on the foreign income will be limited to the difference between the rates. Irs gov 1040ez The foreign tax credit can only reduce U. Irs gov 1040ez S. Irs gov 1040ez taxes on foreign source income; it cannot reduce U. Irs gov 1040ez S. Irs gov 1040ez taxes on U. Irs gov 1040ez S. Irs gov 1040ez source income. Irs gov 1040ez Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Irs gov 1040ez This is because: A credit reduces your actual U. Irs gov 1040ez S. Irs gov 1040ez income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Irs gov 1040ez You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Irs gov 1040ez (See Limit on credit under How To Figure the Credit, later. Irs gov 1040ez ) Example 1. Irs gov 1040ez For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Irs gov 1040ez None of the dividends are qualified dividends. Irs gov 1040ez You file a joint return and can claim two $3,900 exemptions. Irs gov 1040ez You had to pay $2,000 in foreign income taxes on the dividend income. Irs gov 1040ez If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Irs gov 1040ez Your taxable income then is $57,500 and your tax is $7,736. Irs gov 1040ez If you take the credit instead, your itemized deductions are only $13,000. Irs gov 1040ez Your taxable income then is $59,500 and your tax before the credit is $8,036. Irs gov 1040ez After the credit, however, your tax is only $6,036. Irs gov 1040ez Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Irs gov 1040ez Example 2. Irs gov 1040ez In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Irs gov 1040ez You report on your U. Irs gov 1040ez S. Irs gov 1040ez return this income as well as $56,000 of U. Irs gov 1040ez S. Irs gov 1040ez source wages and an allowable $49,000 partnership loss from a U. Irs gov 1040ez S. Irs gov 1040ez partnership. Irs gov 1040ez Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Irs gov 1040ez You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Irs gov 1040ez If you deduct the foreign tax on your U. Irs gov 1040ez S. Irs gov 1040ez return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Irs gov 1040ez If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Irs gov 1040ez You can take a credit of only $113 because of limits discussed later. Irs gov 1040ez Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Irs gov 1040ez If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Irs gov 1040ez When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Irs gov 1040ez Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Irs gov 1040ez “Tax year” refers to the tax year for which your U. Irs gov 1040ez S. Irs gov 1040ez return is filed, not the tax year for which your foreign return is filed. Irs gov 1040ez Accrual method of accounting. Irs gov 1040ez   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Irs gov 1040ez You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Irs gov 1040ez   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Irs gov 1040ez Generally, this occurs on the last day of the tax year for which your foreign return is filed. Irs gov 1040ez Contesting your foreign tax liability. Irs gov 1040ez   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Irs gov 1040ez However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Irs gov 1040ez Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Irs gov 1040ez If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Irs gov 1040ez You may have to post a bond. Irs gov 1040ez   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Irs gov 1040ez   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Irs gov 1040ez Cash method of accounting. Irs gov 1040ez   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Irs gov 1040ez You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Irs gov 1040ez Choosing to take credit in the year taxes accrue. Irs gov 1040ez   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Irs gov 1040ez You make the choice by checking the box in Part II of Form 1116. Irs gov 1040ez Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Irs gov 1040ez   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Irs gov 1040ez You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Irs gov 1040ez   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Irs gov 1040ez Credit based on taxes paid in earlier year. Irs gov 1040ez   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Irs gov 1040ez Example. Irs gov 1040ez Last year you took the credit based on taxes paid. Irs gov 1040ez This year you chose to take the credit based on taxes accrued. Irs gov 1040ez During the year you paid foreign income taxes owed for last year. Irs gov 1040ez You also accrued foreign income taxes for this year that you did not pay by the end of the year. Irs gov 1040ez You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Irs gov 1040ez Foreign Currency and Exchange Rates U. Irs gov 1040ez S. Irs gov 1040ez income tax is imposed on income expressed in U. Irs gov 1040ez S. Irs gov 1040ez dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Irs gov 1040ez Therefore, fluctuations in the value of the foreign currency relative to the U. Irs gov 1040ez S. Irs gov 1040ez dollar may affect the foreign tax credit. Irs gov 1040ez Translating foreign currency into U. Irs gov 1040ez S. Irs gov 1040ez dollars. Irs gov 1040ez   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Irs gov 1040ez S. Irs gov 1040ez dollars. Irs gov 1040ez How and when you do this depends on your functional currency. Irs gov 1040ez In most cases, your functional currency is the U. Irs gov 1040ez S. Irs gov 1040ez dollar unless you are required to use the currency of a foreign country. Irs gov 1040ez   You must make all federal income tax determinations in your functional currency. Irs gov 1040ez The U. Irs gov 1040ez S. Irs gov 1040ez dollar is the functional currency for all taxpayers except some qualified business units. Irs gov 1040ez A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Irs gov 1040ez Unless you are self-employed, your functional currency is the U. Irs gov 1040ez S. Irs gov 1040ez dollar. Irs gov 1040ez   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Irs gov 1040ez S. Irs gov 1040ez dollar if any of the following apply. Irs gov 1040ez You conduct the business primarily in dollars. Irs gov 1040ez The principal place of business is located in the United States. Irs gov 1040ez You choose to or are required to use the dollar as your functional currency. Irs gov 1040ez The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Irs gov 1040ez   If your functional currency is the U. Irs gov 1040ez S. Irs gov 1040ez dollar, you must immediately translate into dollars all items of income, expense, etc. Irs gov 1040ez , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Irs gov 1040ez If there is more than one exchange rate, use the one that most properly reflects your income. Irs gov 1040ez In most cases, you can get exchange rates from banks and U. Irs gov 1040ez S. Irs gov 1040ez Embassies. Irs gov 1040ez   If your functional currency is not the U. Irs gov 1040ez S. Irs gov 1040ez dollar, make all income tax determinations in your functional currency. Irs gov 1040ez At the end of the year, translate the results, such as income or loss, into U. Irs gov 1040ez S. Irs gov 1040ez dollars to report on your income tax return. Irs gov 1040ez    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Irs gov 1040ez   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Irs gov 1040ez If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Irs gov 1040ez If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Irs gov 1040ez   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Irs gov 1040ez Exception. Irs gov 1040ez   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Irs gov 1040ez This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Irs gov 1040ez The foreign taxes are paid on or after the first day of the tax year to which they relate. Irs gov 1040ez The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Irs gov 1040ez The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Irs gov 1040ez (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Irs gov 1040ez )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Irs gov 1040ez Election to use exchange rate on date paid. Irs gov 1040ez   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Irs gov 1040ez If any of the accrued taxes are unpaid, you must translate them into U. Irs gov 1040ez S. Irs gov 1040ez dollars using the exchange rate on the last day of the U. Irs gov 1040ez S. Irs gov 1040ez tax year to which those taxes relate. Irs gov 1040ez You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Irs gov 1040ez S. Irs gov 1040ez dollar functional currency. Irs gov 1040ez Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Irs gov 1040ez The election is available for tax years beginning after 2004. Irs gov 1040ez It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Irs gov 1040ez Make the election by attaching a statement to the applicable tax return. Irs gov 1040ez The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Irs gov 1040ez S. Irs gov 1040ez dollar functional currency. Irs gov 1040ez Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Irs gov 1040ez S. Irs gov 1040ez foreign tax credit claimed. Irs gov 1040ez The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Irs gov 1040ez If a foreign tax redetermination occurs, a redetermination of your U. Irs gov 1040ez S. Irs gov 1040ez tax liability is required if any of the following conditions apply. Irs gov 1040ez The accrued taxes when paid differ from the amounts claimed as a credit. Irs gov 1040ez The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Irs gov 1040ez If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Irs gov 1040ez You will not be allowed a credit for the unpaid taxes until you pay them. Irs gov 1040ez When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Irs gov 1040ez S. Irs gov 1040ez dollars using the exchange rate as of the date they were paid. Irs gov 1040ez The foreign tax credit is allowed for the year to which the foreign tax relates. Irs gov 1040ez See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Irs gov 1040ez The foreign taxes you paid are refunded in whole or in part. Irs gov 1040ez For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Irs gov 1040ez However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Irs gov 1040ez S. Irs gov 1040ez tax year. Irs gov 1040ez In this case, you must adjust your U. Irs gov 1040ez S. Irs gov 1040ez tax in the tax year in which the accrued foreign taxes are paid. Irs gov 1040ez Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Irs gov 1040ez S. Irs gov 1040ez tax liability for each tax year affected by the redetermination. Irs gov 1040ez In most cases, you must file Form 1040X, Amended U. Irs gov 1040ez S. Irs gov 1040ez Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Irs gov 1040ez S. Irs gov 1040ez tax liability for the year or years affected. Irs gov 1040ez See Contents of statement , later. Irs gov 1040ez You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Irs gov 1040ez There are other exceptions to this requirement. Irs gov 1040ez They are discussed later under Due date of notification to IRS . Irs gov 1040ez Contents of statement. Irs gov 1040ez   The statement must include all of the following. Irs gov 1040ez Your name, address, and taxpayer identification number. Irs gov 1040ez The tax year or years that are affected by the foreign tax redetermination. Irs gov 1040ez The date or dates the foreign taxes were accrued, if applicable. Irs gov 1040ez The date or dates the foreign taxes were paid. Irs gov 1040ez The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Irs gov 1040ez Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Irs gov 1040ez   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Irs gov 1040ez   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Irs gov 1040ez Due date of notification to IRS. Irs gov 1040ez   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Irs gov 1040ez There is no limit on the time the IRS has to redetermine and assess the correct U. Irs gov 1040ez S. Irs gov 1040ez tax due. Irs gov 1040ez If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Irs gov 1040ez S. Irs gov 1040ez taxes. Irs gov 1040ez See Time Limit on Refund Claims , later. Irs gov 1040ez   Exceptions to this due date are explained in the next two paragraphs. Irs gov 1040ez Multiple redeterminations of U. Irs gov 1040ez S. Irs gov 1040ez tax liability for same tax year. Irs gov 1040ez   Where more than one foreign tax redetermination requires a redetermination of U. Irs gov 1040ez S. Irs gov 1040ez tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Irs gov 