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Online Tax Filing

Online tax filing 4. Online tax filing   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Online tax filing Resident aliens are generally taxed in the same way as U. Online tax filing S. Online tax filing citizens. Online tax filing Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Online tax filing S. Online tax filing trade or business and how it is taxed. Online tax filing Topics - This chapter discusses: Income that is effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing Income that is not effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing Interrupted period of residence. Online tax filing Expatriation tax. Online tax filing Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Online tax filing Resident Aliens Resident aliens are generally taxed in the same way as U. Online tax filing S. Online tax filing citizens. Online tax filing This means that their worldwide income is subject to U. Online tax filing S. Online tax filing tax and must be reported on their U. Online tax filing S. Online tax filing tax return. Online tax filing Income of resident aliens is subject to the graduated tax rates that apply to U. Online tax filing S. Online tax filing citizens. Online tax filing Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Online tax filing S. Online tax filing citizens. Online tax filing Nonresident Aliens A nonresident alien's income that is subject to U. Online tax filing S. Online tax filing income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Online tax filing The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Online tax filing These are the same rates that apply to U. Online tax filing S. Online tax filing citizens and residents. Online tax filing Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Online tax filing If you were formerly a U. Online tax filing S. Online tax filing citizen or resident alien, these rules may not apply. Online tax filing See Expatriation Tax, later, in this chapter. Online tax filing Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Online tax filing Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Online tax filing The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Online tax filing Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Online tax filing Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Online tax filing For more information, see Services Performed for Foreign Employer in chapter 3. Online tax filing Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Online tax filing Students and trainees. Online tax filing   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Online tax filing A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Online tax filing The taxable part of any scholarship or fellowship grant that is U. Online tax filing S. Online tax filing source income is treated as effectively connected with a trade or business in the United States. Online tax filing Business operations. Online tax filing   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Online tax filing Partnerships. Online tax filing   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Online tax filing Beneficiary of an estate or trust. Online tax filing   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Online tax filing Trading in stocks, securities, and commodities. Online tax filing   If your only U. Online tax filing S. Online tax filing business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Online tax filing S. Online tax filing resident broker or other agent, you are not engaged in a trade or business in the United States. Online tax filing   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Online tax filing   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Online tax filing   This discussion does not apply if you have a U. Online tax filing S. Online tax filing office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Online tax filing Trading for a nonresident alien's own account. Online tax filing   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Online tax filing S. Online tax filing business activity. Online tax filing This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Online tax filing   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Online tax filing This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Online tax filing Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Online tax filing Effectively Connected Income If you are engaged in a U. Online tax filing S. Online tax filing trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Online tax filing This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Online tax filing Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Online tax filing In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Online tax filing For a discussion of these rules, see Foreign Income , later. Online tax filing Investment Income Investment income from U. Online tax filing S. Online tax filing sources that may or may not be treated as effectively connected with a U. Online tax filing S. Online tax filing trade or business generally falls into the following three categories. Online tax filing Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Online tax filing ). Online tax filing Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Online tax filing Timber, coal, or domestic iron ore with a retained economic interest. Online tax filing Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Online tax filing Patents transferred before October 5, 1966. Online tax filing Original issue discount obligations. Online tax filing Capital gains (and losses). Online tax filing Use the two tests, described next, to determine whether an item of U. Online tax filing S. Online tax filing source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Online tax filing S. Online tax filing trade or business. Online tax filing If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Online tax filing If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Online tax filing Asset-use test. Online tax filing   This test usually applies to income that is not directly produced by trade or business activities. Online tax filing Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Online tax filing   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Online tax filing Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Online tax filing Business-activities test. Online tax filing   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Online tax filing The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Online tax filing Under this test, if the conduct of the U. Online tax filing S. Online tax filing trade or business was a material factor in producing the income, the income is considered effectively connected. Online tax filing Personal Service Income You usually are engaged in a U. Online tax filing S. Online tax filing trade or business when you perform personal services in the United States. Online tax filing Personal service income you receive in a tax year in which you are engaged in a U. Online tax filing S. Online tax filing trade or business is effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Online tax filing Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Online tax filing The income may be paid to you in the form of cash, services, or property. Online tax filing If you are engaged in a U. Online tax filing S. Online tax filing trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Online tax filing However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Online