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Www Dfas Mil

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Www dfas mil 2. Www dfas mil   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Www dfas mil Surviving spouse. Www dfas mil Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Www dfas mil Payments from a state fund for victims of crime. Www dfas mil Home Affordable Modification Program (HAMP). Www dfas mil Mortgage assistance payments. Www dfas mil Payments to reduce cost of winter energy use. Www dfas mil Nutrition Program for the Elderly. Www dfas mil Reemployment Trade Adjustment Assistance (RTAA). Www dfas mil Generally, income is taxable unless it is specifically exempt (not taxed) by law. Www dfas mil Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Www dfas mil Under special provisions of the law, certain items are partially or fully exempt from tax. Www dfas mil Provisions that are of special interest to older taxpayers are discussed in this chapter. Www dfas mil Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Www dfas mil In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Www dfas mil You need not receive the compensation in cash for it to be taxable. Www dfas mil Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Www dfas mil Volunteer work. Www dfas mil   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Www dfas mil Retired Senior Volunteer Program (RSVP). Www dfas mil Foster Grandparent Program. Www dfas mil Senior Companion Program. Www dfas mil Service Corps of Retired Executives (SCORE). Www dfas mil Unemployment compensation. Www dfas mil   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Www dfas mil More information. Www dfas mil   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Www dfas mil Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Www dfas mil A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Www dfas mil A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Www dfas mil A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Www dfas mil More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Www dfas mil Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Www dfas mil Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Www dfas mil These are discussed in Publication 590. Www dfas mil If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Www dfas mil If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Www dfas mil Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Www dfas mil Early distributions. Www dfas mil   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Www dfas mil You must include early distributions of taxable amounts in your gross income. Www dfas mil These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Www dfas mil For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Www dfas mil For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Www dfas mil After age 59½ and before age 70½. Www dfas mil   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Www dfas mil Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Www dfas mil Required distributions. Www dfas mil   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Www dfas mil See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Www dfas mil If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Www dfas mil For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Www dfas mil For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Www dfas mil See also Excess Accumulations (Insufficient Distributions) in Publication 590. Www dfas mil Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Www dfas mil However, see Insurance Premiums for Retired Public Safety Officers , later. Www dfas mil If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Www dfas mil This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Www dfas mil The rest of each payment is taxable. Www dfas mil However, see Insurance Premiums for Retired Public Safety Officers , later. Www dfas mil You figure the tax-free part of the payment using one of the following methods. Www dfas mil Simplified Method. Www dfas mil You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Www dfas mil You cannot use this method if your annuity is paid under a nonqualified plan. Www dfas mil General Rule. Www dfas mil You must use this method if your annuity is paid under a nonqualified plan. Www dfas mil You generally cannot use this method if your annuity is paid under a qualified plan. Www dfas mil Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Www dfas mil You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Www dfas mil Exclusion limit. Www dfas mil   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Www dfas mil Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Www dfas mil This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Www dfas mil   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Www dfas mil If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Www dfas mil The total exclusion may be more than your cost. Www dfas mil Cost. Www dfas mil   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Www dfas mil Your total cost in the plan includes everything that you paid. Www dfas mil It also includes amounts your employer contributed that were taxable to you when paid. Www dfas mil However, see Foreign employment contributions , later. Www dfas mil   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Www dfas mil   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Www dfas mil    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Www dfas mil , that you receive. Www dfas mil Foreign employment contributions. Www dfas mil   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Www dfas mil For details, see Foreign employment contributions in Publication 575. Www dfas mil Withholding. Www dfas mil   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Www dfas mil However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Www dfas mil (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Www dfas mil ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Www dfas mil   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Www dfas mil Simplified Method. Www dfas mil   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Www dfas mil For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Www dfas mil For any other annuity, this number is the number of monthly annuity payments under the contract. Www dfas mil Who must use the Simplified Method. Www dfas mil   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Www dfas mil   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Www