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1040x E File

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1040x E File

1040x e file 1. 1040x e file   Definitions You Need To Know Table of Contents Other options. 1040x e file Exception. 1040x e file Certain terms used in this publication are defined below. 1040x e file The same term used in another publication may have a slightly different meaning. 1040x e file Annual additions. 1040x e file   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. 1040x e file Annual benefits. 1040x e file   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. 1040x e file Business. 1040x e file   A business is an activity in which a profit motive is present and economic activity is involved. 1040x e file Service as a newspaper carrier under age 18 or as a public official is not a business. 1040x e file Common-law employee. 1040x e file   A common-law employee is any individual who, under common law, would have the status of an employee. 1040x e file A leased employee can also be a common-law employee. 1040x e file   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. 1040x e file For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. 1040x e file   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. 1040x e file For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. 1040x e file S. 1040x e file 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. 1040x e file   However, an individual may be a common-law employee and a self-employed person as well. 1040x e file 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. 1040x e file 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. 1040x e file 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. 1040x e file Compensation. 1040x e file   Compensation for plan allocations is the pay a participant received from you for personal services for a year. 1040x e file You can generally define compensation as including all the following payments. 1040x e file Wages and salaries. 1040x e file Fees for professional services. 1040x e file Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. 1040x e file Commissions and tips. 1040x e file Fringe benefits. 1040x e file Bonuses. 1040x e file   For a self-employed individual, compensation means the earned income, discussed later, of that individual. 1040x e file   Compensation generally includes amounts deferred in the following employee benefit plans. 1040x e file These amounts are elective deferrals. 1040x e file Qualified cash or deferred arrangement (section 401(k) plan). 1040x e file Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. 1040x e file Section 457 nonqualified deferred compensation plan. 1040x e file Section 125 cafeteria plan. 1040x e file   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. 1040x e file The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. 1040x e file Other options. 1040x e file   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. 1040x e file The employee's wages as defined for income tax withholding purposes. 1040x e file The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. 1040x e file The employee's social security wages (including elective deferrals). 1040x e file   Compensation generally cannot include either of the following items. 1040x e file Nontaxable reimbursements or other expense allowances. 1040x e file Deferred compensation (other than elective deferrals). 1040x e file SIMPLE plans. 1040x e file   A special definition of compensation applies for SIMPLE plans. 1040x e file See chapter 3. 1040x e file Contribution. 1040x e file   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. 1040x e file Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. 1040x e file Deduction. 1040x e file   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. 1040x e file Limits apply to the amount deductible. 1040x e file Earned income. 1040x e file   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. 1040x e file   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. 1040x e file Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. 1040x e file It includes income from licensing the use of property other than goodwill. 1040x e file   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. 1040x e file   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. 1040x e file Employer. 1040x e file   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. 1040x e file A sole proprietor is treated as his or her own employer for retirement plan purposes. 1040x e file However, a partner is not an employer for retirement plan purposes. 1040x e file Instead, the partnership is treated as the employer of each partner. 1040x e file Highly compensated employee. 1040x e file   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. 1040x e file Leased employee. 1040x e file   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. 1040x e file Provides services to you under an agreement between you and a leasing organization. 1040x e file Has performed services for you (or for you and related persons) substantially full time for at least 1 year. 1040x e file Performs services under your primary direction or control. 1040x e file Exception. 1040x e file   A leased employee is not treated as your employee if all the following conditions are met. 1040x e file Leased employees are not more than 20% of your non-highly compensated work force. 1040x e file The employee is covered under the leasing organization's qualified pension plan. 1040x e file The leasing organization's plan is a money purchase pension plan that has all the following provisions. 1040x e file Immediate participation. 1040x e file (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. 1040x e file ) Full and immediate vesting. 1040x e file A nonintegrated employer contribution rate of at least 10% of compensation for each participant. 1040x e file 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. 1040x e file Net earnings from self-employment. 1040x e file   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. 1040x e file 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. 1040x e file   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. 1040x e file   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. 1040x e file 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. 1040x e file   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). 1040x e file It does not include income passed through to shareholders of S corporations. 1040x e file Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. 1040x e file Distributions of other income or loss to limited partners are not net earnings from self-employment. 1040x e file   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. 