tax filing Pensions. Online tax filing   If you were a nonresident alien engaged in a U. Online tax filing S. Online tax filing trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Online tax filing This is true whether or not you are engaged in a U. Online tax filing S. Online tax filing trade or business in the year you receive the retirement pay. Online tax filing Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Online tax filing You had a fixed place of business in the United States involved in earning the income. Online tax filing At least 90% of your U. Online tax filing S. Online tax filing source transportation income is attributable to regularly scheduled transportation. Online tax filing “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Online tax filing “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Online tax filing This definition applies to both scheduled and chartered air transportation. Online tax filing If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Online tax filing See Transportation Tax, later, in this chapter. Online tax filing Business Profits and Losses and Sales Transactions All profits or losses from U. Online tax filing S. Online tax filing sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Online tax filing For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Online tax filing A share of U. Online tax filing S. Online tax filing source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Online tax filing Real Property Gain or Loss Gains and losses from the sale or exchange of U. Online tax filing S. Online tax filing real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Online tax filing You must treat the gain or loss as effectively connected with that trade or business. Online tax filing U. Online tax filing S. Online tax filing real property interest. Online tax filing   This is any interest in real property located in the United States or the U. Online tax filing S. Online tax filing Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Online tax filing S. Online tax filing real property holding corporation. Online tax filing Real property includes the following. Online tax filing Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Online tax filing Improvements on land, including buildings, other permanent structures, and their structural components. Online tax filing Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Online tax filing U. Online tax filing S. Online tax filing real property holding corporation. Online tax filing   A corporation is a U. Online tax filing S. Online tax filing real property holding corporation if the fair market value of the corporation's U. Online tax filing S. Online tax filing real property interests are at least 50% of the total fair market value of: The corporation's U. Online tax filing S. Online tax filing real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Online tax filing   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Online tax filing S. Online tax filing trade or business unless you establish that the corporation is not a U. Online tax filing S. Online tax filing real property holding corporation. Online tax filing   A U. Online tax filing S. Online tax filing real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Online tax filing An interest in a foreign corporation owning U. Online tax filing S. Online tax filing real property generally is not a U. Online tax filing S. Online tax filing real property interest unless the corporation chooses to be treated as a domestic corporation. Online tax filing Qualified investment entities. Online tax filing   Special rules apply to qualified investment entities (QIEs). Online tax filing A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Online tax filing S. Online tax filing real property holding corporation. Online tax filing    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Online tax filing S. Online tax filing real property interest is treated as a U. Online tax filing S. Online tax filing real property gain by the shareholder receiving the distribution. Online tax filing A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Online tax filing S. Online tax filing real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Online tax filing A distribution that you do not treat as gain from the sale or exchange of a U. Online tax filing S. Online tax filing real property interest is included in your gross income as a regular dividend. Online tax filing Note. Online tax filing Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Online tax filing S. Online tax filing real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Online tax filing Domestically controlled QIE. Online tax filing   The sale of an interest in a domestically controlled QIE is not the sale of a U. Online tax filing S. Online tax filing real property interest. Online tax filing The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Online tax filing The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Online tax filing Wash sale. Online tax filing    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Online tax filing An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Online tax filing S. Online tax filing real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Online tax filing If this occurs, you are treated as having gain from the sale or exchange of a U. Online tax filing S. Online tax filing real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Online tax filing This also applies to any substitute dividend payment. Online tax filing   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Online tax filing Alternative minimum tax. Online tax filing   There may be a minimum tax on your net gain from the disposition of U. Online tax filing S. Online tax filing real property interests. Online tax filing Figure the amount of this tax, if any, on Form 6251. Online tax filing Withholding of tax. Online tax filing   If you dispose of a U. Online tax filing S. Online tax filing real property interest, the buyer may have to withhold tax. Online tax filing See the discussion of Tax Withheld on Real Property Sales in chapter 8. Online tax filing Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Online tax filing An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Online tax filing The three kinds of foreign source income are listed below. Online tax filing Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Online tax filing Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Online tax filing Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Online tax filing A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Online tax filing Income, gain, or loss from the sale outside the United States, through the U. Online tax filing S. Online tax filing office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Online tax filing Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Online tax filing Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing For example, foreign source interest and dividend equivalents are treated as U. Online tax filing S. Online tax filing effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Online tax filing Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Online tax filing S. Online tax filing citizens and residents. Online tax filing Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Online tax filing However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Online tax filing Example. Online tax filing Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Online tax filing