dfas mil If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Www dfas mil Guaranteed payments. Www dfas mil   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Www dfas mil If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Www dfas mil Who cannot use the Simplified Method. Www dfas mil   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Www dfas mil   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Www dfas mil If you did not have to use the General Rule, you could have chosen to use it. Www dfas mil You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Www dfas mil   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Www dfas mil   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Www dfas mil Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Www dfas mil   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Www dfas mil How to use the Simplified Method. Www dfas mil   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Www dfas mil Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Www dfas mil   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Www dfas mil How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Www dfas mil For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Www dfas mil    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Www dfas mil Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Www dfas mil Single-life annuity. Www dfas mil   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Www dfas mil Enter on line 3 the number shown for your age on your annuity starting date. Www dfas mil This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Www dfas mil Multiple-lives annuity. Www dfas mil   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Www dfas mil Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Www dfas mil For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Www dfas mil For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Www dfas mil Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Www dfas mil   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Www dfas mil Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Www dfas mil This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Www dfas mil Fixed-period annuities. Www dfas mil   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Www dfas mil Line 6. Www dfas mil   The amount on line 6 should include all amounts that could have been recovered in prior years. Www dfas mil If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Www dfas mil    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Www dfas mil Example. Www dfas mil Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Www dfas mil Bill's annuity starting date is January 1, 2013. Www dfas mil The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Www dfas mil Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Www dfas mil Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Www dfas mil Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Www dfas mil See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Www dfas mil You can find a blank version of this worksheet in Publication 575. Www dfas mil (The references in the illustrated worksheet are to sections in Publication 575). Www dfas mil His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Www dfas mil Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Www dfas mil Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Www dfas mil The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Www dfas mil If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Www dfas mil This deduction is not subject to the 2%-of-adjusted-gross-income limit. Www dfas mil Worksheet 2-A. Www dfas mil Simplified Method Worksheet—Illustrated 1. Www dfas mil Enter the total pension or annuity payments received this year. Www dfas mil Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Www dfas mil $ 14,400 2. Www dfas mil Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Www dfas mil 31,000   Note. Www dfas mil If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Www dfas mil Otherwise, go to line 3. Www dfas mil     3. Www dfas mil Enter the appropriate number from Table 1 below. Www dfas mil But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Www dfas mil 310 4. Www dfas mil Divide line 2 by the number on line 3 4. Www dfas mil 100 5. Www dfas mil Multiply line 4 by the number of months for which this year's payments were made. Www dfas mil If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Www dfas mil Otherwise, go to line 6 5. Www dfas mil 1,200 6. Www dfas mil Enter any amount previously recovered tax free in years after 1986. Www dfas mil This is the amount shown on line 10 of your worksheet for last year 6. Www dfas mil 0 7. Www dfas mil Subtract line 6 from line 2 7. Www dfas mil 31,000 8. Www dfas mil Enter the smaller of line 5 or line 7 8. Www dfas mil 1,200 9. Www dfas mil Taxable amount for year. Www dfas mil Subtract line 8 from line 1. Www dfas mil Enter the result, but not less than zero. Www dfas mil Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Www dfas mil Note. Www dfas mil If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Www dfas mil If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Www dfas mil 9. Www dfas mil $ 13,200 10. Www dfas mil Was your annuity starting date before 1987? □ Yes. Www dfas mil STOP. Www dfas mil Do not complete the rest of this worksheet. Www dfas mil  ☑ No. Www dfas mil Add lines 6 and 8. Www dfas mil This is the amount you have recovered tax free through 2013. Www dfas mil You will need this number if you need to fill out this worksheet next year. Www dfas mil 10. Www dfas mil 1,200 11. Www dfas mil Balance of cost to be recovered. Www dfas mil Subtract line 10 from line 2. Www dfas mil If zero, you will not have to complete this worksheet next year. Www dfas mil The payments you receive next year will generally be fully taxable 11. Www dfas mil $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Www dfas mil   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Www dfas mil . Www dfas mil . Www dfas mil   BEFORE November 19, 1996, enter on line 3 . Www dfas mil . Www dfas mil . Www dfas mil AFTER November 18, 1996, enter on line 3 . Www dfas mil . Www dfas mil . Www dfas mil   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Www dfas mil . Www dfas mil . Www dfas mil   THEN enter on line 3 . Www dfas mil . Www dfas mil . Www dfas mil         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Www dfas mil   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Www dfas mil   