1040ez If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Irs gov 1040ez However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Irs gov 1040ez S. Irs gov 1040ez tax liability is required may occur after the due date for providing that notification. Irs gov 1040ez In this situation, you may have to file more than one Form 1040X for that tax year. Irs gov 1040ez Additional U. Irs gov 1040ez S. Irs gov 1040ez tax due eliminated by foreign tax credit carryback or carryover. Irs gov 1040ez   If a foreign tax redetermination requires a redetermination of U. Irs gov 1040ez S. Irs gov 1040ez tax liability that would otherwise result in an additional amount of U. Irs gov 1040ez S. Irs gov 1040ez tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Irs gov 1040ez Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Irs gov 1040ez You must file the statement by the due date (with extensions) of that return. Irs gov 1040ez The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Irs gov 1040ez S. Irs gov 1040ez tax liability is required). Irs gov 1040ez Failure-to-notify penalty. Irs gov 1040ez   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Irs gov 1040ez   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Irs gov 1040ez S. Irs gov 1040ez tax. Irs gov 1040ez This penalty cannot be more than 25% of the tax due. Irs gov 1040ez Foreign tax refund. Irs gov 1040ez   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Irs gov 1040ez S. Irs gov 1040ez tax for the time before the date of the refund. Irs gov 1040ez   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Irs gov 1040ez The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Irs gov 1040ez Interest also is owed from the time you receive a refund until you pay the additional tax due. Irs gov 1040ez Foreign tax imposed on foreign refund. Irs gov 1040ez   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Irs gov 1040ez However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Irs gov 1040ez Example. Irs gov 1040ez You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Irs gov 1040ez When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Irs gov 1040ez Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Irs gov 1040ez S. Irs gov 1040ez tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Irs gov 1040ez The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Irs gov 1040ez You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Irs gov 1040ez The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Irs gov 1040ez The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Irs gov 1040ez See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Irs gov 1040ez Who Can Take the Credit? U. Irs gov 1040ez S. Irs gov 1040ez citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Irs gov 1040ez S. Irs gov 1040ez tax on foreign source income may be able to take a foreign tax credit. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez Citizens If you are a U. Irs gov 1040ez S. Irs gov 1040ez citizen, you are taxed by the United States on your worldwide income wherever you live. Irs gov 1040ez You are normally entitled to take a credit for foreign taxes you pay or accrue. Irs gov 1040ez Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Irs gov 1040ez S. Irs gov 1040ez citizens. Irs gov 1040ez If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Irs gov 1040ez Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Irs gov 1040ez For information on alien status, see Publication 519. Irs gov 1040ez Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Irs gov 1040ez However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Irs gov 1040ez S. Irs gov 1040ez possession on income from foreign sources that is effectively connected with a trade or business in the United States. Irs gov 1040ez But if you must pay tax to a foreign country or U. Irs gov 1040ez S. Irs gov 1040ez possession on income from U. Irs gov 1040ez S. Irs gov 1040ez sources only because you are a citizen or a resident of that country or U. Irs gov 1040ez S. Irs gov 1040ez possession, do not use that tax in figuring the amount of your credit. Irs gov 1040ez For information on alien status and effectively connected income, see Publication 519. Irs gov 1040ez What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Irs gov 1040ez The tax must be imposed on you. Irs gov 1040ez You must have paid or accrued the tax. Irs gov 1040ez The tax must be the legal and actual foreign tax liability. Irs gov 1040ez The tax must be an income tax (or a tax in lieu of an income tax). Irs gov 1040ez Certain foreign taxes do not qualify for the credit even if the four tests are met. Irs gov 1040ez See Foreign Taxes for Which You Cannot Take a Credit, later. Irs gov 1040ez Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Irs gov 1040ez S. Irs gov 1040ez possession. Irs gov 1040ez For example, a tax that is deducted from your wages is considered to be imposed on you. Irs gov 1040ez You cannot shift the right to claim the credit by contract or other means. Irs gov 1040ez Foreign country. Irs gov 1040ez   A foreign country includes any foreign state and its political subdivisions. Irs gov 1040ez Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez possessions. Irs gov 1040ez   For foreign tax credit purposes, all qualified taxes paid to U. Irs gov 1040ez S. Irs gov 1040ez possessions are considered foreign taxes. Irs gov 1040ez For this purpose, U. Irs gov 1040ez S. Irs gov 1040ez possessions include Puerto Rico and American Samoa. Irs gov 1040ez   When the term “foreign country” is used in this publication, it includes U. Irs gov 1040ez S. Irs gov 1040ez possessions unless otherwise stated. Irs gov 1040ez You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Irs gov 1040ez S. Irs gov 1040ez possession. Irs gov 1040ez However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Irs gov 1040ez Joint return. Irs gov 1040ez   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Irs gov 1040ez Combined income. Irs gov 1040ez   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Irs gov 1040ez 901-2(f)(3)(iii). Irs gov 1040ez Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Irs gov 1040ez   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Irs gov 1040ez However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Irs gov 1040ez For more details, see paragraphs (f) and (h) of Regulations section 1. Irs gov 1040ez 901-2. Irs gov 1040ez For similar rules applicable to prior tax years, see Regulations section 1. Irs gov 1040ez 901-2 (revised as of April 1, 2011). Irs gov 1040ez Example. Irs gov 1040ez You and your spouse reside in Country X, which imposes income tax on your combined incomes. Irs gov 1040ez Both of you use the “u” as your functional currency. Irs gov 1040ez Country X apportions tax based on income. Irs gov 1040ez You had income of 30,000u and your spouse had income of 20,000u. Irs gov 1040ez Your filing status on your U. Irs gov 1040ez S. Irs gov 1040ez income tax return is married filing separately. Irs gov 1040ez You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Irs gov 1040ez S income tax return. Irs gov 1040ez Your spouse can claim only 40% (20,000u/50,000u). Irs gov 1040ez Partner or S corporation shareholder. Irs gov 1040ez   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Irs gov 1040ez These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Irs gov 1040ez However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Irs gov 1040ez Beneficiary. Irs gov 1040ez   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Irs gov 1040ez This amount will be shown on the Schedule K-1 you receive from the estate or trust. Irs gov 1040ez However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Irs gov 1040ez Mutual fund shareholder. Irs gov 1040ez   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Irs gov 1040ez You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Irs gov 1040ez If you do not receive this information, you will need to contact the fund. Irs gov 1040ez Controlled foreign corporation shareholder. Irs gov 1040ez   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Irs gov 1040ez If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Irs gov 1040ez Controlled foreign corporation. Irs gov 1040ez   A controlled foreign corporation is a foreign corporation in which U. Irs gov 1040ez S. Irs gov 1040ez shareholders own more than 50% of the voting power or value of the stock. Irs gov 1040ez You are considered a U. Irs gov 1040ez S. Irs gov 1040ez shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Irs gov 1040ez See Internal Revenue Code sections 951(b) and 958(b) for more information. Irs gov 1040ez Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Irs gov 1040ez Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Irs gov 1040ez Foreign tax refund. Irs gov 1040ez   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Irs gov 1040ez   For example, the United States has tax treaties with many countries allowing U. Irs gov 1040ez S. Irs gov 1040ez citizens and residents reductions in the rates of tax of those foreign countries. Irs gov 1040ez However, some treaty countries require U. Irs gov 1040ez S. Irs gov 1040ez citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Irs gov 1040ez The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Irs gov 1040ez Subsidy received. Irs gov 1040ez   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Irs gov 1040ez This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Irs gov 1040ez A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Irs gov 1040ez   The term “subsidy” includes any type of benefit. Irs gov 1040ez Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Irs gov 1040ez Shareholder receiving refund for corporate tax in integrated system. Irs gov 1040ez   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Irs gov 1040ez You may be able to claim a refund of these taxes from the foreign government. Irs gov 1040ez You must include the refund (including any amount withheld) in your income in the year received. Irs gov 1040ez Any tax withheld from the refund is a qualified foreign tax. Irs gov 1040ez Example. Irs gov 1040ez You are a shareholder of a French corporation. Irs gov 1040ez You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Irs gov 1040ez The French government imposes a 15% withholding tax ($15) on the refund you received. Irs gov 1040ez You receive a check for $85. Irs gov 1040ez You include $100 in your income. Irs gov 1040ez The $15 of tax withheld is a qualified foreign tax. Irs gov 1040ez Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Irs gov 1040ez Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Irs gov 1040ez Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Irs gov 1040ez See Taxes in Lieu of Income Taxes , later. Irs gov 1040ez Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Irs gov 1040ez A foreign levy is an income tax only if it meets both of the following requirements. Irs gov 1040ez It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Irs gov 1040ez The predominant character of the tax is that of an income tax in the U. Irs gov 1040ez S. Irs gov 1040ez sense. Irs gov 1040ez A foreign levy may meet these requirements even if the foreign tax law differs from U. Irs gov 1040ez S. Irs gov 1040ez tax law. Irs gov 1040ez The foreign law may include in income items that U. Irs gov 1040ez S. Irs gov 1040ez law does not include, or it may allow certain exclusions or deductions that U. Irs gov 1040ez S. Irs gov 1040ez law does not allow. Irs gov 1040ez Specific economic benefit. Irs gov 1040ez   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Irs gov 1040ez   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Irs gov 1040ez   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Irs gov 1040ez Economic benefits. Irs gov 1040ez   Economic benefits include the following. Irs gov 1040ez Goods. Irs gov 1040ez Services. Irs gov 1040ez Fees or other payments. Irs gov 1040ez Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Irs gov 1040ez Discharges of contractual obligations. Irs gov 1040ez   In most cases, the right or privilege merely to engage in business is not an economic benefit. Irs gov 1040ez Dual-capacity taxpayers. Irs gov 1040ez   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Irs gov 1040ez ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Irs gov 1040ez    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Irs gov 1040ez   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Irs gov 1040ez    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Irs gov 1040ez For more information about these agreements, see Publication 54. Irs gov 1040ez Soak-up taxes. Irs gov 1040ez   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Irs gov 1040ez