S. Online tax filing office of his overseas employer. Online tax filing He worked in the U. Online tax filing S. Online tax filing office until December 25, 2012, but did not leave this country until January 11, 2013. Online tax filing On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Online tax filing All of Ted's income during his stay here is U. Online tax filing S. Online tax filing source income. Online tax filing During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Online tax filing Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Online tax filing The salary payment Ted received in January 2013 is U. Online tax filing S. Online tax filing source income to him in 2013. Online tax filing It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Online tax filing Real property income. Online tax filing   You may be able to choose to treat all income from real property as effectively connected. Online tax filing See Income From Real Property , later, in this chapter. Online tax filing The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Online tax filing S. Online tax filing sources but only if the items are not effectively connected with your U. Online tax filing S. Online tax filing trade or business. Online tax filing Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Online tax filing S. Online tax filing source fixed or determinable annual or periodic gains, profits, or income. Online tax filing Income is fixed when it is paid in amounts known ahead of time. Online tax filing Income is determinable whenever there is a basis for figuring the amount to be paid. Online tax filing Income can be periodic if it is paid from time to time. Online tax filing It does not have to be paid annually or at regular intervals. Online tax filing Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Online tax filing Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Online tax filing A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Online tax filing Other items of income, such as royalties, also may be subject to the 30% tax. Online tax filing Some fixed or determinable income may be exempt from U. Online tax filing S. Online tax filing tax. Online tax filing See chapter 3 if you are not sure whether the income is taxable. Online tax filing Original issue discount (OID). Online tax filing   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Online tax filing The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Online tax filing The 30% tax applies in the following circumstances. Online tax filing You received a payment on a debt instrument. Online tax filing In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Online tax filing But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Online tax filing You sold or exchanged the debt instrument. Online tax filing The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Online tax filing   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Online tax filing S. Online tax filing Source Income Subject to Withholding, if you bought the debt instrument at original issue. Online tax filing However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Online tax filing You bought the debt instrument at a premium or paid an acquisition premium. Online tax filing The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Online tax filing S. Online tax filing Treasury securities). Online tax filing The debt instrument is a contingent payment or inflation-indexed debt instrument. Online tax filing For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Online tax filing   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Online tax filing See chapter 12. Online tax filing Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Online tax filing S. Online tax filing trade or business and is not exempted by treaty. Online tax filing However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Online tax filing Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing Social Security Benefits A nonresident alien must include 85% of any U. Online tax filing S. Online tax filing social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Online tax filing S. Online tax filing source fixed or determinable annual or periodic income. Online tax filing Social security benefits include monthly retirement, survivor, and disability benefits. Online tax filing This income is exempt under some tax treaties. Online tax filing See Table 1 in Publication 901, U. Online tax filing S. Online tax filing Tax Treaties, for a list of tax treaties that exempt U. Online tax filing S. Online tax filing social security benefits from U. Online tax filing S. Online tax filing tax. Online tax filing Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Online tax filing They apply even if you are engaged in a trade or business in the United States. Online tax filing These rules do not apply to the sale or exchange of a U. Online tax filing S. Online tax filing real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Online tax filing See Real Property Gain or Loss , earlier, under Effectively Connected Income. Online tax filing A capital asset is everything you own except: Inventory. Online tax filing Business accounts or notes receivable. Online tax filing Depreciable property used in a trade or business. Online tax filing Real property used in a trade or business. Online tax filing Supplies regularly used in a trade or business. Online tax filing Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Online tax filing Certain U. Online tax filing S. Online tax filing government publications. Online tax filing Certain commodities derivative financial instruments held by a commodities derivatives dealer. Online tax filing Hedging transactions. Online tax filing A capital gain is a gain on the sale or exchange of a capital asset. Online tax filing A capital loss is a loss on the sale or exchange of a capital asset. Online tax filing If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Online tax filing S. Online tax filing currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Online tax filing You may want to read Publication 544. Online tax filing However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Online tax filing Specific tax treatment that applies to U. Online tax filing S. Online tax filing citizens or residents generally does not apply to you. Online tax filing The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Online tax filing Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Online tax filing Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Online tax filing Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Online tax filing Gains on the sale or exchange of original issue discount obligations. Online tax filing Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing See Income From Real Property , later. Online tax filing 183-day rule. Online tax filing   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Online tax filing For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Online tax filing S. Online tax filing sources over your capital losses from U. Online tax filing S. Online tax filing sources. Online tax filing This rule applies even if any of the transactions occurred while you were not in the United States. Online tax filing   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Online tax filing S. Online tax filing trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Online tax filing   In arriving at your net gain, do not take the following into consideration. Online tax filing The four types of gains listed