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Www dfas mil The retiree's cost has already been recovered tax free. Www dfas mil   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Www dfas mil The resulting tax-free amount will then remain fixed. Www dfas mil Any increases in the survivor annuity are fully taxable. Www dfas mil   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Www dfas mil See Simplified Method , earlier. Www dfas mil How to report. Www dfas mil   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Www dfas mil If your pension or annuity is fully taxable, enter it on line 16b. Www dfas mil Do not make an entry on line 16a. Www dfas mil   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Www dfas mil If your pension or annuity is fully taxable, enter it on line 12b. Www dfas mil Do not make an entry on line 12a. Www dfas mil   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Www dfas mil If your pension or annuity is fully taxable, enter it on line 17b. Www dfas mil Do not make an entry on line 17a. Www dfas mil Example. Www dfas mil You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Www dfas mil You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Www dfas mil The entire $1,200 is taxable. Www dfas mil You include $1,200 only on Form 1040, line 16b. Www dfas mil Joint return. Www dfas mil   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Www dfas mil Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Www dfas mil Form 1099-R. Www dfas mil   You should receive a Form 1099-R for your pension or annuity. Www dfas mil Form 1099-R shows your pension or annuity for the year and any income tax withheld. Www dfas mil You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Www dfas mil You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Www dfas mil Generally, you should be sent these forms by January 31, 2014. Www dfas mil Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Www dfas mil Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Www dfas mil For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Www dfas mil The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Www dfas mil See Tax on Early Distributions, later. Www dfas mil Lump-sum distributions. Www dfas mil   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Www dfas mil The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Www dfas mil The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Www dfas mil You may be able to use the 10-year tax option to figure tax on the ordinary income part. Www dfas mil Form 1099-R. Www dfas mil   If you receive a total distribution from a plan, you should receive a Form 1099-R. Www dfas mil If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Www dfas mil The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Www dfas mil More information. Www dfas mil   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Www dfas mil Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Www dfas mil The tax applies to the taxable part of the distribution. Www dfas mil For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Www dfas mil  An IRA is also a qualified retirement plan for purposes of this tax. Www dfas mil General exceptions to tax. Www dfas mil   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Www dfas mil Additional exceptions. Www dfas mil   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Www dfas mil See Publication 575 for details. Www dfas mil Reporting tax. Www dfas mil   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Www dfas mil 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Www dfas mil See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Www dfas mil Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Www dfas mil Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Www dfas mil However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Www dfas mil For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Www dfas mil  An IRA is also a qualified retirement plan for purposes of this tax. Www dfas mil An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Www dfas mil 5% owners. Www dfas mil   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Www dfas mil See Publication 575 for more information. Www dfas mil Amount of tax. Www dfas mil   If you do not receive the required minimum distribution, you are subject to an additional tax. Www dfas mil The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Www dfas mil You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Www dfas mil Form 5329. Www dfas mil   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Www dfas mil Additional information. Www dfas mil   For more detailed information on the tax on excess accumulation, see Publication 575. Www dfas mil Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Www dfas mil The premiums can be for coverage for you, your spouse, or dependent(s). Www dfas mil The distribution must be made directly from the plan to the insurance provider. Www dfas mil You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Www dfas mil You can only make this election for amounts that would otherwise be included in your income. Www dfas mil The amount excluded from your income cannot be used to claim a medical expense deduction. Www dfas mil An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Www dfas mil If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Www dfas mil The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Www dfas mil Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Www dfas mil Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Www dfas mil Enter “PSO” next to the appropriate line on which you report the taxable amount. Www dfas mil Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Www dfas mil These categories are treated differently for income tax purposes. Www dfas mil Social security equivalent benefits. Www dfas mil   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Www dfas mil This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Www dfas mil (See Social Security and Equivalent Railroad Retirement Benefits , later. Www dfas mil ) Non-social security equivalent benefits. Www dfas mil   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Www dfas mil It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Www dfas mil This category of benefits is treated as an amount received from a qualified employee plan. Www dfas mil This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Www dfas mil Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Www dfas mil More information. Www dfas mil   For more information about