A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Irs gov 1040ez This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Irs gov 1040ez Penalties and interest. Irs gov 1040ez   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Irs gov 1040ez Taxes not based on income. Irs gov 1040ez   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Irs gov 1040ez Taxes based on assets, such as property taxes, do not qualify for the credit. Irs gov 1040ez Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Irs gov 1040ez A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Irs gov 1040ez A tax in lieu of an income tax does not have to be based on realized net income. Irs gov 1040ez A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Irs gov 1040ez In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Irs gov 1040ez However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Irs gov 1040ez The soak-up tax. Irs gov 1040ez The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Irs gov 1040ez Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Irs gov 1040ez These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Irs gov 1040ez S. Irs gov 1040ez persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Irs gov 1040ez Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Irs gov 1040ez S. Irs gov 1040ez gross income. Irs gov 1040ez Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Irs gov 1040ez S. Irs gov 1040ez income under the foreign earned income exclusion or the foreign housing exclusion. Irs gov 1040ez See Publication 54 for more information on the foreign earned income and housing exclusions. Irs gov 1040ez Wages completely excluded. Irs gov 1040ez   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Irs gov 1040ez Wages partly excluded. Irs gov 1040ez   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Irs gov 1040ez You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Irs gov 1040ez   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Irs gov 1040ez Deductible expenses do not include the foreign housing deduction. Irs gov 1040ez   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Irs gov 1040ez If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Irs gov 1040ez S. Irs gov 1040ez sources or a type of income not subject to U. Irs gov 1040ez S. Irs gov 1040ez tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Irs gov 1040ez Example. Irs gov 1040ez You are a U. Irs gov 1040ez S. Irs gov 1040ez citizen and a cash basis taxpayer, employed by Company X and living in Country A. Irs gov 1040ez Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Irs gov 1040ez To find that part, do the following. Irs gov 1040ez First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Irs gov 1040ez To do this, multiply the otherwise deductible expenses by a fraction. Irs gov 1040ez That fraction is the excluded wages over your foreign earned income. Irs gov 1040ez   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Irs gov 1040ez To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Irs gov 1040ez The result is $81,984. Irs gov 1040ez Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Irs gov 1040ez Finally, multiply the foreign tax you paid by the resulting fraction. Irs gov 1040ez   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Irs gov 1040ez Taxes on Income From Puerto Rico Exempt From U. Irs gov 1040ez S. Irs gov 1040ez Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Irs gov 1040ez For information on figuring the reduction, see Publication 570. Irs gov 1040ez Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Irs gov 1040ez For more information on this exclusion, see Publication 570. Irs gov 1040ez Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Irs gov 1040ez However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Irs gov 1040ez Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Irs gov 1040ez However, you can claim an itemized deduction for these taxes. Irs gov 1040ez See Choosing To Take Credit or Deduction , earlier. Irs gov 1040ez Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Irs gov 1040ez The following countries meet this description for 2013. Irs gov 1040ez Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Irs gov 1040ez Cuba. Irs gov 1040ez Iran. Irs gov 1040ez Libya (but see Note later). Irs gov 1040ez North Korea. Irs gov 1040ez Sudan. Irs gov 1040ez Syria. Irs gov 1040ez Waiver of denial of the credit. Irs gov 1040ez   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Irs gov 1040ez S. Irs gov 1040ez companies in the sanctioned country. Irs gov 1040ez The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Irs gov 1040ez Note. Irs gov 1040ez Effective December 10, 2004, the President granted a waiver to Libya. Irs gov 1040ez Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Irs gov 1040ez Limit on credit. Irs gov 1040ez   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Irs gov 1040ez You must fill out a separate Form 1116 for this income. Irs gov 1040ez This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Irs gov 1040ez Example. Irs gov 1040ez You lived and worked in Iran until August, when you were transferred to Italy. Irs gov 1040ez You paid taxes to each country on the income earned in that country. Irs gov 1040ez You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Irs gov 1040ez Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Irs gov 1040ez You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Irs gov 1040ez Figuring the credit when a sanction ends. Irs gov 1040ez    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Irs gov 1040ez For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Irs gov 1040ez Example. Irs gov 1040ez The sanctions against Country X ended on July 31. Irs gov 1040ez On August 19, you receive a distribution from a mutual fund of Country X income. Irs gov 1040ez The fund paid Country X income tax for you on the distribution. Irs gov 1040ez Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Irs gov 1040ez Amounts for the nonsanctioned period. Irs gov 1040ez   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Irs gov 1040ez Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Irs gov 1040ez   Number of nonsanctioned days in year  Number of days in year Example. Irs gov 1040ez You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Irs gov 1040ez Sanctions against Country X ended on July 11, 2013. Irs gov 1040ez You are unable to determine how much of the income or tax is for the nonsanctioned period. Irs gov 1040ez Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Irs gov 1040ez You would compute the income for the nonsanctioned period as follows. Irs gov 1040ez 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Irs gov 1040ez 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Irs gov 1040ez Further information. Irs gov 1040ez   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Irs gov 1040ez This Cumulative Bulletin can be found in many libraries and IRS offices. Irs gov 1040ez Table 1. Irs gov 1040ez Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Irs gov 1040ez Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Irs gov 1040ez The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Irs gov 1040ez The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Irs gov 1040ez If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Irs gov 1040ez When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Irs gov 1040ez Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Irs gov 1040ez Withholding tax. Irs gov 1040ez   For this purpose, withholding tax includes any tax determined on a gross basis. Irs gov 1040ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Irs gov 1040ez Ex-dividend date. Irs gov 1040ez   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Irs gov 1040ez Example 1. Irs gov 1040ez You bought common stock from a foreign corporation on November 3. Irs gov 1040ez You sold the stock on November 19. Irs gov 1040ez You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Irs gov 1040ez To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Irs gov 1040ez Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Irs gov 1040ez Example 2. Irs gov 1040ez The facts are the same as in Example 1 except that you sold the stock on November 14. Irs gov 1040ez You held the stock for only 11 days. Irs gov 1040ez You are not entitled to the credit. Irs gov 1040ez Exception. Irs gov 1040ez   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Irs gov 1040ez See section 901(k)(4) of the Internal Revenue Code for more information. Irs gov 1040ez Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Irs gov 1040ez When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Irs gov 1040ez Withholding tax. Irs gov 1040ez   For this purpose, withholding tax includes any tax determined on a gross basis. Irs gov 1040ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Irs gov 1040ez Exception for dealers. Irs gov 1040ez   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Irs gov 1040ez See section 901(I)(2) of the Internal Revenue Code for more information. Irs gov 1040ez Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Irs gov 1040ez A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Irs gov 1040ez S. Irs gov 1040ez tax purposes but not for foreign tax purposes. Irs gov 1040ez For more information, see Internal Revenue Code section 901(m). Irs gov 1040ez The IRS intends to issue guidance that will explain this provision in greater detail. Irs gov 1040ez Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Irs gov 1040ez Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Irs gov 1040ez For details, see Regulations section 1. Irs gov 1040ez 901-3. Irs gov 1040ez Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Irs gov 1040ez See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Irs gov 1040ez In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Irs gov 1040ez List of boycotting countries. Irs gov 1040ez   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Irs gov 1040ez As of November 2013, the following countries are listed. Irs gov 1040ez Iraq. Irs gov 1040ez Kuwait. Irs gov 1040ez Lebanon. Irs gov 1040ez Libya. Irs gov 1040ez Qatar. Irs gov 1040ez Saudi Arabia. Irs gov 1040ez Syria. Irs gov 1040ez United Arab Emirates. Irs gov 1040ez Yemen. Irs gov 1040ez    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Irs gov 1040ez   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Irs gov 1040ez The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Irs gov 1040ez Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Irs gov 1040ez Public inspection. Irs gov 1040ez   A determination and any related background file is open to public inspection. Irs gov 1040ez However, your identity and certain other information will remain confidential. Irs gov 1040ez Reporting requirements. Irs gov 1040ez   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Irs gov 1040ez A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Irs gov 1040ez A partnership in which you are a partner. Irs gov 1040ez A trust you are treated as owning. Irs gov 1040ez Form 5713 required. Irs gov 1040ez   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Irs gov 1040ez See the Instructions for Form 5713 for information on when and where to file the form. Irs gov 1040ez Penalty for failure to file. Irs gov 1040ez   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Irs gov 1040ez Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Irs gov 1040ez The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Irs gov 1040ez S. Irs gov 1040ez tax liability (Form 1040, line 44) divided by your worldwide taxable income. Irs gov 1040ez You may be entitled to carry over to other years taxes reduced under this rule. Irs gov 1040ez See Internal Revenue Code section 907(f). Irs gov 1040ez Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Irs gov 1040ez Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Irs gov 1040ez Taxes of U. Irs gov 1040ez S. Irs gov 1040ez Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Irs gov 1040ez If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Irs gov 1040ez See Penalty for not filing Form 5471 or Form 8865 , later. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez persons controlling foreign corporations. Irs gov 1040ez   If you are a U. Irs gov 1040ez S. Irs gov 1040ez citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Irs gov 1040ez S. Irs gov 1040ez Persons With Respect To Certain Foreign Corporations. Irs gov 1040ez Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez persons controlling foreign partnerships. Irs gov 1040ez   If you are a U. Irs gov 1040ez S. Irs gov 1040ez citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
Print - Click this link to Print this page