earlier. Online tax filing The deduction for a capital loss carryover. Online tax filing Capital losses in excess of capital gains. Online tax filing Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Online tax filing Losses from the sale or exchange of property held for personal use. Online tax filing However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Online tax filing See Itemized Deductions in chapter 5. Online tax filing   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Online tax filing Also, you must file your tax return on a calendar-year basis. Online tax filing   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Online tax filing Reporting. Online tax filing   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Online tax filing Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Online tax filing Attach them to Form 1040NR. Online tax filing Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Online tax filing The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Online tax filing This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Online tax filing It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Online tax filing You can make this choice only for real property income that is not otherwise effectively connected with your U. Online tax filing S. Online tax filing trade or business. Online tax filing If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Online tax filing This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Online tax filing S. Online tax filing trade or business, as being engaged in a trade or business in the United States during the year. Online tax filing Example. Online tax filing You are a nonresident alien and are not engaged in a U. Online tax filing S. Online tax filing trade or business. Online tax filing You own a single-family house in the United States that you rent out. Online tax filing Your rental income for the year is $10,000. Online tax filing This is your only U. Online tax filing S. Online tax filing source income. Online tax filing As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Online tax filing You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Online tax filing You do not have to file a U. Online tax filing S. Online tax filing tax return (Form 1040NR) because your U. Online tax filing S. Online tax filing tax liability is satisfied by the withholding of tax. Online tax filing If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Online tax filing (See Publication 527, Residential Rental Property, for information on rental expenses. Online tax filing ) Any resulting net income is taxed at graduated rates. Online tax filing If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Online tax filing For the first year you make the choice, also attach the statement discussed next. Online tax filing Making the choice. Online tax filing   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Online tax filing Include the following in your statement. Online tax filing That you are making the choice. Online tax filing Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Online tax filing A complete list of all your real property, or any interest in real property, located in the United States. Online tax filing Give the legal identification of U. Online tax filing S. Online tax filing timber, coal, or iron ore in which you have an interest. Online tax filing The extent of your ownership in the property. Online tax filing The location of the property. Online tax filing A description of any major improvements to the property. Online tax filing The dates you owned the property. Online tax filing Your income from the property. Online tax filing Details of any previous choices and revocations of the real property income choice. Online tax filing   This choice stays in effect for all later tax years unless you revoke it. Online tax filing Revoking the choice. Online tax filing   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Online tax filing S. Online tax filing Individual Income Tax Return, for the year you made the choice and for later tax years. Online tax filing You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Online tax filing If this time period has expired for the year of choice, you cannot revoke the choice for that year. Online tax filing However, you may revoke the choice for later tax years only if you have IRS approval. Online tax filing For information on how to get IRS approval, see Regulation section 1. Online tax filing 871-10(d)(2). Online tax filing Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Online tax filing If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Online tax filing Attach a statement to your return that includes the following information (if applicable). Online tax filing Your name, taxpayer identification number, and tax year. Online tax filing A description of the types of services performed (whether on or off board). Online tax filing Names of vessels or registration numbers of aircraft on which you performed the services. Online tax filing Amount of U. Online tax filing S. Online tax filing source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Online tax filing Total amount of U. Online tax filing S. Online tax filing source transportation income derived from all types of services for the calendar year. Online tax filing This 4% tax applies to your U. Online tax filing S. Online tax filing source gross transportation income. Online tax filing This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Online tax filing For transportation income from personal services, the transportation must be between the United States and a U. Online tax filing S. Online tax filing possession. Online tax filing For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Online tax filing Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Online tax filing S. Online tax filing residence with a period of nonresidence. Online tax filing The special rule applies if you meet all of the following conditions. Online tax filing You were a U. Online tax filing S. Online tax filing resident for a period that includes at least 3 consecutive calendar years. Online tax filing You were a U. Online tax filing S. Online tax filing resident for at least 183 days in each of those years. Online tax filing You ceased to be treated as a U. Online tax filing S. Online tax filing resident. Online tax filing You then again became a U. Online tax filing S. Online tax filing resident before the end of the third calendar year after the end of the period described in (1) above. Online tax filing Under this special rule, you are subject to tax on your U. Online tax filing S. Online tax filing source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Online tax filing Example. Online tax filing John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Online tax filing On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Online tax filing During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Online tax filing He returned to the United States on October 5, 2013, as a lawful permanent resident. Online tax filing He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Online tax filing Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Online tax filing Reporting requirements. Online tax filing   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Online tax filing The return is due by the due date (including extensions) for filing your U. Online tax filing S. Online tax filing income tax return for the year that you again become a U. Online tax filing S. Online tax filing resident. Online