railroad retirement benefits, see Publication 575. Www dfas mil Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Www dfas mil But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Www dfas mil For more information, including information about veterans' benefits and insurance, see Publication 525. Www dfas mil Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Www dfas mil Social security benefits include monthly retirement, survivor, and disability benefits. Www dfas mil They do not include supplemental security income (SSI) payments, which are not taxable. Www dfas mil Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Www dfas mil They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Www dfas mil If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Www dfas mil Are Any of Your Benefits Taxable? Note. Www dfas mil When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Www dfas mil  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Www dfas mil When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Www dfas mil S. Www dfas mil savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Www dfas mil Figuring total income. Www dfas mil   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Www dfas mil If that total amount is more than your base amount, part of your benefits may be taxable. Www dfas mil If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Www dfas mil Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Www dfas mil If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Www dfas mil If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Www dfas mil Worksheet 2-B. Www dfas mil A Quick Way To Check if Your Benefits May Be Taxable A. Www dfas mil Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Www dfas mil Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Www dfas mil (If you received more than one form, combine the amounts from box 5  and enter the total. Www dfas mil ) A. Www dfas mil     Note. Www dfas mil If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Www dfas mil     B. Www dfas mil Enter one-half of the amount on line A B. Www dfas mil   C. Www dfas mil Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Www dfas mil   D. Www dfas mil Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Www dfas mil S. Www dfas mil savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Www dfas mil   E. Www dfas mil Add lines B, C, and D and enter the total E. Www dfas mil   F. Www dfas mil If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Www dfas mil   G. Www dfas mil Is the amount on line F less than or equal to the amount on line E? □ No. Www dfas mil None of your benefits are taxable this year. Www dfas mil  □ Yes. Www dfas mil Some of your benefits may be taxable. Www dfas mil To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Www dfas mil     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Www dfas mil Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Www dfas mil It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Www dfas mil If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Www dfas mil Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Www dfas mil Your repayments are shown in box 4. Www dfas mil The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Www dfas mil Use the amount in box 5 to figure whether any of your benefits are taxable. Www dfas mil Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Www dfas mil If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Www dfas mil If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Www dfas mil For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Www dfas mil How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Www dfas mil Generally, the higher that total amount, the greater the taxable part of your benefits. Www dfas mil Maximum taxable part. Www dfas mil   The taxable part of your benefits usually cannot be more than 50%. Www dfas mil However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Www dfas mil The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Www dfas mil You are married filing separately and lived with your spouse at any time during 2013. Www dfas mil   If you are a nonresident alien, 85% of your benefits are taxable. Www dfas mil However, this income is exempt under some tax treaties. Www dfas mil Which worksheet to use. Www dfas mil   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Www dfas mil However, you will need to use a different worksheet(s) if any of the following situations applies to you. Www dfas mil You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Www dfas mil In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Www dfas mil Situation (1) does not apply and you take one or more of the following exclusions. Www dfas mil Interest from qualified U. Www dfas mil S. Www dfas mil savings bonds (Form 8815). Www dfas mil Employer-provided adoption benefits (Form 8839). Www dfas mil Foreign earned income or housing (Form 2555 or Form 2555-EZ). Www dfas mil Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Www dfas mil In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Www dfas mil You received a lump-sum payment for an earlier year. Www dfas mil In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Www dfas mil See Lump-Sum Election , later. Www dfas mil How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Www dfas mil You cannot use Form 1040EZ. Www dfas mil Reporting on Form 1040. Www dfas mil   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Www dfas mil If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Www dfas mil Reporting on Form 1040A. Www dfas mil   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Www dfas mil If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Www dfas mil Reporting on Form 1040NR. Www dfas mil   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Www dfas mil Benefits not taxable. Www dfas mil   If you are filing Form 1040EZ, do not report any benefits on your tax return. Www dfas mil If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Www dfas mil Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Www dfas mil If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Www dfas mil Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Www dfas mil This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Www dfas mil No part of the lump-sum death benefit is subject to tax. Www dfas mil For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Www dfas mil SSA. Www dfas mil gov, and use keyword: death benefit. Www dfas mil Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Www dfas mil