The Individual Shared Responsibility Provision

Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals share the responsibility for health insurance coverage beginning in 2014. Many people already have qualifying health insurance coverage (called minimum essential coverage) and do not need to do anything more than maintain that coverage.

The individual shared responsibility provision requires you and each member of your family to either:

  • Have minimum essential coverage, or
  • Have an exemption from the responsibility to have minimum essential coverage, or
  • Make a shared responsibility payment when you file your 2014 federal income tax return in 2015.  

You will report minimum essential coverage, report exemptions, or make any individual shared responsibility payment when you file your 2014 federal income tax return in 2015.

Minimum Essential Coverage

 

If you and your family need to acquire minimum essential coverage, you may have several options.  They include:

  • Health insurance coverage provided by your employer,
  • Health insurance purchased through the Health Insurance Marketplace in the area where you live, where you may qualify for financial assistance,
  • Coverage provided under a government-sponsored program for which you are eligible (including Medicare, Medicaid, and health care programs for veterans),
  • Health insurance purchased directly from an insurance company, and
  • Other health insurance coverage that is recognized by the Department of Health & Human Services as minimum essential coverage.

U.S. citizens who are residents of a foreign country for an entire year, and residents of U.S. territories, are deemed to have minimum essential coverage. See questions 11 and 12 of our Questions and Answers for more information.  

For purposes of the individual shared responsibility payment, you are considered to have minimum essential coverage for the entire month as long as you have minimum essential coverage for at least one day during that month. For example, if you start a new job on June 26 and are covered under your employer’s health coverage starting on that day, you’re treated as having coverage for the entire month of June. Similarly, if you’re eligible for an exemption for any one day of a month, you’re treated as exempt for the entire month.

For more information about minimum essential coverage, check this minimum essential coverage chart and see questions 14-20 of our Questions and Answers.  

You can learn more at HealthCare.gov about which health insurance options are available to you, how to purchase health insurance coverage, and how to get financial assistance with the cost of insurance. If you purchase health insurance through the Marketplace and you meet certain requirements, you may be eligible for a premium tax credit to help pay your premiums. Learn more about the premium tax credit. The deadline for the initial open enrollment period is March 31, 2014. You may also qualify for a special enrollment period (e.g., you move to a different state). See HealthCare.gov to learn about special enrollment periods.

Exemptions

 

You may be exempt from the requirement to maintain minimum essential coverage and thus will not have to make a shared responsibility payment when you file your 2014 federal income tax return in 2015, if you meet certain criteria.

You may be exempt if you:

  • Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than eight percent of your household income,
  • Have a gap in coverage for less than three consecutive months, or
  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement.

Because of the Affordable Care Act, more Americans have access to coverage that is affordable. However, if there is no coverage available to you and your family that costs less than eight percent of your household income, you can qualify for an exemption.  

An exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period for 2014, which runs through March 31, 2014. This hardship exemption will apply from January 1, 2014, until the start of your health care coverage, which if you enroll between March 16 and March 31 would generally be May 1. (See this HHS Question and Answer  for more information.) Another hardship exemption may apply if you have been notified that your health insurance policy will not be renewed and you consider the other plans available to you unaffordable. (See this HHS guidance and Questions and Answers  for more information.)

How you get an exemption depends upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace, others only from the IRS, and yet others from either the Marketplace or the IRS. 

Learn more about exemptions in this chart and in questions 21-24 of our Questions and Answers. Also, see Healthcare.gov for more information on hardship exemptions.

Reporting Coverage or Exemptions

 

The individual shared responsibility provision goes into effect in 2014. You won’t need to report minimum essential coverage or exemptions or make any individual shared responsibility payment until you file your 2014 federal income tax return in 2015. Information will be made available later about how to report your coverage or exemption (or make a payment) on your 2014 income tax return.

Making a Payment

 

If you or any of your dependents don’t have minimum essential coverage and don’t have an exemption, you will need to make an individual shared responsibility payment on your tax return. It is important to remember that choosing to make the individual shared responsibility payment instead of purchasing minimum essential coverage means you will also have to pay the entire cost of all your medical care. You won't be protected from the kind of very high medical bills that can sometimes lead to bankruptcy.

If you must make an individual shared responsibility payment, the annual payment amount is the greater of a percentage of your household income or a flat dollar amount, but is capped at the national average premium for a bronze level health plan available through the Marketplace. You will owe 1/12th of the annual payment for each month you or your dependent(s) don’t have either coverage or an exemption.

For 2014, the annual payment amount is:

  • The greater of:
    • 1 percent of your household income that is above the tax return filing threshold for your filing status, or
    • Your family's flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285,
  • But capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

Check out these basic examples of the payment calculation and the federal tax filing requirement thresholds. For more detailed examples, see the individual shared responsibility provision final regulations.

The percentages and flat dollar amounts increase over the first three years. In 2015, the income percentage increases to 2 percent of household income and the flat dollar amount increases to $325 per adult ($162.50 per child under 18). In 2016, these figures increase to 2.5 percent of household income and $695 per adult ($347.50 per child under 18). After 2016, these figures increase with inflation. 

Information will be made available later about how you will account for the payment on your 2014 federal income tax return filed in 2015.