tax filing If you already filed returns for that period, you must file amended returns. Online tax filing You must attach a statement to your return that identifies the source of all of your U. Online tax filing S. Online tax filing and foreign gross income and the items of income subject to this special rule. Online tax filing Expatriation Tax The expatriation tax provisions apply to U. Online tax filing S. Online tax filing citizens who have renounced their citizenship and long-term residents who have ended their residency. Online tax filing The rules that apply are based on the dates of expatriation, which are described in the following sections. Online tax filing Expatriation Before June 4, 2004. Online tax filing Expatriation After June 3, 2004, and Before June 17, 2008. Online tax filing Expatriation After June 16, 2008. Online tax filing Long-term resident defined. Online tax filing   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Online tax filing In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Online tax filing Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Online tax filing S. Online tax filing taxes. Online tax filing Unless you received a ruling from the IRS that you did not expatriate to avoid U. Online tax filing S. Online tax filing taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Online tax filing The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Online tax filing Table 4-1. Online tax filing Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Online tax filing . Online tax filing . Online tax filing   THEN the rules outlined on this page apply if . Online tax filing . Online tax filing . Online tax filing     Your 5-year average annual net income tax was more than . Online tax filing . Online tax filing . Online tax filing OR Your net worth equaled or exceeded . Online tax filing . Online tax filing . Online tax filing 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Online tax filing Reporting requirements. Online tax filing   If you lost your U. Online tax filing S. Online tax filing citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Online tax filing If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Online tax filing   Your U. Online tax filing S. Online tax filing residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Online tax filing Penalties. Online tax filing   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Online tax filing The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Online tax filing The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Online tax filing Expatriation tax. Online tax filing   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Online tax filing It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Online tax filing See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Online tax filing Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Online tax filing Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Online tax filing $127,000 if you expatriated or terminated residency in 2005. Online tax filing $131,000 if you expatriated or terminated residency in 2006. Online tax filing $136,000 if you expatriated or terminated residency in 2007. Online tax filing $139,000 if you expatriated or terminated residency in 2008. Online tax filing Your net worth is $2 million or more on the date of your expatriation or termination of residency. Online tax filing You fail to certify on Form 8854 that you have complied with all U. Online tax filing S. Online tax filing federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Online tax filing Exception for dual-citizens and certain minors. Online tax filing   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Online tax filing However, they still must provide the certification required in (3). Online tax filing Certain dual-citizens. Online tax filing   You may qualify for the exception described above if all of the following apply. Online tax filing You became at birth a U. Online tax filing S. Online tax filing citizen and a citizen of another country and you continue to be a citizen of that other country. Online tax filing You were never a resident alien of the United States (as defined in chapter 1). Online tax filing You never held a U. Online tax filing S. Online tax filing passport. Online tax filing You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Online tax filing S. Online tax filing citizenship. Online tax filing Certain minors. Online tax filing   You may qualify for the exception described above if you meet all of the following requirements. Online tax filing You became a U. Online tax filing S. Online tax filing citizen at birth. Online tax filing Neither of your parents was a U. Online tax filing S. Online tax filing citizen at the time of your birth. Online tax filing You expatriated before you were 18½. Online tax filing You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Online tax filing Tax consequences of presence in the United States. Online tax filing   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Online tax filing   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Online tax filing Instead, you are treated as a U. Online tax filing S. Online tax filing citizen or resident and taxed on your worldwide income for that tax year. Online tax filing You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Online tax filing   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Online tax filing However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Online tax filing You have ties with other countries. Online tax filing You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Online tax filing You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Online tax filing Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Online tax filing See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Online tax filing Related employer. Online tax filing   If your employer in the United States is any of the following, then your employer is related to you. Online tax filing You must count any days you performed services in the United States for that employer as days of presence in the United States. Online tax filing Members of your family. Online tax filing This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Online tax filing ), and lineal descendants (children, grandchildren, etc. Online tax filing ). Online tax filing A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Online tax filing A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Online tax filing (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Online tax filing ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Online tax filing Date of tax expatriation. Online tax filing   For purposes of U. Online tax filing S. Online tax filing tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Online tax filing You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Online tax filing You file Form 8854 in accordance with the form instructions. Online tax filing Annual return. Online tax filing   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Online tax filing You must file this form even if you owe no U. Online tax filing S. Online tax filing tax. Online tax filing Penalty. Online tax filing   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Online tax filing You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Online tax filing How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Online tax filing S. Online tax filing source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Online tax filing S. Online tax