However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Www dfas mil You can elect this method if it lowers your taxable benefits. Www dfas mil See Publication 915 for more information. Www dfas mil Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Www dfas mil If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Www dfas mil If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Www dfas mil If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Www dfas mil S. Www dfas mil Railroad Retirement Board field office. Www dfas mil Joint return. Www dfas mil   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Www dfas mil You do this to get your net benefits when figuring if your combined benefits are taxable. Www dfas mil Repayment of benefits received in an earlier year. Www dfas mil   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Www dfas mil   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Www dfas mil Claim it on Schedule A (Form 1040), line 23. Www dfas mil   If this deduction is more than $3,000, you have to follow some special instructions. Www dfas mil See Publication 915 for those instructions. Www dfas mil Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Www dfas mil If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Www dfas mil However, certain payments may not be taxable to you. Www dfas mil Some of these payments are discussed later in this section. Www dfas mil Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Www dfas mil Cost paid by you. Www dfas mil   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Www dfas mil If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Www dfas mil Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Www dfas mil You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Www dfas mil Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Www dfas mil If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Www dfas mil See Credit for the Elderly or the Disabled, later. Www dfas mil For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Www dfas mil Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Www dfas mil Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Www dfas mil For more information on pensions and annuities, see Publication 575. Www dfas mil Retirement and profit-sharing plans. Www dfas mil   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Www dfas mil The payments must be reported as a pension or annuity. Www dfas mil Accrued leave payment. Www dfas mil   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Www dfas mil The payment is not a disability payment. Www dfas mil Include it in your income in the tax year you receive it. Www dfas mil Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Www dfas mil Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Www dfas mil However, the amount you can exclude may be limited. Www dfas mil Long-term care insurance contracts are discussed in more detail in Publication 525. Www dfas mil Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Www dfas mil The exemption also applies to your survivors. Www dfas mil The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Www dfas mil If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Www dfas mil For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Www dfas mil Return to work. Www dfas mil   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Www dfas mil Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Www dfas mil Federal Employees' Compensation Act (FECA). Www dfas mil   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Www dfas mil However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Www dfas mil Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Www dfas mil Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Www dfas mil    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Www dfas mil For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Www dfas mil Other compensation. Www dfas mil   Many other amounts you receive as compensation for sickness or injury are not taxable. Www dfas mil These include the following amounts. Www dfas mil Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Www dfas mil Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Www dfas mil Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Www dfas mil This compensation must be based only on the injury and not on the period of your absence from work. Www dfas mil These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Www dfas mil Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Www dfas mil This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Www dfas mil Proceeds not received in installments. Www dfas mil   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Www dfas mil If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Www dfas mil Proceeds received in installments. Www dfas mil   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Www dfas mil   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Www dfas mil Include anything over this excluded part in your income as interest. Www dfas mil Installments for life. Www dfas mil   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Www dfas mil If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Www dfas mil Surviving spouse. Www dfas mil   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Www dfas mil If you remarry, you can continue to take the exclusion. Www dfas mil Surrender of policy for cash. Www dfas mil   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Www dfas mil In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Www dfas mil You should receive a Form 1099-R showing the total proceeds and the taxable part. Www dfas mil Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Www dfas mil Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Www dfas mil Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Www dfas mil To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Www dfas mil Include in your income the part of the lump-sum payment that is more than your cost. Www dfas mil Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Www dfas mil The tax treatment of an annuity is explained in Publication 575. Www dfas mil For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Www dfas mil This election must be made within 60 days after the lump-sum payment first becomes payable to you. Www dfas mil Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Www dfas mil However, see Exception , later. Www dfas mil For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Www dfas mil Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Www dfas mil