More Information

 

More detailed information about the individual shared responsibility provision is available in our Questions and Answers. The Department of the Treasury and the IRS have issued the following legal guidance related to the individual shared responsibility provision, including detailed examples of the payment calculation:

  • Final regulations on the individual shared responsibility provision.
  • Notice 2013-42, which provides transition relief from the individual shared responsibility provision for employees and their families who are eligible to enroll in employer-sponsored health plans with a plan year other than a calendar year if the plan year begins in 2013 and ends in 2014.
  • Proposed regulations on minimum essential coverage and other rules regarding the shared responsibility provision.
  • Notice 2014-10, which provides transition relief for individuals enrolled in coverage under certain limited-benefit Medicaid and TRICARE programs that are not minimum essential coverage.

Additional information on exemptions and minimum essential coverage is available in final regulations issued by the Department of Health & Human Services.

Page Last Reviewed or Updated: 25-Mar-2014

The Irs Gov 1040ez

Irs gov 1040ez Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. Irs gov 1040ez S. Irs gov 1040ez Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. Irs gov 1040ez You must meet all seven rules to qualify for the earned income credit. Irs gov 1040ez If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. Irs gov 1040ez If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. Irs gov 1040ez Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Irs gov 1040ez Adjusted gross income (AGI). Irs gov 1040ez   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. Irs gov 1040ez   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Irs gov 1040ez You do not need to read the rest of this publication. Irs gov 1040ez Example—AGI is more than limit. Irs gov 1040ez Your AGI is $38,550, you are single, and you have one qualifying child. Irs gov 1040ez You cannot claim the EIC because your AGI is not less than $37,870. Irs gov 1040ez However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Irs gov 1040ez Community property. Irs gov 1040ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Irs gov 1040ez This is different from the community property rules that apply under Rule 7. Irs gov 1040ez Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Irs gov 1040ez Any qualifying child listed on Schedule EIC also must have a valid SSN. Irs gov 1040ez (See Rule 8 if you have a qualifying child. Irs gov 1040ez ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Irs gov 1040ez An example of a federally funded benefit is Medicaid. Irs gov 1040ez If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Irs gov 1040ez S. Irs gov 1040ez citizen or permanent resident, ask the SSA for a new social security card without the legend. Irs gov 1040ez If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. Irs gov 1040ez S. Irs gov 1040ez Individual Income Tax Return, to claim the EIC. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez citizen. Irs gov 1040ez   If you were a U. Irs gov 1040ez S. Irs gov 1040ez citizen when you received your SSN, you have a valid SSN. Irs gov 1040ez Valid for work only with INS authorization or DHS authorization. Irs gov 1040ez   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Irs gov 1040ez SSN missing or incorrect. Irs gov 1040ez   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Irs gov 1040ez Other taxpayer identification number. Irs gov 1040ez   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Irs gov 1040ez ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Irs gov 1040ez No SSN. Irs gov 1040ez   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs gov 1040ez You cannot claim the EIC. Irs gov 1040ez Getting an SSN. Irs gov 1040ez   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. Irs gov 1040ez You can get Form SS-5 online at www. Irs gov 1040ez socialsecurity. Irs gov 1040ez gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Irs gov 1040ez Filing deadline approaching and still no SSN. Irs gov 1040ez   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Irs gov 1040ez Request an automatic 6-month extension of time to file your return. Irs gov 1040ez You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Irs gov 1040ez S. Irs gov 1040ez Individual Income Tax Return. Irs gov 1040ez For more information, see the instructions for Form 4868. Irs gov 1040ez File the return on time without claiming the EIC. Irs gov 1040ez After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. Irs gov 1040ez Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. Irs gov 1040ez Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. Irs gov 1040ez Your filing status cannot be “Married filing separately. Irs gov 1040ez ” Spouse did not live with you. Irs gov 1040ez   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Irs gov 1040ez In that case, you may be able to claim the EIC. Irs gov 1040ez For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Irs gov 1040ez Rule 4—You Must Be a U. Irs gov 1040ez S. Irs gov 1040ez Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Irs gov 1040ez You can use that filing status only if one spouse is a U. Irs gov 1040ez S. Irs gov 1040ez citizen or resident alien and you choose to treat the nonresident spouse as a U. Irs gov 1040ez S. Irs gov 1040ez resident. Irs gov 1040ez If you make this choice, you and your spouse are taxed on your worldwide income. Irs gov 1040ez If you need more information on making this choice, get Publication 519, U. Irs gov 1040ez S. Irs gov 1040ez Tax Guide for Aliens. Irs gov 1040ez If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Irs gov 1040ez Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Irs gov 1040ez You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Irs gov 1040ez U. Irs gov 1040ez S. Irs gov 1040ez possessions are not foreign countries. Irs gov 1040ez See Publication 54, Tax Guide for U. Irs gov 1040ez S. Irs gov 1040ez Citizens and Resident Aliens Abroad, for more detailed information. Irs gov 1040ez Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Irs gov 1040ez If your investment income is more than $3,300, you cannot claim the credit. Irs gov 1040ez Form 1040EZ. Irs gov 1040ez   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Irs gov 1040ez Form 1040A. Irs gov 1040ez   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. Irs gov 1040ez Form 1040. Irs gov 1040ez   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. Irs gov 1040ez    Worksheet 1. Irs gov 1040ez Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. Irs gov 1040ez Interest and Dividends         1. Irs gov 1040ez Enter any amount from Form 1040, line 8a 1. Irs gov 1040ez   2. Irs gov 1040ez Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. Irs gov 1040ez   3. Irs gov 1040ez Enter any amount from Form 1040, line 9a 3. Irs gov 1040ez   4. Irs gov 1040ez Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. Irs gov 1040ez (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. Irs gov 1040ez ) 4. Irs gov 1040ez   Capital Gain Net Income         5. Irs gov 1040ez Enter the amount from Form 1040, line 13. Irs gov 1040ez If the amount on that line is a loss, enter -0- 5. Irs gov 1040ez       6. Irs gov 1040ez Enter any gain from Form 4797, Sales of Business Property, line 7. Irs gov 1040ez If the amount on that line is a loss, enter -0-. Irs gov 1040ez (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. Irs gov 1040ez ) 6. Irs gov 1040ez       7. Irs gov 1040ez Substract line 6 of this worksheet from line 5 of this worksheet. Irs gov 1040ez (If the result is less than zero, enter -0-. Irs gov 1040ez ) 7. Irs gov 1040ez   Royalties and Rental Income From Personal Property         8. Irs gov 1040ez Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. Irs gov 1040ez       9. Irs gov 1040ez Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. Irs gov 1040ez       10. Irs gov 1040ez Subtract the amount on line 9 of this worksheet from the amount on line 8. Irs gov 1040ez (If the result is less than zero, enter -0-. Irs gov 1040ez ) 10. Irs gov 1040ez   Passive Activities         11. Irs gov 1040ez Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. Irs gov 1040ez (g)), 34a (col. Irs gov 1040ez (d)), or 40). Irs gov 1040ez (See instructions below for lines 11 and 12. Irs gov 1040ez ) 11. Irs gov 1040ez       12. Irs gov 1040ez Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. Irs gov 1040ez (f)), 34b (col. Irs gov 1040ez (c)), or 40). Irs gov 1040ez (See instructions below for lines 11 and 12. Irs gov 1040ez ) 12. Irs gov 1040ez       13. Irs gov 1040ez Combine the amounts on lines 11 and 12 of this worksheet. Irs gov 1040ez (If the result is less than zero, enter -0-. Irs gov 1040ez ) 13. Irs gov 1040ez   14. Irs gov 1040ez Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Irs gov 1040ez Enter the total. Irs gov 1040ez This is your investment income 14. Irs gov 1040ez   15. Irs gov 1040ez Is the amount on line 14 more than $3,300? ❑ Yes. Irs gov 1040ez You cannot take the credit. Irs gov 1040ez  ❑ No. Irs gov 1040ez Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). Irs gov 1040ez       Instructions for lines 11 and 12. Irs gov 1040ez In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. Irs gov 1040ez To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. Irs gov 1040ez If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. Irs gov 1040ez Worksheet 2. Irs gov 1040ez Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. Irs gov 1040ez Note. Irs gov 1040ez Fill out a separate Worksheet 2 for each Form 8814. Irs gov 1040ez     1. Irs gov 1040ez Enter the amount from Form 8814, line 2a 1. Irs gov 1040ez   2. Irs gov 1040ez Enter the amount from Form 8814, line 2b 2. Irs gov 1040ez   3. Irs gov 1040ez Subtract line 2 from line 1 3. Irs gov 1040ez   4. Irs gov 1040ez Enter the amount from Form 8814, line 1a 4. Irs gov 1040ez   5. Irs gov 1040ez Add lines 3 and 4 5. Irs gov 1040ez   6. Irs gov 1040ez Enter the amount of the child's Alaska Permanent Fund dividend 6. Irs gov 1040ez   7. Irs gov 1040ez Divide line 6 by line 5. Irs gov 1040ez Enter the result as a decimal (rounded to at least three places) 7. Irs gov 1040ez   8. Irs gov 1040ez Enter the amount from Form 8814, line 12 8. Irs gov 1040ez   9. Irs gov 1040ez Multiply line 7 by line 8 9. Irs gov 1040ez   10. Irs gov 1040ez Subtract line 9 from line 8. Irs gov 1040ez Enter the result on line 4 of Worksheet 1 10. Irs gov 1040ez     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. Irs gov 1040ez )     Example—completing Worksheet 2. Irs gov 1040ez Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. Irs gov 1040ez You choose to report this income on your return. Irs gov 1040ez You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. Irs gov 1040ez After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. Irs gov 1040ez On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. Irs gov 1040ez 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. Irs gov 1040ez You then enter $200 on line 4 of Worksheet 1. Irs gov 1040ez Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Irs gov 1040ez If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Irs gov 1040ez If you are an employee, earned