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Www taxcut com 10. Www taxcut com   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Www taxcut com Eligible educational institution. Www taxcut com Dependent for whom you claim an exemption. Www taxcut com MAGI when using Form 1040A. Www taxcut com MAGI when using Form 1040. Www taxcut com Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Www taxcut com S. Www taxcut com savings bonds. Www taxcut com If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Www taxcut com However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Www taxcut com Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Www taxcut com S. Www taxcut com savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Www taxcut com You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Www taxcut com Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Www taxcut com Your filing status is not married filing separately. Www taxcut com Qualified U. Www taxcut com S. Www taxcut com savings bonds. Www taxcut com   A qualified U. Www taxcut com S. Www taxcut com savings bond is a series EE bond issued after 1989 or a series I bond. Www taxcut com The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Www taxcut com   The owner must be at least 24 years old before the bond's issue date. Www taxcut com The issue date is printed on the front of the savings bond. Www taxcut com    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Www taxcut com Qualified education expenses. Www taxcut com   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Www taxcut com Tuition and fees required to enroll at or attend an eligible educational institution. Www taxcut com Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Www taxcut com Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Www taxcut com Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Www taxcut com Adjusted qualified education expenses. Www taxcut com   You must reduce your qualified education expenses by all of the following tax-free benefits. Www taxcut com Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Www taxcut com Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Www taxcut com Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Www taxcut com Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Www taxcut com Any expenses used in figuring the American opportunity and lifetime learning credits. Www taxcut com See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Www taxcut com Eligible educational institution. Www taxcut com   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Www taxcut com S. Www taxcut com Department of Education. Www taxcut com It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Www taxcut com The educational institution should be able to tell you if it is an eligible educational institution. Www taxcut com   Certain educational institutions located outside the United States also participate in the U. Www taxcut com S. Www taxcut com Department of Education's Federal Student Aid (FSA) programs. Www taxcut com Dependent for whom you claim an exemption. Www taxcut com   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Www taxcut com Modified adjusted gross income (MAGI). Www taxcut com   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Www taxcut com However, as discussed below, there may be other modifications. Www taxcut com MAGI when using Form 1040A. Www taxcut com   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Www taxcut com MAGI when using Form 1040. Www taxcut com   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Www taxcut com    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Www taxcut com If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Www taxcut com Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Www taxcut com Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Www taxcut com    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Www taxcut com Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Www taxcut com See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Www taxcut com Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Www taxcut com However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Www taxcut com To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Www taxcut com The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Www taxcut com The denominator (bottom part) of the fraction is the total proceeds you received during the year. Www taxcut com Example. Www taxcut com In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Www taxcut com S. Www taxcut com savings bond. Www taxcut com They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Www taxcut com In 2013, they paid $7,650 of their daughter's college tuition. Www taxcut com They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Www taxcut com Their MAGI for 2013 was $80,000. Www taxcut com   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Www taxcut com They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Www taxcut com Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Www taxcut com Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Www taxcut com Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Www taxcut com Attach Form 8815 to your tax return. Www taxcut com Prev  Up  Next   Home   More Online Publications
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Www taxcut com 3. Www taxcut com   Limit on Annual Additions Table of Contents Ministers and church employees. Www taxcut com Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Www taxcut com This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Www taxcut com The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Www taxcut com More than one 403(b) account. Www taxcut com If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Www taxcut com Ministers and church employees. Www taxcut com   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Www taxcut com For more information, see chapter 5. Www taxcut com Participation in a qualified plan. Www taxcut com If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Www taxcut com You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Www taxcut com Includible Compensation for Your Most Recent Year of Service Definition. Www taxcut com   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Www taxcut com When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Www taxcut com This can happen if your tax year is not the same as your employer's annual work period. Www taxcut com When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Www taxcut com Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Www taxcut com Tax year different from employer's annual work period. Www taxcut com   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Www