1040x e file Qualified plan. 1040x e file   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. 1040x e file You can deduct contributions made to the plan for your employees. 1040x e file Earnings on these contributions are generally tax free until distributed at retirement. 1040x e file Profit-sharing, money purchase, and defined benefit plans are qualified plans. 1040x e file A 401(k) plan is also a qualified plan. 1040x e file Participant. 1040x e file   A participant is an eligible employee who is covered by your retirement plan. 1040x e file See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. 1040x e file Partner. 1040x e file   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. 1040x e file For retirement plans, a partner is treated as an employee of the partnership. 1040x e file Self-employed individual. 1040x e file   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. 1040x e file Sole proprietors and partners are self-employed. 1040x e file Self-employment can include part-time work. 1040x e file   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. 1040x e file See Common-law employee and Net earnings from self-employment , earlier. 1040x e file   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. 1040x e file See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. 1040x e file Sole proprietor. 1040x e file   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. 1040x e file For retirement plans, a sole proprietor is treated as both an employer and an employee. 1040x e file Prev  Up  Next   Home   More Online Publications
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The 1040x E File

1040x e file 5. 1040x e file   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. 1040x e file Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. 1040x e file   If you are a U. 1040x e file S. 1040x e file citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. 1040x e file S. 1040x e file law. 1040x e file This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. 1040x e file This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). 1040x e file If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. 1040x e file For details, see Publication 54, Tax Guide for U. 1040x e file S. 1040x e file Citizens and Resident Aliens Abroad. 1040x e file Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. 1040x e file The following topics are included. 1040x e file Bonuses and awards. 1040x e file Special rules for certain employees. 1040x e file Sickness and injury benefits. 1040x e file The chapter explains what income is included in the employee's gross income and what is not included. 1040x e file Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. 1040x e file Form W-2. 1040x e file    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. 1040x e file Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. 1040x e file   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. 1040x e file These wages must be included on line 7 of Form 1040. 1040x e file See Form 8919 for more information. 1040x e file Childcare providers. 1040x e file    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. 1040x e file If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 1040x e file You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. 1040x e file Babysitting. 1040x e file   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. 1040x e file Miscellaneous Compensation This section discusses different types of employee compensation. 1040x e file Advance commissions and other earnings. 1040x e file   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. 1040x e file    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. 1040x e file If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. 1040x e file See Repayments in chapter 12. 1040x e file Allowances and reimbursements. 1040x e file    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. 1040x e file If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. 1040x e file Back pay awards. 1040x e file    Include in income amounts you are awarded in a settlement or judgment for back pay. 1040x e file These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. 1040x e file They should be reported to you by your employer on Form W-2. 1040x e file Bonuses and awards. 1040x e file   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. 1040x e file These include prizes such as vacation trips for meeting sales goals. 1040x e file If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. 1040x e file However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. 1040x e file Employee achievement award. 1040x e file   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. 1040x e file However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. 1040x e file Your employer can tell you whether your award is a qualified plan award. 1040x e file Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. 1040x e file   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. 1040x e file A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. 1040x e file Example. 1040x e file Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. 1040x e file Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. 1040x e file However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. 1040x e file Differential wage payments. 1040x e file   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. 1040x e file These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. 1040x e file The payments are reported as wages on Form W-2. 1040x e file Government cost-of-living allowances. 1040x e file   Most payments received by U. 1040x e file S. 1040x e file Government civilian employees for working abroad are taxable. 1040x e file However, certain cost-of-living allowances are tax free. 1040x e file Publication 516, U. 1040x e file S. 1040x e file Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. 1040x e file Nonqualified deferred compensation plans. 1040x e file   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. 1040x e file This amount is shown on Form W-2, box 12, using code Y. 1040x e file This amount is not included in your income. 1040x e file   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. 1040x e file This amount is included in your wages shown on Form W-2, box 1. 1040x e file It is also shown on Form W-2, box 12, using code Z. 1040x e file Note received for services. 1040x e file    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. 1040x e file When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. 1040x e file Do not include that part again in your income. 1040x e file Include the rest of the payment in your income in the year of payment. 