income includes all the taxable income you get from your employer. Irs gov 1040ez Rule 15 has information that will help you figure the amount of your earned income. Irs gov 1040ez If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. Irs gov 1040ez Earned Income Earned income includes all of the following types of income. Irs gov 1040ez Wages, salaries, tips, and other taxable employee pay. Irs gov 1040ez Employee pay is earned income only if it is taxable. Irs gov 1040ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Irs gov 1040ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. Irs gov 1040ez Net earnings from self-employment. Irs gov 1040ez Gross income received as a statutory employee. Irs gov 1040ez Wages, salaries, and tips. Irs gov 1040ez    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Irs gov 1040ez You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Irs gov 1040ez Nontaxable combat pay election. Irs gov 1040ez   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Irs gov 1040ez The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Irs gov 1040ez Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Irs gov 1040ez For details, see Nontaxable combat pay in chapter 4. Irs gov 1040ez Net earnings from self-employment. Irs gov 1040ez   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. Irs gov 1040ez Minister's housing. Irs gov 1040ez   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. Irs gov 1040ez For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). Irs gov 1040ez Statutory employee. Irs gov 1040ez   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. Irs gov 1040ez You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). Irs gov 1040ez Strike benefits. Irs gov 1040ez   Strike benefits paid by a union to its members are earned income. Irs gov 1040ez Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Irs gov 1040ez Each approved form exempts certain income from social security taxes. Irs gov 1040ez Each form is discussed here in terms of what is or is not earned income for the EIC. Irs gov 1040ez Form 4361. Irs gov 1040ez   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Irs gov 1040ez This includes wages, salaries, tips, and other taxable employee compensation. Irs gov 1040ez A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Irs gov 1040ez Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Irs gov 1040ez Examples include fees for performing marriages and honoraria for delivering speeches. Irs gov 1040ez Form 4029. Irs gov 1040ez   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Irs gov 1040ez However, amounts you received as a self-employed individual do not count as earned income. Irs gov 1040ez Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Irs gov 1040ez Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Irs gov 1040ez Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Irs gov 1040ez You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Irs gov 1040ez Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Irs gov 1040ez Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. Irs gov 1040ez Disability insurance payments. Irs gov 1040ez   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Irs gov 1040ez It does not matter whether you have reached minimum retirement age. Irs gov 1040ez If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Irs gov 1040ez ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Irs gov 1040ez Do not include any of these items in your earned income. Irs gov 1040ez Earnings while an inmate. Irs gov 1040ez   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Irs gov 1040ez This includes amounts for work performed while in a work release program or while in a halfway house. Irs gov 1040ez Workfare payments. Irs gov 1040ez   Nontaxable workfare payments are not earned income for the EIC. Irs gov 1040ez These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. Irs gov 1040ez Community property. Irs gov 1040ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Irs gov 1040ez That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Irs gov 1040ez Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Irs gov 1040ez Nevada, Washington, and California domestic partners. Irs gov 1040ez   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Irs gov 1040ez Your earned income for the EIC does not include any amount earned by your partner. Irs gov 1040ez Your earned income includes the entire amount you earned. Irs gov 1040ez For details, see Publication 555. Irs gov 1040ez Conservation Reserve Program (CRP) payments. Irs gov 1040ez   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Irs gov 1040ez Nontaxable military pay. Irs gov 1040ez   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Irs gov 1040ez Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Irs gov 1040ez See Publication 3, Armed Forces' Tax Guide, for more information. Irs gov 1040ez    Combat pay. Irs gov 1040ez You can elect to include your nontaxable combat pay in earned income for the EIC. Irs gov 1040ez See Nontaxable combat pay in chapter 4. Irs gov 1040ez Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. Irs gov 1040ez This chapter discusses Rules 8 through 10. Irs gov 1040ez You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. Irs gov 1040ez You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Irs gov 1040ez (You cannot file Form 1040EZ. Irs gov 1040ez ) You also must complete Schedule EIC and attach it to your return. Irs gov 1040ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Irs gov 1040ez No qualifying child. Irs gov 1040ez   If you do not meet Rule 8, you do not have a qualifying child. Irs gov 1040ez Read chapter 3 to find out if you can get the earned income credit without a qualifying child. Irs gov 1040ez Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Irs gov 1040ez The fours tests are: Relationship, Age, Residency, and Joint return. Irs gov 1040ez The four tests are illustrated in Figure 1. Irs gov 1040ez The paragraphs that follow contain more information about each test. Irs gov 1040ez Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Irs gov 1040ez The following definitions clarify the relationship test. Irs gov 1040ez Adopted child. Irs gov 1040ez   An adopted child is always treated as your own child. Irs gov 1040ez The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Irs gov 1040ez Foster child. Irs gov 1040ez   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Irs gov 1040ez (An authorized placement agency includes a state or local government agency. Irs gov 1040ez It also includes a tax-exempt organization licensed by a state. Irs gov 1040ez In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Irs gov 1040ez ) Example. Irs gov 1040ez Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Irs gov 1040ez Debbie is your foster child. Irs gov 1040ez Figure 1. Irs gov 1040ez Tests for Qualifying Child Please click here for the text description of the image. Irs gov 1040ez Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. Irs gov 1040ez The following examples and definitions clarify the age test. Irs gov 1040ez Example 1—child not under age 19. Irs gov 1040ez Your son turned 19 on December 10. Irs gov 1040ez Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Irs gov 1040ez Example 2—child not younger than you or your spouse. Irs gov 1040ez Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Irs gov 1040ez He is not disabled. Irs gov 1040ez Both you and your spouse are 21 years old, and you file a joint return. Irs gov 1040ez Your brother is not your qualifying child because he is not younger than you or your spouse. Irs gov 1040ez Example 3—child younger than your spouse but not younger than you. Irs gov 1040ez The facts are the same as in Example 2 except that your spouse is 25 years old. Irs gov 1040ez Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. Irs gov 1040ez Student defined. Irs gov 1040ez   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Irs gov 1040ez   The 5 calendar months need not be consecutive. Irs gov 1040ez   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Irs gov 1040ez School defined. Irs gov 1040ez   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Irs gov 1040ez However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Irs gov 1040ez Vocational high school students. Irs gov 1040ez   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Irs gov 1040ez Permanently and totally disabled. Irs gov 1040ez   Your child is permanently and totally disabled if both of the following apply. Irs gov 1040ez He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Irs gov 1040ez A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Irs gov 1040ez Residency Test Your child must have lived with you in the United States for more than half of 2013. Irs gov 1040ez The following definitions clarify the residency test. Irs gov 1040ez United States. Irs gov 1040ez   This means the 50 states and the District of Columbia. Irs gov 1040ez It does not include Puerto Rico or U. Irs gov 1040ez S. Irs gov 1040ez possessions such as Guam. Irs gov 1040ez Homeless shelter. Irs gov 1040ez   Your home can be any location where you regularly live. Irs gov 1040ez You do not need a traditional home. Irs gov 1040ez For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Irs gov 1040ez Military personnel stationed outside the United States. Irs gov 1040ez   U. Irs gov 1040ez S. Irs gov 1040ez military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Irs gov 1040ez Extended active duty. Irs gov 1040ez   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Irs gov 1040ez Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Irs gov 1040ez Birth or death of child. Irs gov 1040ez    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Irs gov 1040ez Temporary absences. Irs gov 1040ez   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Irs gov 1040ez Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Irs gov 1040ez Kidnapped child. Irs gov 1040ez   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Irs gov 1040ez The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Irs gov 1040ez This treatment applies for all years until the child is returned. Irs gov 1040ez However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Irs gov 1040ez   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Irs gov 1040ez Joint Return Test To meet this test, the child cannot file a joint return for the year. Irs gov 1040ez Exception. Irs gov 1040ez   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Irs gov 1040ez Example 1—child files joint return. Irs gov 1040ez You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Irs gov 1040ez He earned $25,000 for the year. Irs gov 1040ez The couple files a joint return. Irs gov 1040ez Because your daughter and her husband file a joint return, she is not your qualifying child. Irs gov 1040ez Example 2—child files joint return to get refund of tax withheld. Irs gov 1040ez Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Irs gov 1040ez They do not have a child. Irs gov 1040ez Neither is required to file a tax return. Irs gov 1040ez Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. Irs gov 1040ez The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Irs gov 1040ez Example 3—child files joint return to claim American opportunity credit. Irs gov 1040ez The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Irs gov 1040ez