taxcut com Example. Www taxcut com A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Www taxcut com To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Www taxcut com Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Www taxcut com A full year of service is equal to full-time employment for your employer's annual work period. Www taxcut com After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Www taxcut com Part-time or employed only part of the year. Www taxcut com   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Www taxcut com To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Www taxcut com Example. Www taxcut com You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Www taxcut com Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Www taxcut com Not yet employed for 1 year. Www taxcut com   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Www taxcut com Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Www taxcut com Includible compensation is not the same as income included on your tax return. Www taxcut com Compensation is a combination of income and benefits received in exchange for services provided to your employer. Www taxcut com Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Www taxcut com Includible compensation includes the following amounts. Www taxcut com Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Www taxcut com Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Www taxcut com Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Www taxcut com  Note. Www taxcut com For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Www taxcut com Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Www taxcut com Income otherwise excluded under the foreign earned income exclusion. Www taxcut com Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Www taxcut com Includible compensation does not include the following items. Www taxcut com Your employer's contributions to your 403(b) account. Www taxcut com Compensation earned while your employer was not an eligible employer. Www taxcut com Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Www taxcut com The cost of incidental life insurance. Www taxcut com See Cost of Incidental Life Insurance, later. Www taxcut com If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Www taxcut com Contributions after retirement. Www taxcut com   Nonelective contributions may be made for an employee for up to 5 years after retirement. Www taxcut com These contributions would be based on includible compensation for the last year of service before retirement. Www taxcut com Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Www taxcut com If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Www taxcut com If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Www taxcut com If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Www taxcut com Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Www taxcut com Not all annuity contracts include life insurance. Www taxcut com Contact your plan administrator to determine if your contract includes incidental life insurance. Www taxcut com If it does, you will need to figure the cost of life insurance each year the policy is in effect. Www taxcut com Figuring the cost of incidental life insurance. Www taxcut com If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Www taxcut com To determine the amount of the life insurance premiums, you will need to know the following information. Www taxcut com The value of your life insurance contract, which is the amount payable upon your death. Www taxcut com The cash value of your life insurance contract at the end of the tax year. Www taxcut com Your age on your birthday nearest the beginning of the policy year. Www taxcut com Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Www taxcut com You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Www taxcut com Example. Www taxcut com Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Www taxcut com Your cash value in the contract at the end of the first year is zero. Www taxcut com Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Www taxcut com The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Www taxcut com The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Www taxcut com The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Www taxcut com Figure 3-1. Www taxcut com Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Www taxcut com 70   35 $0. Www taxcut com 99   70 $20. Www taxcut com 62 1 0. Www taxcut com 41   36 1. Www taxcut com 01   71 22. Www taxcut com 72 2 0. Www taxcut com 27   37 1. Www taxcut com 04   72 25. Www taxcut com 07 3 0. Www taxcut com 19   38 1. Www taxcut com 06   73 27. Www taxcut com 57 4 0. Www taxcut com 13   39 1. Www taxcut com 07   74 30. Www taxcut com 18 5 0. Www taxcut com 13   40 1. Www taxcut com 10   75 33. Www taxcut com 05 6 0. Www taxcut com 14   41 1. Www taxcut com 13   76 36. Www taxcut com 33 7 0. Www taxcut com 15   42 1. Www taxcut com 20   77 40. Www taxcut com 17 8 0. Www taxcut com 16   43 1. Www taxcut com 29   78 44. Www taxcut com 33 9 0. Www taxcut com 16   44 1. Www taxcut com 40   79 49. Www taxcut com 23 10 0. Www taxcut com 16   45 1. Www taxcut com 53   80 54. Www taxcut com 56 11 0. Www taxcut com 19   46 1. Www taxcut com 67   81 60. Www taxcut com 51 12 0. Www taxcut com 24   47 1. Www taxcut com 83   82 66. Www taxcut com 74 13 0. Www taxcut com 28   48 1. Www taxcut com 98   83 73. Www taxcut com 07 14 0. Www taxcut com 33   49 2. Www taxcut com 13   84 80. Www taxcut com 35 15 0. Www taxcut com 38   50 2. Www taxcut com 30   85 88. Www taxcut com 76 16 0. Www taxcut com 52   51 2. Www taxcut com 52   86 99. Www taxcut com 16 17 0. Www taxcut com 57   52 2. Www taxcut com 81   87 110. Www taxcut com 40 18 0. Www taxcut com 59   53 3. Www taxcut com 20   88 121. Www taxcut com 85 19 0. Www taxcut com 61   54 3. Www taxcut com 65   89 133. Www taxcut com 40 20 0. Www taxcut com 62   55 4. Www taxcut com 15   90 144. Www taxcut com 30 21 0. Www taxcut com 62   56 4. Www taxcut com 68   91 155. Www taxcut com 80 22 0. Www taxcut com 64   57 5. Www taxcut com 20   92 168. Www taxcut com 75 23 0. Www taxcut com 66   58 5. Www taxcut com 66   93 186. Www taxcut com 44 24 0. Www taxcut com 68   59 6. Www taxcut com 06   94 206. Www taxcut com 70 25 0. Www taxcut com 71   60 6. Www taxcut com 51   95 228. Www taxcut com 35 26 0. Www taxcut com 73   61 7. Www taxcut com 11   96 250. Www taxcut com 01 27 0. Www taxcut com 76   62 7. Www taxcut com 96   97 265. Www taxcut com 09 28 0. Www taxcut com 80   63 9. Www taxcut com 08   98 270. Www taxcut com 11 29 0. Www taxcut com 83   64 10. Www taxcut com 41   99 281. Www taxcut com 05 30 0. Www taxcut com 87   