filing trade or business. Online tax filing For this purpose, U. Online tax filing S. Online tax filing source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Online tax filing S. Online tax filing domestic corporation, and Debt obligations of U. Online tax filing S. Online tax filing persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Online tax filing U. Online tax filing S. Online tax filing source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Online tax filing The income or gain is considered U. Online tax filing S. Online tax filing source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Online tax filing Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Online tax filing S. Online tax filing source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Online tax filing Other information. Online tax filing   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Online tax filing S. Online tax filing source rules, see section 877 of the Internal Revenue Code. Online tax filing Expatriation Tax Return If you expatriated or terminated your U. Online tax filing S. Online tax filing residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Online tax filing Attach it to Form 1040NR if you are required to file that form. Online tax filing If you are present in the United States following your expatriation and are subject to tax as a U. Online tax filing S. Online tax filing citizen or resident, file Form 8854 with Form 1040. Online tax filing Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Online tax filing Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Online tax filing $145,000 if you expatriated or terminated residency in 2009 or 2010. Online tax filing $147,000 if you expatriated or terminated residency in 2011. Online tax filing $151,000 if you expatriated or terminated residency in 2012. Online tax filing $155,000 if you expatriated or terminated residency in 2013. Online tax filing Your net worth is $2 million or more on the date of your expatriation or termination of residency. Online tax filing You fail to certify on Form 8854 that you have complied with all U. Online tax filing S. Online tax filing federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Online tax filing Exception for dual-citizens and certain minors. Online tax filing   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Online tax filing However, they still must provide the certification required in (3) above. Online tax filing Certain dual-citizens. Online tax filing   You may qualify for the exception described above if both of the following apply. Online tax filing You became at birth a U. Online tax filing S. Online tax filing citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Online tax filing You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Online tax filing For the purpose of determining U. Online tax filing S. Online tax filing residency, use the substantial presence test described in chapter 1. Online tax filing Certain minors. Online tax filing   You may qualify for the exception described earlier if you meet both of the following requirements. Online tax filing You expatriated before you were 18½. Online tax filing You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Online tax filing For the purpose of determining U. Online tax filing S. Online tax filing residency, use the substantial presence test described in chapter 1. Online tax filing Expatriation date. Online tax filing   Your expatriation date is the date you relinquish U. Online tax filing S. Online tax filing citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Online tax filing S. Online tax filing resident). Online tax filing Former U. Online tax filing S. Online tax filing citizen. Online tax filing   You are considered to have relinquished your U. Online tax filing S. Online tax filing citizenship on the earliest of the following dates. Online tax filing The date you renounced U. Online tax filing S. Online tax filing citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Online tax filing The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Online tax filing S. Online tax filing nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Online tax filing The date the State Department issued a certificate of loss of nationality. Online tax filing The date that a U. Online tax filing S. Online tax filing court canceled your certificate of naturalization. Online tax filing Former long-term resident. Online tax filing   You are considered to have terminated your long-term residency on the earliest of the following dates. Online tax filing The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Online tax filing S. Online tax filing consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Online tax filing The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Online tax filing If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Online tax filing See Effect of Tax Treaties in chapter 1 for more information about dual residents. Online tax filing How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Online tax filing This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Online tax filing But see Exceptions , later. Online tax filing Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Online tax filing S. Online tax filing internal revenue laws. Online tax filing Losses from deemed sales must be taken into account to the extent otherwise provided under U. Online tax filing S. Online tax filing internal revenue laws. Online tax filing However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Online tax filing The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Online tax filing $626,000 if you expatriated or terminated residency in 2009. Online tax filing $627,000 if you expatriated or terminated residency in 2010. Online tax filing $636,000 if you expatriated or terminated residency in 2011. Online tax filing $651,000 if you expatriated or terminated residency in 2012. Online tax filing $668,000 if you expatriated or terminated residency in 2013. Online tax filing Exceptions. Online tax filing   The mark-to-market tax does not apply to the following. Online tax filing Eligible deferred compensation items. Online tax filing Ineligible deferred compensation items. Online tax filing Interests in nongrantor trusts. Online tax filing Specified tax deferred accounts. Online tax filing Instead, items (1) and (3) may be subject to withholding at source. Online tax filing In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Online tax filing In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Online tax filing See paragraphs (d), (e), and (f) of section 877A for more information. Online tax filing Expatriation Tax Return If you expatriated or terminated your U. Online tax filing S. Online tax filing residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Online tax filing Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Online tax filing Deferral of payment of mark-to-market tax. Online tax filing   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Online tax filing If you make this election, the following rules apply. Online tax filing You can make the election on a property-by-property basis. Online tax filing The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Online tax filing Interest is charged for the period the tax is deferred. Online tax filing The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Online tax filing The due date of the return required for the year of death. Online tax filing The time that the security provided for the property fails to be adequate. Online tax filing See item (6) below. Online tax filing You make the election on Form 8854. Online tax filing You must provide adequate security (such as a bond). Online tax filing You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Online tax filing   For more information about the deferral of payment, see the Instructions for Form 8854. Online tax filing Prev  Up  Next   Home   More Online Publications