He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Irs gov 1040ez Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. Irs gov 1040ez The exception to the joint return test does not apply, so your son is not your qualifying child. Irs gov 1040ez Married child. Irs gov 1040ez   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. Irs gov 1040ez    Social security number. Irs gov 1040ez Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Irs gov 1040ez You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Irs gov 1040ez   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Irs gov 1040ez For more information about SSNs, see Rule 2. Irs gov 1040ez Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Irs gov 1040ez However, only one of these persons can actually treat the child as a qualifying child. Irs gov 1040ez Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Irs gov 1040ez The exemption for the child. Irs gov 1040ez The child tax credit. Irs gov 1040ez Head of household filing status. Irs gov 1040ez The credit for child and dependent care expenses. Irs gov 1040ez The exclusion for dependent care benefits. Irs gov 1040ez The EIC. Irs gov 1040ez The other person cannot take any of these benefits based on this qualifying child. Irs gov 1040ez In other words, you and the other person cannot agree to divide these tax benefits between you. Irs gov 1040ez The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Irs gov 1040ez The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Irs gov 1040ez However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Irs gov 1040ez Tiebreaker rules. Irs gov 1040ez   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Irs gov 1040ez If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Irs gov 1040ez If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Irs gov 1040ez If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Irs gov 1040ez If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Irs gov 1040ez If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Irs gov 1040ez If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Irs gov 1040ez If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Irs gov 1040ez See Example 8. Irs gov 1040ez   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Irs gov 1040ez See Examples 1 through 13. Irs gov 1040ez   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. Irs gov 1040ez If the other person cannot claim the EIC. Irs gov 1040ez   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Irs gov 1040ez See Examples 6 and 7. Irs gov 1040ez But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. Irs gov 1040ez Examples. Irs gov 1040ez    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Irs gov 1040ez Example 1—child lived with parent and grandparent. Irs gov 1040ez You and your 2-year-old son Jimmy lived with your mother all year. Irs gov 1040ez You are 25 years old, unmarried, and your AGI is $9,000. Irs gov 1040ez Your only income was $9,000 from a part-time job. Irs gov 1040ez Your mother's only income was $20,000 from her job, and her AGI is $20,000. Irs gov 1040ez Jimmy's father did not live with you or Jimmy. Irs gov 1040ez The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Irs gov 1040ez Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Irs gov 1040ez However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). Irs gov 1040ez He is not a qualifying child of anyone else, including his father. Irs gov 1040ez If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Irs gov 1040ez Example 2—parent has higher AGI than grandparent. Irs gov 1040ez The facts are the same as in Example 1 except your AGI is $25,000. Irs gov 1040ez Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Irs gov 1040ez Only you can claim him. Irs gov 1040ez Example 3—two persons claim same child. Irs gov 1040ez The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Irs gov 1040ez In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Irs gov 1040ez The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Irs gov 1040ez Example 4—qualifying children split between two persons. Irs gov 1040ez The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Irs gov 1040ez Only one of you can claim each child. Irs gov 1040ez However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Irs gov 1040ez For example, if you claim one child, your mother can claim the other two. Irs gov 1040ez Example 5—taxpayer who is a qualifying child. Irs gov 1040ez The facts are the same as in Example 1 except that you are only 18 years old. Irs gov 1040ez This means you are a qualifying child of your mother. Irs gov 1040ez Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. Irs gov 1040ez Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Irs gov 1040ez If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Irs gov 1040ez Example 6—grandparent with too much earned income to claim EIC. Irs gov 1040ez The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Irs gov 1040ez Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Irs gov 1040ez Example 7—parent with too much earned income to claim EIC. Irs gov 1040ez The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Irs gov 1040ez Your earned income is too high for you to claim the EIC. Irs gov 1040ez But your mother cannot claim the EIC either, because her AGI is not higher than yours. Irs gov 1040ez Example 8—child lived with both parents and grandparent. Irs gov 1040ez The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. Irs gov 1040ez If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Irs gov 1040ez Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Irs gov 1040ez In other words, each parent's AGI can be treated as $15,000. Irs gov 1040ez Example 9—separated parents. Irs gov 1040ez You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Irs gov 1040ez In August and September, Joey lived with you. Irs gov 1040ez For the rest of the year, Joey lived with your husband, who is Joey's father. Irs gov 1040ez Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Irs gov 1040ez At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. Irs gov 1040ez You and your husband will file separate returns. Irs gov 1040ez Your husband agrees to let you treat Joey as a qualifying child. Irs gov 1040ez This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Irs gov 1040ez However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Irs gov 1040ez See Rule 3. Irs gov 1040ez Example 10—separated parents claim same child. Irs gov 1040ez The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Irs gov 1040ez In this case, only your husband will be allowed to treat Joey as a qualifying child. Irs gov 1040ez This is because, during 2013, the boy lived with him longer than with you. Irs gov 1040ez You cannot claim the EIC (either with or without a qualifying child). Irs gov 1040ez However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Irs gov 1040ez See Rule 3. Irs gov 1040ez Example 11—unmarried parents. Irs gov 1040ez You, your 5-year-old son, and your son's father lived together all year. Irs gov 1040ez You and your son's father are not married. Irs gov 1040ez Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Irs gov 1040ez Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Irs gov 1040ez Neither of you had any other income. Irs gov 1040ez Your son's father agrees to let you treat the child as a qualifying child. Irs gov 1040ez This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Irs gov 1040ez Example 12—unmarried parents claim same child. Irs gov 1040ez The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Irs gov 1040ez In this case, only your son's father will be allowed to treat your son as a qualifying child. Irs gov 1040ez This is because his AGI, $14,000, is more than your AGI, $12,000. Irs gov 1040ez You cannot claim the EIC (either with or without a qualifying child). Irs gov 1040ez Example 13—child did not live with a parent. Irs gov 1040ez You and your 7-year-old niece, your sister's child, lived with your mother all year. Irs gov 1040ez You are 25 years old, and your AGI is $9,300. Irs gov 1040ez Your only income was from a part-time job. Irs gov 1040ez Your mother's AGI is $15,000. Irs gov 1040ez Her only income was from her job. Irs gov 1040ez Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Irs gov 1040ez Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Irs gov 1040ez However, only your mother can treat her as a qualifying child. Irs gov 1040ez This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Irs gov 1040ez Special rule for divorced or separated parents (or parents who live apart). Irs gov 1040ez   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Irs gov 1040ez The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. Irs gov 1040ez The child received over half of his or her support for the year from the parents. Irs gov 1040ez The child is in the custody of one or both parents for more than half of 2013. Irs gov 1040ez Either of the following statements is true. Irs gov 1040ez The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Irs gov 1040ez If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Irs gov 1040ez A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Irs gov 1040ez For details, see Publication 501. Irs gov 1040ez Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. Irs gov 1040ez Applying Rule 9 to divorced or separated parents (or parents who live apart). Irs gov 1040ez   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Irs gov 1040ez However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Irs gov 1040ez If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Irs gov 1040ez Example 1. Irs gov 1040ez You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Irs gov 1040ez Your AGI is $10,000. Irs gov 1040ez Your mother’s AGI is $25,000. Irs gov 1040ez Your son's father did not live with you or your son. Irs gov 1040ez Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Irs gov 1040ez However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Irs gov 1040ez You and your mother did not have any child care expenses or dependent care benefits. Irs gov 1040ez If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Irs gov 1040ez Example 2. Irs gov 1040ez The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Irs gov 1040ez Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Irs gov 1040ez Example 3. Irs gov 1040ez The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Irs gov 1040ez Your mother also claims him as a qualifying child for head of household filing status. Irs gov 1040ez You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Irs gov 1040ez The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Irs gov 1040ez Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Irs gov 1040ez ) if all of the following statements are true. Irs gov 1040ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Irs gov 1040ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Irs gov 1040ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Irs gov 1040ez You lived with that person in the United States for more than half of the year. Irs gov 1040ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Irs gov 1040ez For more details about the tests to be a qualifying child, see Rule 8. Irs gov 1040ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. Irs gov 1040ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Irs gov 