1040x e file   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. 1040x e file Severance pay. 1040x e file   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. 1040x e file Accrued leave payment. 1040x e file    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. 1040x e file   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. 1040x e file You can reduce gross wages by the amount you repaid in the same tax year in which you received it. 1040x e file Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. 1040x e file Outplacement services. 1040x e file   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. 1040x e file    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). 1040x e file Sick pay. 1040x e file   Pay you receive from your employer while you are sick or injured is part of your salary or wages. 1040x e file In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. 1040x e file A state sickness or disability fund. 1040x e file An association of employers or employees. 1040x e file An insurance company, if your employer paid for the plan. 1040x e file However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 1040x e file For more information, see Publication 525. 1040x e file Social security and Medicare taxes paid by employer. 1040x e file   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. 1040x e file The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. 1040x e file However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. 1040x e file Stock appreciation rights. 1040x e file   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. 1040x e file When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. 1040x e file You include the cash payment in your income in the year you use the right. 1040x e file Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. 1040x e file Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. 1040x e file Accounting period. 1040x e file   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. 1040x e file Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. 1040x e file The general rule: benefits are reported for a full calendar year (January 1–December 31). 1040x e file The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. 1040x e file For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. 1040x e file  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. 1040x e file   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). 1040x e file Form W-2. 1040x e file   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. 1040x e file Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). 1040x e file However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). 1040x e file Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. 1040x e file Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . 1040x e file For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. 1040x e file Long-term care coverage. 1040x e file    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. 1040x e file However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. 1040x e file This amount will be reported as wages in box 1 of your Form W-2. 1040x e file   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. 1040x e file Archer MSA contributions. 1040x e file    Contributions by your employer to your Archer MSA generally are not included in your income. 1040x e file Their total will be reported in box 12 of Form W-2 with code R. 1040x e file You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 1040x e file File the form with your return. 1040x e file Health flexible spending arrangement (health FSA). 1040x e file   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. 1040x e file Note. 1040x e file Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. 1040x e file The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. 1040x e file For more information, see Notice 2012-40, 2012-26 I. 1040x e file R. 1040x e file B. 1040x e file 1046, available at www. 1040x e file irs. 1040x e file gov/irb/2012-26 IRB/ar09. 1040x e file html. 1040x e file Health reimbursement arrangement (HRA). 1040x e file   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. 1040x e file Health savings accounts (HSA). 1040x e file   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. 1040x e file Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. 1040x e file Contributions made by your employer are not included in your income. 1040x e file Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. 1040x e file Distributions not used for qualified medical expenses are included in your income. 1040x e file See Publication 969 for the requirements of an HSA. 1040x e file   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 1040x e file The contributions are treated as a distribution of money and are not included in the partner's gross income. 1040x e file Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. 1040x e file In both situations, the partner can deduct the contribution made to the partner's HSA. 1040x e file   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. 1040x e file The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 1040x e file Qualified HSA funding distribution. 1040x e file   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. 1040x e file See Publication 590 for the requirements for these qualified HSA funding distributions. 1040x e file Failure to maintain eligibility. 1040x e file   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. 1040x e file If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. 1040x e file This income is also subject to an additional 10% tax. 1040x e file Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. 1040x e file See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. 1040x e file Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. 1040x e file They also are included as social security and Medicare wages in boxes 3 and 5. 1040x e file However, they are not included as wages in box 1. 1040x e file To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. 1040x e file File the form with your return. 1040x e file De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. 1040x e file In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. 1040x e file Holiday gifts. 1040x e file   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. 1040x e file However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. 1040x e file Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. 1040x e file For more information, see Publication 970, Tax Benefits for Education. 1040x e file Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. 1040x e file However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. 