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The Online Tax Filing

Online tax filing 8. Online tax filing   Distributions and Rollovers Table of Contents DistributionsMinimum Required Distributions No Special 10-Year Tax Option Transfer of Interest in 403(b) ContractAfter-tax contributions. Online tax filing Permissive service credit. Online tax filing Tax-Free RolloversHardship exception to rollover rules. Online tax filing Eligible retirement plans. Online tax filing Nonqualifying distributions. Online tax filing Second rollover. Online tax filing Gift Tax Distributions Permissible distributions. Online tax filing   Generally, a distribution cannot be made from a 403(b) account until the employee: Reaches age 59½, Has a severance from employment, Dies, Becomes disabled, In the case of elective deferrals, encounters financial hardship, or Has a qualified reservist distribution. Online tax filing In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. Online tax filing In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. Online tax filing These rules are explained in Publication 575. Online tax filing Publication 575 also discusses the additional tax on early distributions from retirement plans. Online tax filing Retired public safety officers. Online tax filing   If you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, are not included in your taxable income. Online tax filing The premiums can be for you, your spouse, or your dependents. Online tax filing   A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew. Online tax filing   For additional information, see Publication 575. Online tax filing Distribution for active reservist. Online tax filing   The 10% penalty for early withdrawals will not apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. Online tax filing A qualified reservist distribution is a distribution that is made: To an individual who is a reservist or national guardsman and who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period; and During the period beginning on the date of the order or call to duty and ending at the close of the active duty period. Online tax filing Minimum Required Distributions You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 70½, or the calendar year in which you retire. Online tax filing Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. Online tax filing If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. Online tax filing For each year thereafter, the minimum distribution must be made by the last day of the year. Online tax filing If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed. Online tax filing No Special 10-Year Tax Option A distribution from a 403(b) plan does not qualify as a lump-sum distribution. Online tax filing This means you cannot use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. Online tax filing For more information, see Publication 575. Online tax filing Transfer of Interest in 403(b) Contract Contract exchanges. Online tax filing   If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. Online tax filing This was previously known as a 90-24 transfer. Online tax filing A contract exchange is similar to a 90-24 transfer with one major difference. Online tax filing Previously, you were able to accomplish the transfer without your employer’s involvement. Online tax filing After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer’s involvement. Online tax filing In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. Online tax filing Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange. Online tax filing   Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income. Online tax filing Plan-to-plan transfers. Online tax filing   You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee of (or were formerly employed by) the employer of the plan to which you would like to transfer. Online tax filing Both the initial plan and the receiving plan must provide for transfers. Online tax filing Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. Online tax filing The new plan’s restrictions on distributions must be the same or stricter than those of the original plan. Online tax filing Tax-free transfers for certain cash distributions. Online tax filing   A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. Online tax filing To receive tax-free treatment, you must do all of the following: Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted by the state. Online tax filing Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you receive the cash distribution. Online tax filing Assign all future distribution rights to the new contract or account for investment in that contract or account if you received an amount that is less than what you are entitled to because of state restrictions. Online tax filing   In addition to the preceding requirements, you must provide the new insurer with a written statement containing all of the following information: The gross amount of cash distributed under the old contract. Online tax filing The amount of cash reinvested in the new contract. Online tax filing Your investment in the old contract on the date you receive your first cash distribution. Online tax filing   Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash. Online tax filing A copy of the statement you gave the new insurer. Online tax filing A statement that includes: The words ELECTION UNDER REV. Online tax filing PROC. Online tax filing 92-44, The name of the company that issued the new contract, and The new policy number. Online tax filing Direct trustee-to-trustee transfer. Online tax filing   If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income. Online tax filing   The transfer amount is not includible in gross income if it is made to: Purchase permissive service credits, or Repay contributions and earnings that were previously refunded under a forfeiture of service credit under the plan, or under another plan maintained by a state or local government employer within the same state. Online tax filing After-tax contributions. Online tax filing   For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. Online tax filing If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer. Online tax filing Permissive service credit. Online tax filing   A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan. Online tax filing   A permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan. Online tax filing   Check with your plan administrator as to the type and extent of service that may be purchased by this transfer. Online tax filing Tax-Free Rollovers You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described later. Online tax filing You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Online tax filing Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. Online tax filing See Publication 590 for more information about conversion into a Roth IRA. Online tax filing Note. Online tax filing A participant is required to roll over distribution amounts received within 60 days in order for the amount to be treated as nontaxable. Online tax filing Distribution amounts that are rolled over within the 60 days are not