1040ez Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Irs gov 1040ez Example. Irs gov 1040ez You and your daughter lived with your mother all year. Irs gov 1040ez You are 22 years old, unmarried, and attended a trade school full time. Irs gov 1040ez You had a part-time job and earned $5,700. Irs gov 1040ez You had no other income. Irs gov 1040ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Irs gov 1040ez She can claim the EIC if she meets all the other requirements. Irs gov 1040ez Because you are your mother's qualifying child, you cannot claim the EIC. Irs gov 1040ez This is so even if your mother cannot or does not claim the EIC. Irs gov 1040ez Child of person not required to file a return. Irs gov 1040ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Irs gov 1040ez Example 1—return not required. Irs gov 1040ez The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Irs gov 1040ez As a result, you are not your mother's qualifying child. Irs gov 1040ez You can claim the EIC if you meet all the other requirements to do so. Irs gov 1040ez Example 2—return filed to get refund of tax withheld. Irs gov 1040ez The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. Irs gov 1040ez She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Irs gov 1040ez As a result, you are not your mother's qualifying child. Irs gov 1040ez You can claim the EIC if you meet all the other requirements to do so. Irs gov 1040ez Example 3—return filed to get EIC. Irs gov 1040ez The facts are the same as in Example 2 except your mother claimed the EIC on her return. Irs gov 1040ez Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. Irs gov 1040ez As a result, you are your mother's qualifying child. Irs gov 1040ez You cannot claim the EIC. Irs gov 1040ez Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. Irs gov 1040ez This chapter discusses Rules 11 through 14. Irs gov 1040ez You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. Irs gov 1040ez You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. Irs gov 1040ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Irs gov 1040ez If you have a qualifying child. Irs gov 1040ez   If you meet Rule 8, you have a qualifying child. Irs gov 1040ez If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. Irs gov 1040ez Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Irs gov 1040ez If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Irs gov 1040ez It does not matter which spouse meets the age test, as long as one of the spouses does. Irs gov 1040ez You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Irs gov 1040ez If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Irs gov 1040ez If neither you nor your spouse meets the age test, you cannot claim the EIC. Irs gov 1040ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs gov 1040ez Death of spouse. Irs gov 1040ez   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Irs gov 1040ez Example 1. Irs gov 1040ez You are age 28 and unmarried. Irs gov 1040ez You meet the age test. Irs gov 1040ez Example 2—spouse meets age test. Irs gov 1040ez You are married and filing a joint return. Irs gov 1040ez You are age 23 and your spouse is age 27. Irs gov 1040ez You meet the age test because your spouse is at least age 25 but under age 65. Irs gov 1040ez Example 3—spouse dies in 2013. Irs gov 1040ez You are married and filing a joint return with your spouse who died in August 2013. Irs gov 1040ez You are age 67. Irs gov 1040ez Your spouse would have become age 65 in November 2013. Irs gov 1040ez Because your spouse was under age 65 when she died, you meet the age test. Irs gov 1040ez Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Irs gov 1040ez If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Irs gov 1040ez If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. Irs gov 1040ez If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. Irs gov 1040ez Example 1. Irs gov 1040ez In 2013, you were age 25, single, and living at home with your parents. Irs gov 1040ez You worked and were not a student. Irs gov 1040ez You earned $7,500. Irs gov 1040ez Your parents cannot claim you as a dependent. Irs gov 1040ez When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Irs gov 1040ez You meet this rule. Irs gov 1040ez You can claim the EIC if you meet all the other requirements. Irs gov 1040ez Example 2. Irs gov 1040ez The facts are the same as in Example 1, except that you earned $2,000. Irs gov 1040ez Your parents can claim you as a dependent but decide not to. Irs gov 1040ez You do not meet this rule. Irs gov 1040ez You cannot claim the credit because your parents could have claimed you as a dependent. Irs gov 1040ez Joint returns. Irs gov 1040ez   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Irs gov 1040ez   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Irs gov 1040ez But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Irs gov 1040ez Example 1—return filed to get refund of tax withheld. Irs gov 1040ez You are 26 years old. Irs gov 1040ez You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Irs gov 1040ez Neither you nor your wife is required to file a tax return. Irs gov 1040ez You do not have a child. Irs gov 1040ez Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. Irs gov 1040ez Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Irs gov 1040ez They can claim exemptions for you and your wife if all the other tests to do so are met. Irs gov 1040ez Example 2—return filed to get EIC. Irs gov 1040ez The facts are the same as in Example 1except no taxes were taken out of your pay. Irs gov 1040ez Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Irs gov 1040ez Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. Irs gov 1040ez Your parents cannot claim an exemption for either you or your wife. Irs gov 1040ez Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Irs gov 1040ez ) if all of the following statements are true. Irs gov 1040ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Irs gov 1040ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Irs gov 1040ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Irs gov 1040ez You lived with that person in the United States for more than half of the year. Irs gov 1040ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Irs gov 1040ez For more details about the tests to be a qualifying child, see Rule 8. Irs gov 1040ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. Irs gov 1040ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Irs gov 1040ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs gov 1040ez Example. Irs gov 1040ez You lived with your mother all year. Irs gov 1040ez You are age 26, unmarried, and permanently and totally disabled. Irs gov 1040ez Your only income was from a community center where you went three days a week to answer telephones. Irs gov 1040ez You earned $5,000 for the year and provided more than half of your own support. Irs gov 1040ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Irs gov 1040ez She can claim the EIC if she meets all the other requirements. Irs gov 1040ez Because you are a qualifying child of your mother, you cannot claim the EIC. Irs gov 1040ez This is so even if your mother cannot or does not claim the EIC. Irs gov 1040ez Joint returns. Irs gov 1040ez   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Irs gov 1040ez   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Irs gov 1040ez But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Irs gov 1040ez Child of person not required to file a return. Irs gov 1040ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Irs gov 1040ez Example 1—return not required. Irs gov 1040ez You lived all year with your father. Irs gov 1040ez You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Irs gov 1040ez You have no other income, no children, and provided more than half of your own support. Irs gov 1040ez Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Irs gov 1040ez As a result, you are not your father's qualifying child. Irs gov 1040ez You can claim the EIC if you meet all the other requirements to do so. Irs gov 1040ez Example 2—return filed to get refund of tax withheld. Irs gov 1040ez The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. Irs gov 1040ez He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Irs gov 1040ez As a result, you are not your father's qualifying child. Irs gov 1040ez You can claim the EIC if you meet all the other requirements to do so. Irs gov 1040ez Example 3—return filed to get EIC. Irs gov 1040ez The facts are the same as in Example 2 except your father claimed the EIC on his return. Irs gov 1040ez Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. Irs gov 1040ez As a result, you are your father's qualifying child. Irs gov 1040ez You cannot claim the EIC. Irs gov 1040ez Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Irs gov 1040ez If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Irs gov 1040ez United States. Irs gov 1040ez   This means the 50 states and the District of Columbia. Irs gov 1040ez It does not include Puerto Rico or U. Irs gov 1040ez S. Irs gov 1040ez possessions such as Guam. Irs gov 1040ez Homeless shelter. Irs gov 1040ez   Your home can be any location where you regularly live. Irs gov 1040ez You do not need a traditional home. Irs gov 1040ez If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Irs gov 1040ez Military personnel stationed outside the United States. Irs gov 1040ez   U. Irs gov 1040ez S. Irs gov 1040ez military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. Irs gov 1040ez Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. Irs gov 1040ez You need to know the amount of your earned income to see if you meet the rule in this chapter. Irs gov 1040ez You also need to know that amount to figure your EIC. Irs gov 1040ez Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Irs gov 1040ez Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Irs gov 1040ez Employee pay is earned income only if it is taxable. Irs gov 1040ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Irs gov 1040ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Irs gov 1040ez Earned income is explained in detail in Rule 7 in chapter 1. Irs gov 1040ez Figuring earned income. Irs gov 1040ez   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Irs gov 1040ez   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Irs gov 1040ez   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Irs gov 1040ez You will then reduce that amount by any amount included on that line and described in the following list. Irs gov 1040ez Scholarship or fellowship grants not reported on a Form W-2. Irs gov 1040ez A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Irs gov 1040ez Inmate's income. Irs gov 1040ez Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Irs gov 1040ez This includes amounts received for work performed while in a work release program or while in a halfway house. Irs gov 1040ez If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Irs gov 1040ez Pension or annuity from deferred compensation plans. Irs gov 1040ez A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Irs gov 1040ez If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Irs gov 1040ez This amount may be reported in box 11 of your Form W-2. Irs gov 1040ez If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. Irs gov 1040ez Clergy. Irs gov 1040ez   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re