1040x e file For exceptions, see Entire cost excluded , and Entire cost taxed , later. 1040x e file If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. 1040x e file Also, it is shown separately in box 12 with code C. 1040x e file Group-term life insurance. 1040x e file   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. 1040x e file Permanent benefits. 1040x e file   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. 1040x e file Your employer should be able to tell you the amount to include in your income. 1040x e file Accidental death benefits. 1040x e file   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. 1040x e file Former employer. 1040x e file   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. 1040x e file Also, it is shown separately in box 12 with code C. 1040x e file Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. 1040x e file You must pay these taxes with your income tax return. 1040x e file Include them on line 60, Form 1040, and follow the instructions for line 60. 1040x e file For more information, see the Instructions for Form 1040. 1040x e file Two or more employers. 1040x e file   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. 1040x e file If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. 1040x e file You must figure how much to include in your income. 1040x e file Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. 1040x e file Figuring the taxable cost. 1040x e file   Use the following worksheet to figure the amount to include in your income. 1040x e file     Worksheet 5-1. 1040x e file Figuring the Cost of Group-Term Life Insurance To Include in Income 1. 1040x e file Enter the total amount of your insurance coverage from your employer(s) 1. 1040x e file   2. 1040x e file Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040x e file 50,000 3. 1040x e file Subtract line 2 from line 1 3. 1040x e file   4. 1040x e file Divide line 3 by $1,000. 1040x e file Figure to the nearest tenth 4. 1040x e file   5. 1040x e file Go to Table 5-1. 1040x e file Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 1040x e file   6. 1040x e file Multiply line 4 by line 5 6. 1040x e file   7. 1040x e file Enter the number of full months of coverage at this cost. 1040x e file 7. 1040x e file   8. 1040x e file Multiply line 6 by line 7 8. 1040x e file   9. 1040x e file Enter the premiums you paid per month 9. 1040x e file       10. 1040x e file Enter the number of months you paid the premiums 10. 1040x e file       11. 1040x e file Multiply line 9 by line 10. 1040x e file 11. 1040x e file   12. 1040x e file Subtract line 11 from line 8. 1040x e file Include this amount in your income as wages 12. 1040x e file      Table 5-1. 1040x e file Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. 1040x e file 05 25 through 29 . 1040x e file 06 30 through 34 . 1040x e file 08 35 through 39 . 1040x e file 09 40 through 44 . 1040x e file 10 45 through 49 . 1040x e file 15 50 through 54 . 1040x e file 23 55 through 59 . 1040x e file 43 60 through 64 . 1040x e file 66 65 through 69 1. 1040x e file 27 70 and older 2. 1040x e file 06 Example. 1040x e file You are 51 years old and work for employers A and B. 1040x e file Both employers provide group-term life insurance coverage for you for the entire year. 1040x e file Your coverage is $35,000 with employer A and $45,000 with employer B. 1040x e file You pay premiums of $4. 1040x e file 15 a month under the employer B group plan. 1040x e file You figure the amount to include in your income as shown in Worksheet 5-1. 1040x e file Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. 1040x e file Worksheet 5-1. 1040x e file Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. 1040x e file Enter the total amount of your insurance coverage from your employer(s) 1. 1040x e file 80,000 2. 1040x e file Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040x e file 50,000 3. 1040x e file Subtract line 2 from line 1 3. 1040x e file 30,000 4. 1040x e file Divide line 3 by $1,000. 1040x e file Figure to the nearest tenth 4. 1040x e file 30. 1040x e file 0 5. 1040x e file Go to Table 5-1. 1040x e file Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. 1040x e file . 1040x e file 23 6. 1040x e file Multiply line 4 by line 5 6. 1040x e file 6. 1040x e file 90 7. 1040x e file Enter the number of full months of coverage at this cost. 1040x e file 7. 1040x e file 12 8. 1040x e file Multiply line 6 by line 7 8. 1040x e file 82. 1040x e file 80 9. 1040x e file Enter the premiums you paid per month 9. 1040x e file 4. 1040x e file 15     10. 1040x e file Enter the number of months you paid the premiums 10. 1040x e file 12     11. 1040x e file Multiply line 9 by line 10. 1040x e file 11. 1040x e file 49. 1040x e file 80 12. 1040x e file Subtract line 11 from line 8. 1040x e file Include this amount in your income as wages 12. 1040x e file 33. 1040x e file 00 Entire cost excluded. 1040x e file   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. 1040x e file You are permanently and totally disabled and have ended your employment. 1040x e file Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. 1040x e file A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. 1040x e file (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. 1040x e file ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. 1040x e file Entire cost taxed. 1040x e file   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. 1040x e file You are a key employee and your employer's plan discriminates in favor of key employees. 1040x e file Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. 1040x e file Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. 1040x e file You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. 1040x e file Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. 1040x e file A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. 1040x e file Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. 1040x e file However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. 1040x e file Exclusion limit. 1040x e file   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. 1040x e file   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. 1040x e file   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. 1040x e file   If the benefits have a value that is more than these limits, the excess must be included in your income. 1040x e file You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. 1040x e file Commuter highway vehicle. 1040x e file   This is a highway vehicle that seats at least six adults (not including the driver). 1040x e file At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). 1040x e file Transit pass. 1040x e file   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. 