In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Www dfas mil Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Www dfas mil To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Www dfas mil Terminally or chronically ill defined. Www dfas mil   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Www dfas mil A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Www dfas mil The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Www dfas mil The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Www dfas mil Exception. Www dfas mil   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Www dfas mil Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Www dfas mil Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Www dfas mil You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Www dfas mil Main home. Www dfas mil   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Www dfas mil Repaying the first-time homebuyer credit because you sold your home. Www dfas mil   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Www dfas mil For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Www dfas mil   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Www dfas mil If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Www dfas mil If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Www dfas mil   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Www dfas mil Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Www dfas mil You meet the ownership test. Www dfas mil You meet the use test. Www dfas mil During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Www dfas mil You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Www dfas mil Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Www dfas mil This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Www dfas mil Exception to ownership and use tests. Www dfas mil   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Www dfas mil Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Www dfas mil The maximum amount you can exclude will be reduced. Www dfas mil See Publication 523, Selling Your Home, for more information. Www dfas mil Exception to use test for individuals with a disability. Www dfas mil   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Www dfas mil Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Www dfas mil   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Www dfas mil Exception to ownership test for property acquired in a like-kind exchange. Www dfas mil   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Www dfas mil This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Www dfas mil A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Www dfas mil See Publication 523 for more information. Www dfas mil Period of nonqualified use. Www dfas mil   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Www dfas mil Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Www dfas mil See Publication 523 for more information. Www dfas mil Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Www dfas mil However, see Special rules for joint returns , next. Www dfas mil Special rules for joint returns. Www dfas mil   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Www dfas mil You are married and file a joint return for the year. Www dfas mil Either you or your spouse meets the ownership test. Www dfas mil Both you and your spouse meet the use test. Www dfas mil During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Www dfas mil Sale of home by surviving spouse. Www dfas mil   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Www dfas mil   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Www dfas mil The sale or exchange took place no more than 2 years after the date of death of your spouse. Www dfas mil You have not remarried. Www dfas mil You and your spouse met the use test at the time of your spouse's death. Www dfas mil You or your spouse met the ownership test at the time of your spouse's death. Www dfas mil Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Www dfas mil Home transferred from spouse. Www dfas mil   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Www dfas mil Use of home after divorce. Www dfas mil   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Www dfas mil Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Www dfas mil However, you must meet the ownership and use tests. Www dfas mil See Publication 523 for more information. Www dfas mil Depreciation after May 6, 1997. Www dfas mil   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Www dfas mil See Publication 523 for more information. Www dfas mil Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Www dfas mil If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Www dfas mil Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Www dfas mil If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Www dfas mil See Publication 523 for more information. Www dfas mil Reverse Mortgages A revers
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Www dfas mil 1. Www dfas mil   Definitions You Need To Know Table of Contents Other options. Www dfas mil Exception. Www dfas mil Certain terms used in this publication are defined below. Www dfas mil The same term used in another publication may have a slightly different meaning. Www dfas mil Annual additions. Www dfas mil   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. Www dfas mil Annual benefits. Www dfas mil   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. Www dfas mil Business. Www dfas mil   A business is an activity in which a profit motive is present and economic activity is involved. Www dfas mil Service as a newspaper carrier under age 18 or as a public official is not a business. Www dfas mil Common-law employee. Www dfas mil   A common-law employee is any individual who, under common law, would have the status of an employee. Www dfas mil A leased employee can also be a common-law employee. Www dfas mil   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. Www dfas mil For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. Www dfas mil   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. Www dfas mil For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. Www dfas mil S. Www dfas mil citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. Www dfas mil   However, an individual may be a common-law employee and a self-employed person as well. Www dfas mil For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. Www dfas mil In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. Www dfas mil However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. Www