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2011 Online Tax Software

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2011 Online Tax Software

2011 online tax software 5. 2011 online tax software   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. 2011 online tax software Shared equity financing agreement. 2011 online tax software Donation of use of the property. 2011 online tax software Examples. 2011 online tax software Days used for repairs and maintenance. 2011 online tax software Days used as a main home before or after renting. 2011 online tax software Reporting Income and DeductionsNot used as a home. 2011 online tax software Used as a home but rented less than 15 days. 2011 online tax software Used as a home and rented 15 days or more. 2011 online tax software If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 2011 online tax software In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 2011 online tax software Only your rental expenses may deducted on Schedule E (Form 1040). 2011 online tax software Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 2011 online tax software You must also determine if the dwelling unit is considered a home. 2011 online tax software The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 2011 online tax software Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 2011 online tax software There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 2011 online tax software Dwelling unit. 2011 online tax software   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 2011 online tax software It also includes all structures or other property belonging to the dwelling unit. 2011 online tax software A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 2011 online tax software   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. 2011 online tax software Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 2011 online tax software Example. 2011 online tax software You rent a room in your home that is always available for short-term occupancy by paying customers. 2011 online tax software You do not use the room yourself and you allow only paying customers to use the room. 2011 online tax software This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 2011 online tax software Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 2011 online tax software When dividing your expenses, follow these rules. 2011 online tax software Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 2011 online tax software (This rule does not apply when determining whether you used the unit as a home. 2011 online tax software ) Any day that the unit is available for rent but not actually rented is not a day of rental use. 2011 online tax software Fair rental price. 2011 online tax software   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 2011 online tax software The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 2011 online tax software   Ask yourself the following questions when comparing another property with yours. 2011 online tax software Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. 2011 online tax software Example. 2011 online tax software Your beach cottage was available for rent from June 1 through August 31 (92 days). 2011 online tax software Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. 2011 online tax software The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 2011 online tax software Your family also used the cottage during the last 2 weeks of May (14 days). 2011 online tax software The cottage was not used at all before May 17 or after August 31. 2011 online tax software You figure the part of the cottage expenses to treat as rental expenses as follows. 2011 online tax software The cottage was used for rental a total of 85 days (92 − 7). 2011 online tax software The days it was available for rent but not rented (7 days) are not days of rental use. 2011 online tax software The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 2011 online tax software You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 2011 online tax software The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 2011 online tax software Your rental expenses are 85/99 (86%) of the cottage expenses. 2011 online tax software Note. 2011 online tax software When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 2011 online tax software Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 2011 online tax software Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 2011 online tax software If you have a net loss, you may not be able to deduct all of the rental expenses. 2011 online tax software See Dwelling Unit Used as a Home, next. 2011 online tax software Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 2011 online tax software You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 2011 online tax software See What is a day of personal use , later. 2011 online tax software If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. 2011 online tax software Instead, count it as a day of personal use in applying both (1) and (2) above. 2011 online tax software What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 2011 online tax software You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 2011 online tax software However, see Days used as a main home before or after renting , later. 2011 online tax software A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 2011 online tax software Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 2011 online tax software ), and lineal descendants (children, grandchildren, etc. 2011 online tax software ). 2011 online tax software Anyone under an arrangement that lets you use some other dwelling unit. 2011 online tax software Anyone at less than a fair rental price. 2011 online tax software Main home. 2011 online tax software   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 2011 online tax software Shared equity financing agreement. 2011 online tax software   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 2011 online tax software Donation of use of the property. 2011 online tax software   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 2011 online tax software Examples. 2011 online tax software   The following examples show how to determine if you have days of personal use. 2011 online tax software Example 1. 2011 online tax software You and your neighbor are co-owners of a condominium at the beach. 2011 online tax software Last year, you rented the unit to vacationers whenever possible. 2011 online tax software The unit was not used as a main home by anyone. 2011 online tax software Your neighbor used the unit for 2 weeks last year; you did not use it at all. 2011 online tax software Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 2011 online tax software Example 2. 2011 online tax software You and your neighbors are co-owners of a house under a shared equity financing agreement. 2011 online tax software Your neighbors live in the house and pay you a fair rental price. 2011 online tax software Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 2011 online tax software This is because your neighbors rent the house as their main home under a shared equity financing agreement. 2011 online tax software Example 3. 2011 online tax software You own a rental property that you rent to your son. 2011 online tax software Your son does not own any interest in this property. 2011 online tax software He uses it as his main home and pays you a fair rental price. 2011 online tax software Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 2011 online tax software Example 4. 2011 online tax software You rent your beach house to Rosa. 2011 online tax software Rosa rents her cabin in the mountains to you. 2011 online tax software You each pay a fair rental price. 2011 online tax software You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. 2011 online tax software Example 5. 