1040x e file Qualified parking. 1040x e file   This is parking provided to an employee at or near the employer's place of business. 1040x e file It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. 1040x e file It does not include parking at or near the employee's home. 1040x e file Qualified bicycle commuting. 1040x e file   This is reimbursement based on the number of qualified bicycle commuting months for the year. 1040x e file A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. 1040x e file The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. 1040x e file Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. 1040x e file (Your employer can tell you whether your retirement plan is qualified. 1040x e file ) However, the cost of life insurance coverage included in the plan may have to be included. 1040x e file See Group-Term Life Insurance , earlier, under Fringe Benefits. 1040x e file If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. 1040x e file However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. 1040x e file For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. 1040x e file S. 1040x e file Civil Service Retirement Benefits, if you are a federal employee or retiree). 1040x e file Elective deferrals. 1040x e file   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. 1040x e file The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. 1040x e file An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. 1040x e file However, it is included in wages subject to social security and Medicare taxes. 1040x e file   Elective deferrals include elective contributions to the following retirement plans. 1040x e file Cash or deferred arrangements (section 401(k) plans). 1040x e file The Thrift Savings Plan for federal employees. 1040x e file Salary reduction simplified employee pension plans (SARSEP). 1040x e file Savings incentive match plans for employees (SIMPLE plans). 1040x e file Tax-sheltered annuity plans (403(b) plans). 1040x e file Section 501(c)(18)(D) plans. 1040x e file Section 457 plans. 1040x e file Qualified automatic contribution arrangements. 1040x e file   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. 1040x e file You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. 1040x e file The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. 1040x e file   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. 1040x e file Overall limit on deferrals. 1040x e file   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. 1040x e file The limit for SIMPLE plans is $12,000. 1040x e file The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. 1040x e file The limit for section 457 plans is the lesser of your includible compensation or $17,500. 1040x e file Amounts deferred under specific plan limits are part of the overall limit on deferrals. 1040x e file Designated Roth contributions. 1040x e file   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. 1040x e file Designated Roth contributions are treated as elective deferrals, except that they are included in income. 1040x e file Excess deferrals. 1040x e file   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. 1040x e file However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. 1040x e file   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. 1040x e file See Publication 525 for a discussion of the tax treatment of excess deferrals. 1040x e file Catch-up contributions. 1040x e file   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. 1040x e file Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. 1040x e file However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. 1040x e file Your employer can tell you which kind of option you hold. 1040x e file For more information, see Publication 525. 1040x e file Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. 1040x e file However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. 1040x e file (You can choose to include the value of the property in your income in the year it is transferred to you. 1040x e file ) For more information, see Restricted Property in Publication 525. 1040x e file Dividends received on restricted stock. 1040x e file   Dividends you receive on restricted stock are treated as compensation and not as dividend income. 1040x e file Your employer should include these payments on your Form W-2. 1040x e file Stock you chose to include in income. 1040x e file   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. 1040x e file Report them on your return as dividends. 1040x e file For a discussion of dividends, see chapter 8. 1040x e file    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. 1040x e file Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. 1040x e file Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. 1040x e file , in addition to your salary. 1040x e file If the offering is made to the religious institution, it is not taxable to you. 1040x e file If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. 1040x e file However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. 1040x e file See chapter 24. 1040x e file Pension. 1040x e file    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. 1040x e file It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040x e file Housing. 1040x e file    Special rules for housing apply to members of the clergy. 1040x e file Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. 1040x e file However, the exclusion cannot be more than the reasonable pay for your service. 1040x e file If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. 1040x e file The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. 1040x e file However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. 1040x e file For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 1040x e file Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. 1040x e file Services performed for the order. 1040x e file   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. 1040x e file   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. 1040x e file Any wages you earn as an agent of an order that you turn over to the order are not included in your income. 1040x e file Example. 1040x e file You are a member of a church order and have taken a vow of poverty. 1040x e file You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. 1040x e file You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. 1040x e file However, you remain under the general direction and control of the order. 1040x e file You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. 1040x e file Services performed outside the order. 1040x e file   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. 