dfas mil Compensation. Www dfas mil   Compensation for plan allocations is the pay a participant received from you for personal services for a year. Www dfas mil You can generally define compensation as including all the following payments. Www dfas mil Wages and salaries. Www dfas mil Fees for professional services. Www dfas mil Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. Www dfas mil Commissions and tips. Www dfas mil Fringe benefits. Www dfas mil Bonuses. Www dfas mil   For a self-employed individual, compensation means the earned income, discussed later, of that individual. Www dfas mil   Compensation generally includes amounts deferred in the following employee benefit plans. Www dfas mil These amounts are elective deferrals. Www dfas mil Qualified cash or deferred arrangement (section 401(k) plan). Www dfas mil Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. Www dfas mil Section 457 nonqualified deferred compensation plan. Www dfas mil Section 125 cafeteria plan. Www dfas mil   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. Www dfas mil The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. Www dfas mil Other options. Www dfas mil   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. Www dfas mil The employee's wages as defined for income tax withholding purposes. Www dfas mil The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. Www dfas mil The employee's social security wages (including elective deferrals). Www dfas mil   Compensation generally cannot include either of the following items. Www dfas mil Nontaxable reimbursements or other expense allowances. Www dfas mil Deferred compensation (other than elective deferrals). Www dfas mil SIMPLE plans. Www dfas mil   A special definition of compensation applies for SIMPLE plans. Www dfas mil See chapter 3. Www dfas mil Contribution. Www dfas mil   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. Www dfas mil Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. Www dfas mil Deduction. Www dfas mil   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. Www dfas mil Limits apply to the amount deductible. Www dfas mil Earned income. Www dfas mil   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. Www dfas mil   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. Www dfas mil Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. Www dfas mil It includes income from licensing the use of property other than goodwill. Www dfas mil   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. Www dfas mil   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. Www dfas mil Employer. Www dfas mil   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. Www dfas mil A sole proprietor is treated as his or her own employer for retirement plan purposes. Www dfas mil However, a partner is not an employer for retirement plan purposes. Www dfas mil Instead, the partnership is treated as the employer of each partner. Www dfas mil Highly compensated employee. Www dfas mil   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. Www dfas mil Leased employee. Www dfas mil   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. Www dfas mil Provides services to you under an agreement between you and a leasing organization. Www dfas mil Has performed services for you (or for you and related persons) substantially full time for at least 1 year. Www dfas mil Performs services under your primary direction or control. Www dfas mil Exception. Www dfas mil   A leased employee is not treated as your employee if all the following conditions are met. Www dfas mil Leased employees are not more than 20% of your non-highly compensated work force. Www dfas mil The employee is covered under the leasing organization's qualified pension plan. Www dfas mil The leasing organization's plan is a money purchase pension plan that has all the following provisions. Www dfas mil Immediate participation. Www dfas mil (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. Www dfas mil ) Full and immediate vesting. Www dfas mil A nonintegrated employer contribution rate of at least 10% of compensation for each participant. Www dfas mil However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Www dfas mil Net earnings from self-employment. Www dfas mil   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Www dfas mil Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. Www dfas mil   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. Www dfas mil   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. Www dfas mil You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Www dfas mil   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). Www dfas mil It does not include income passed through to shareholders of S corporations. Www dfas mil Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Www dfas mil Distributions of other income or loss to limited partners are not net earnings from self-employment. Www dfas mil   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Www dfas mil Qualified plan. Www dfas mil   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. Www dfas mil You can deduct contributions made to the plan for your employees. Www dfas mil Earnings on these contributions are generally tax free until distributed at retirement. Www dfas mil Profit-sharing, money purchase, and defined benefit plans are qualified plans. Www dfas mil A 401(k) plan is also a qualified plan. Www dfas mil Participant. Www dfas mil   A participant is an eligible employee who is covered by your retirement plan. Www dfas mil See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. Www dfas mil Partner. Www dfas mil   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. Www dfas mil For retirement plans, a partner is treated as an employee of the partnership. Www dfas mil Self-employed individual. Www dfas mil   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Www dfas mil Sole proprietors and partners are self-employed. Www dfas mil Self-employment can include part-time work. Www dfas mil   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. Www dfas mil See Common-law employee and Net earnings from self-employment , earlier. Www dfas mil   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. Www dfas mil See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Www dfas mil Sole proprietor. Www dfas mil   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. Www dfas mil For retirement plans, a sole proprietor is treated as both an employer and an employee. Www dfas mil Prev  Up  Next   Home   More Online Publications