65 11. Www taxcut com 90       31 0. Www taxcut com 90   66 13. Www taxcut com 51       32 0. Www taxcut com 93   67 15. Www taxcut com 20       33 0. Www taxcut com 96   68 16. Www taxcut com 92       34 0. Www taxcut com 98   69 18. Www taxcut com 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Www taxcut com Example 1. Www taxcut com Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Www taxcut com The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Www taxcut com Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Www taxcut com Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Www taxcut com When figuring her includible compensation for this year, Lynne will subtract $28. Www taxcut com Table 3-1. Www taxcut com Worksheet A. Www taxcut com Cost of Incidental Life Insurance Note. Www taxcut com Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Www taxcut com This amount will be used to figure includible compensation for your most recent year of service. Www taxcut com 1. Www taxcut com Enter the value of the contract (amount payable upon your death) 1. Www taxcut com $20,000. Www taxcut com 00 2. Www taxcut com Enter the cash value in the contract at the end of the year 2. Www taxcut com 0. Www taxcut com 00 3. Www taxcut com Subtract line 2 from line 1. Www taxcut com This is the value of your current life insurance protection 3. Www taxcut com $20,000. Www taxcut com 00 4. Www taxcut com Enter your age on your birthday nearest the beginning of the policy year 4. Www taxcut com 44 5. Www taxcut com Enter the 1-year term premium for $1,000 of life insurance based on your age. Www taxcut com (From Figure 3-1) 5. Www taxcut com $1. Www taxcut com 40 6. Www taxcut com Divide line 3 by $1,000 6. Www taxcut com 20 7. Www taxcut com Multiply line 6 by line 5. Www taxcut com This is the cost of your incidental life insurance 7. Www taxcut com $28. Www taxcut com 00 Example 2. Www taxcut com Lynne's cash value in the contract at the end of the second year is $1,000. Www taxcut com In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Www taxcut com In year two, Lynne's employer will include $29. Www taxcut com 07 in her current year's income. Www taxcut com Lynne will subtract this amount when figuring her includible compensation. Www taxcut com Table 3-2. Www taxcut com Worksheet A. Www taxcut com Cost of Incidental Life Insurance Note. Www taxcut com Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Www taxcut com This amount will be used to figure includible compensation for your most recent year of service. Www taxcut com 1. Www taxcut com Enter the value of the contract (amount payable upon your death) 1. Www taxcut com $20,000. Www taxcut com 00 2. Www taxcut com Enter the cash value in the contract at the end of the year 2. Www taxcut com $1,000. Www taxcut com 00 3. Www taxcut com Subtract line 2 from line 1. Www taxcut com This is the value of your current life insurance protection 3. Www taxcut com $19,000. Www taxcut com 00 4. Www taxcut com Enter your age on your birthday nearest the beginning of the policy year 4. Www taxcut com 45 5. Www taxcut com Enter the 1-year term premium for $1,000 of life insurance based on your age. Www taxcut com (From Figure 3-1) 5. Www taxcut com $1. Www taxcut com 53 6. Www taxcut com Divide line 3 by $1,000 6. Www taxcut com 19 7. Www taxcut com Multiply line 6 by line 5. Www taxcut com This is the cost of your incidental life insurance 7. Www taxcut com $29. Www taxcut com 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Www taxcut com Example. Www taxcut com Floyd has been periodically working full-time for a local hospital since September 2011. Www taxcut com He needs to figure his limit on annual additions for 2014. Www taxcut com The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Www taxcut com During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Www taxcut com Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Www taxcut com Floyd has never worked abroad and there is no life insurance provided under the plan. Www taxcut com Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Www taxcut com Table 3-3. Www taxcut com Floyd's Compensation Note. Www taxcut com This table shows information Floyd will use to figure includible compensation for his most recent year of service. Www taxcut com   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Www taxcut com Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Www taxcut com If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Www taxcut com He figures his most recent year of service shown in the following list. Www taxcut com Time he will work in 2014 is 6/12 of a year. Www taxcut com Time worked in 2013 is 4/12 of a year. Www taxcut com All of this time will be used to determine Floyd's most recent year of service. Www taxcut com Time worked in 2012 is 4/12 of a year. Www taxcut com Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Www taxcut com Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Www taxcut com Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Www taxcut com His includible compensation for his most recent year of service is figured as shown in Table 3-4. Www taxcut com After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Www taxcut com Table 3-4. Www taxcut com Worksheet B. Www taxcut com Includible Compensation for Your Most Recent Year of Service1 Note. Www taxcut com Use this worksheet to figure includible compensation for your most recent year of service. Www taxcut com 1. Www taxcut com Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Www taxcut com $66,000 2. Www taxcut com Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Www taxcut com 4,4753 3. Www taxcut com Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Www taxcut com -0- 4. Www taxcut com Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Www taxcut com -0- 5. Www taxcut com Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Www taxcut com -0- 6. Www taxcut com Enter your foreign earned income exclusion for your most recent year of service 6. Www taxcut com -0- 7. Www taxcut com Add lines 1, 2, 3, 4, 5, and 6 7. Www taxcut com 70,475 8. Www taxcut com Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Www taxcut com -0- 9. Www taxcut com Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Www taxcut com -0- 10. Www taxcut com Add lines 8 and 9 10. Www taxcut com -0- 11. Www taxcut com Subtract line 10 from line 7. Www taxcut com This is your includible compensation for your most recent year of service 11. Www taxcut com 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Www taxcut com 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Www taxcut com  3$4,475 ($2,000 + $1,650 + $825). Www taxcut com Prev  Up  Next   Home   More Online Publications