1040x e file They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. 1040x e file If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. 1040x e file Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. 1040x e file Example. 1040x e file Mark Brown is a member of a religious order and has taken a vow of poverty. 1040x e file He renounces all claims to his earnings and turns over his earnings to the order. 1040x e file Mark is a schoolteacher. 1040x e file He was instructed by the superiors of the order to get a job with a private tax-exempt school. 1040x e file Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. 1040x e file Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. 1040x e file The wages Mark earns working for the school are included in his income. 1040x e file Foreign Employer Special rules apply if you work for a foreign employer. 1040x e file U. 1040x e file S. 1040x e file citizen. 1040x e file   If you are a U. 1040x e file S. 1040x e file citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. 1040x e file Social security and Medicare taxes. 1040x e file   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. 1040x e file However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. 1040x e file This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. 1040x e file Employees of international organizations or foreign governments. 1040x e file   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). 1040x e file   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. 1040x e file You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). 1040x e file Your work is like the work done by employees of the United States in foreign countries. 1040x e file The foreign government gives an equal exemption to employees of the United States in its country. 1040x e file Waiver of alien status. 1040x e file   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. 1040x e file See Foreign Employer in Publication 525. 1040x e file Employment abroad. 1040x e file   For information on the tax treatment of income earned abroad, see Publication 54. 1040x e file Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. 1040x e file Allowances generally are not taxed. 1040x e file For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. 1040x e file Differential wage payments. 1040x e file   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. 1040x e file These wages are subject to income tax withholding and are reported on a Form W-2. 1040x e file See the discussion under Miscellaneous Compensation , earlier. 1040x e file Military retirement pay. 1040x e file   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040x e file Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. 1040x e file   For more detailed discussion of survivor annuities, see chapter 10. 1040x e file Disability. 1040x e file   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. 1040x e file Veterans' benefits. 1040x e file   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). 1040x e file The following amounts paid to veterans or their families are not taxable. 1040x e file Education, training, and subsistence allowances. 1040x e file Disability compensation and pension payments for disabilities paid either to veterans or their families. 1040x e file Grants for homes designed for wheelchair living. 1040x e file Grants for motor vehicles for veterans who lost their sight or the use of their limbs. 1040x e file Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. 1040x e file Interest on insurance dividends you leave on deposit with the VA. 1040x e file Benefits under a dependent-care assistance program. 1040x e file The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. 1040x e file Payments made under the compensated work therapy program. 1040x e file Any bonus payment by a state or political subdivision because of service in a combat zone. 1040x e file Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. 1040x e file Peace Corps. 1040x e file   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. 1040x e file Taxable allowances. 1040x e file   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. 1040x e file Living allowances designated by the Director of the Peace Corps as basic compensation. 1040x e file These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. 1040x e file Leave allowances. 1040x e file Readjustment allowances or termination payments. 1040x e file These are considered received by you when credited to your account. 1040x e file Example. 1040x e file Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. 1040x e file Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. 1040x e file Volunteers in Service to America (VISTA). 1040x e file   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. 1040x e file National Senior Services Corps programs. 1040x e file   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. 1040x e file Retired Senior Volunteer Program (RSVP). 1040x e file Foster Grandparent Program. 1040x e file Senior Companion Program. 1040x e file Service Corps of Retired Executives (SCORE). 1040x e file   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. 1040x e file Volunteer tax counseling. 1040x e file   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). 1040x e file   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. 1040x e file See chapter 24. 1040x e file Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. 1040x e file In most cases, 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. 1040x e file 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. 1040x e file However, certain payments may not be taxable to you. 1040x e file Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. 1040x e file In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. 1040x e file Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. 1040x e file Cost paid by you. 1040x e file   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. 1040x e file 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. 1040x e file See Reimbursement in a later year in chapter 21. 1040x e file Cafeteria plans. 1040x e file   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. 1040x e file If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. 1040x e file 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. 1040x e file You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. 1040x e file Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. 1040x e file You may be entitled to a tax credit if you were permanently and totally disabled when you retired. 1040x e file For information on this credit and the definition of permanent and total disability, see chapter 33. 