subject to the 10% early distribution penalty. Online tax filing Rollovers to and from 403(b) plans. Online tax filing   You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. Online tax filing Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. Online tax filing Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. Online tax filing See Publication 590 for more information on conversion into a Roth IRA. Online tax filing   If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). Online tax filing This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. Online tax filing   For more information on rollovers and eligible retirement plans, see Publication 575. Online tax filing If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Publication 575 for information about possible effects on later distributions from the eligible retirement plan. Online tax filing Hardship exception to rollover rules. Online tax filing   The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual. Online tax filing   To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. Online tax filing You apply for the waiver by following the general instructions used in requesting a letter ruling. Online tax filing These instructions are stated in Revenue Procedure 2013-4, 2013-1 I. Online tax filing R. Online tax filing B. Online tax filing 126 available at www. Online tax filing irs. Online tax filing gov/irb/2013-01_IRB/ar09. Online tax filing html, or see the latest annual update. Online tax filing You must also pay a user fee with the application. Online tax filing The user fee for a rollover that is less than $50,000 is $500. Online tax filing For rollovers that are $50,000 or more, see Revenue Procedure 2013-8, 2013-1 I. Online tax filing R. Online tax filing B. Online tax filing 237 available at www. Online tax filing irs. Online tax filing gov/irb/2013-01_IRB/ar13. Online tax filing html, or see the latest annual update. Online tax filing   In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including: Whether errors were made by the financial institution; Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error; Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and How much time has passed since the date of distribution. Online tax filing   For additional information on rollovers, see Publication 590. Online tax filing Eligible retirement plans. Online tax filing   The following are considered eligible retirement plans. Online tax filing Individual retirement arrangements. Online tax filing Roth IRA. Online tax filing 403(b) plans. Online tax filing Government eligible 457 plans. Online tax filing Qualified retirement plans. Online tax filing  If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA. Online tax filing Nonqualifying distributions. Online tax filing   You cannot roll over tax free: Minimum required distributions (generally required to begin at age 70½), Substantially equal payments over your life or life expectancy, Substantially equal payments over the joint lives or life expectancies of your beneficiary and you, Substantially equal payments for a period of 10 years or more, Hardship distributions, or Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual additions and any allocable gains. Online tax filing Rollover of nontaxable amounts. Online tax filing    You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. Online tax filing The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA. Online tax filing   If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution. Online tax filing Direct rollovers of 403(b) plan distributions. Online tax filing   You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Online tax filing Before you receive a distribution, your plan will give you information on this. Online tax filing It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it. Online tax filing Distribution received by you. Online tax filing   If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. Online tax filing Generally, you will receive only 80% of the distribution because 20% must be withheld. Online tax filing If you roll over only the 80% you receive, you must pay tax on the 20% you did not roll over. Online tax filing You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover. Online tax filing Voluntary deductible contributions. Online tax filing   For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA. Online tax filing   If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. Online tax filing Accumulated deductible contributions are the deductible contributions: Plus Income allocable to the contributions, Gain allocable to the contributions, and Minus Expenses and losses allocable to the contributions, and Distributions from the contributions, income, or gain. Online tax filing Excess employer contributions. Online tax filing   The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions (discussed earlier) is not an eligible rollover distribution. Online tax filing   Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. Online tax filing However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Publication 590). Online tax filing Qualified domestic relations order. Online tax filing   You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). Online tax filing If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. Online tax filing You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. Online tax filing For more information on the treatment of an interest received under a QDRO, see Publication 575. Online tax filing Spouses of deceased employees. Online tax filing   If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. Online tax filing You can make the rollover to any eligible retirement plan. Online tax filing   After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the distribution. Online tax filing Second rollover. Online tax filing   If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. Online tax filing For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Publication 590. Online tax filing Nonspouse beneficiary. Online tax filing   A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. Online tax filing If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution: The transfer will be treated as an eligible rollover distribution. Online tax filing The IRA will be considered an inherited account. Online tax filing The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed will apply to the transferred IRA. Online tax filing    For more information on IRAs, see Publication 590. Online tax filing Frozen deposits. Online tax filing   The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. Online tax filing The 60-day period cannot end earlier than 10 days after the deposit ceases to be a frozen deposit. Online tax filing   A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or are about to be) bankrupt or insolvent. Online tax filing Gift Tax If, by choosing or not choosing an election, or option, you provide an annuity for your beneficiary at or after your death, you may have made a taxable gift equal to the value of the annuity. Online tax filing Joint and survivor annuity. Online tax filing   If the gift is an interest in a joint and survivor annuity where only you and your spouse have the right to receive payments, the gift will generally be treated as qualifying for the unlimited marital deduction. Online tax filing More information. Online tax filing   For information on the gift tax, see Publication 559, Survivors, Executors, and Administrators. Online tax filing Prev  Up  Next   Home   More Online Publications