1040x e file Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. 1040x e file Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. 1040x e file The rules for reporting pensions are explained in How To Report in chapter 10. 1040x e file For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. 1040x e file Retirement and profit-sharing plans. 1040x e file   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. 1040x e file The payments must be reported as a pension or annuity. 1040x e file For more information on pensions, see chapter 10. 1040x e file Accrued leave payment. 1040x e file   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. 1040x e file The payment is not a disability payment. 1040x e file Include it in your income in the tax year you receive it. 1040x e file Military and Government Disability Pensions Certain military and government disability pensions are not taxable. 1040x e file Service-connected disability. 1040x e file   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. 1040x e file The armed forces of any country. 1040x e file The National Oceanic and Atmospheric Administration. 1040x e file The Public Health Service. 1040x e file The Foreign Service. 1040x e file Conditions for exclusion. 1040x e file   Do not include the disability payments in your income if any of the following conditions apply. 1040x e file You were entitled to receive a disability payment before September 25, 1975. 1040x e file You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. 1040x e file You receive the disability payments for a combat-related injury. 1040x e file This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. 1040x e file You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. 1040x e file Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. 1040x e file Pension based on years of service. 1040x e file   If you receive a disability pension based on years of service, in most cases you must include it in your income. 1040x e file However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. 1040x e file You must include the rest of your pension in your income. 1040x e file Retroactive VA determination. 1040x e file   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. 1040x e file You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. 1040x e file You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. 1040x e file The letter must show the amount withheld and the effective date of the benefit. 1040x e file   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. 1040x e file However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. 1040x e file Special statute of limitations. 1040x e file   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. 1040x e file However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. 1040x e file This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. 1040x e file Example. 1040x e file You retired in 2007 and receive a pension based on your years of service. 1040x e file On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. 1040x e file Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. 1040x e file However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. 1040x e file You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. 1040x e file Terrorist attack or military action. 1040x e file   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. 1040x e file Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. 1040x e file Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. 1040x e file To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. 1040x e file A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. 1040x e file The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. 1040x e file Qualified long-term care services. 1040x e file   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. 1040x e file Chronically ill individual. 1040x e file   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. 1040x e file Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. 1040x e file An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. 1040x e file Limit on exclusion. 1040x e file   You generally can exclude from gross income up to $320 a day for 2013. 1040x e file See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. 1040x e file 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. 1040x e file The exemption also applies to your survivors. 1040x e file 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. 1040x e file If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 1040x e file For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. 1040x e file Return to work. 1040x e file    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. 1040x e file Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. 1040x e file Railroad sick pay. 1040x e file    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. 1040x e file However, do not include them in your income if they are for an on-the-job injury. 1040x e file   If you received income because of a disability, see Disability Pensions , earlier. 1040x e file Federal Employees' Compensation Act (FECA). 1040x e file   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. 1040x e file 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. 1040x e file Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. 1040x e file Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. 1040x e file    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. 1040x e file For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. 1040x e file    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. 1040x e file It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). 1040x e file If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. 1040x e file Do not deduct it separately. 1040x e file Other compensation. 1040x e file   Many other amounts you receive as compensation for sickness or injury are not taxable. 1040x e file These include the following amounts. 1040x e file Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. 1040x e file 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. 1040x e file Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. 1040x e file Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. 1040x e file This compensation must be based only on the injury and not on the period of your absence from work. 1040x e file These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. 1040x e file Reimbursement for medical care. 1040x e file    A reimbursement for medical care is generally not taxable. 1040x e file However, it may reduce your medical expense deduction. 1040x e file For more information, see chapter 21. 1040x e file Prev  Up  Next   Home   More Online Publications