2011 online tax software You rent an apartment to your mother at less than a fair rental price. 2011 online tax software You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. 2011 online tax software Days used for repairs and maintenance. 2011 online tax software   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 2011 online tax software Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 2011 online tax software Example. 2011 online tax software Corey owns a cabin in the mountains that he rents for most of the year. 2011 online tax software He spends a week at the cabin with family members. 2011 online tax software Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. 2011 online tax software Corey's family members, however, work substantially full time on the cabin each day during the week. 2011 online tax software The main purpose of being at the cabin that week is to do maintenance work. 2011 online tax software Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. 2011 online tax software Days used as a main home before or after renting. 2011 online tax software   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 2011 online tax software Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 2011 online tax software You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 2011 online tax software However, this special rule does not apply when dividing expenses between rental and personal use. 2011 online tax software See Property Changed to Rental Use in chapter 4. 2011 online tax software Example 1. 2011 online tax software On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. 2011 online tax software You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). 2011 online tax software On June 1, 2013, you moved back into your old house. 2011 online tax software The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. 2011 online tax software Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. 2011 online tax software Example 2. 2011 online tax software On January 31, you moved out of the condominium where you had lived for 3 years. 2011 online tax software You offered it for rent at a fair rental price beginning on February 1. 2011 online tax software You were unable to rent it until April. 2011 online tax software On September 15, you sold the condominium. 2011 online tax software The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. 2011 online tax software Examples. 2011 online tax software   The following examples show how to determine whether you used your rental property as a home. 2011 online tax software Example 1. 2011 online tax software You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 2011 online tax software You rented the basement apartment at a fair rental price to college students during the regular school year. 2011 online tax software You rented to them on a 9-month lease (273 days). 2011 online tax software You figured 10% of the total days rented to others at a fair rental price is 27 days. 2011 online tax software During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 2011 online tax software Your basement apartment was used as a home because you used it for personal purposes for 30 days. 2011 online tax software Rent-free use by your brothers is considered personal use. 2011 online tax software Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 2011 online tax software Example 2. 2011 online tax software You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 2011 online tax software Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 2011 online tax software You figured 10% of the total days rented to others at a fair rental price is 3 days. 2011 online tax software The room was used as a home because you used it for personal purposes for 21 days. 2011 online tax software That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 2011 online tax software Example 3. 2011 online tax software You own a condominium apartment in a resort area. 2011 online tax software You rented it at a fair rental price for a total of 170 days during the year. 2011 online tax software For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 2011 online tax software Your family actually used the apartment for 10 of those days. 2011 online tax software Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. 2011 online tax software You figured 10% of the total days rented to others at a fair rental price is 16 days. 2011 online tax software Your family also used the apartment for 7 other days during the year. 2011 online tax software You used the apartment as a home because you used it for personal purposes for 17 days. 2011 online tax software That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 2011 online tax software Minimal rental use. 2011 online tax software   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 2011 online tax software See Used as a home but rented less than 15 days, later, for more information. 2011 online tax software Limit on deductions. 2011 online tax software   Renting a dwelling unit that is considered a home is not a passive activity. 2011 online tax software Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 2011 online tax software The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 2011 online tax software Any expenses carried forward to the next year will be subject to any limits that apply for that year. 2011 online tax software This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 2011 online tax software   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. 2011 online tax software Reporting Income and Deductions Property not used for personal purposes. 2011 online tax software   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. 2011 online tax software Property used for personal purposes. 2011 online tax software   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 2011 online tax software Not used as a home. 2011 online tax software   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 2011 online tax software Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 2011 online tax software The expenses for personal use are not deductible as rental expenses. 2011 online tax software   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. 2011 online tax software Used as a home but rented less than 15 days. 2011 online tax software   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 2011 online tax software You are not required to report the rental income and rental expenses from this activity. 2011 online tax software The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 2011 online tax software See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 2011 online tax software Used as a home and rented 15 days or more. 2011 online tax software   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 2011 online tax software Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 2011 online tax software The expenses for personal use are not deductible as rental expenses. 2011 online tax software   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 2011 online tax software You do not need to use Worksheet 5-1. 2011 online tax software   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 2011 online tax software To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. 2011 online tax software Worksheet 5-1. 2011 online tax software Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 2011 online tax software Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 2011 online tax software ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 2011 online tax software Rental Use Percentage A. 2011 online tax software Total days available for rent at fair rental price A. 2011 online tax software       B. 2011 online tax software Total days available for rent (line A) but not rented B. 2011 online tax software       C. 2011 online tax software Total days of rental use. 2011 online tax software Subtract line B from line A C. 2011 online tax software       D. 2011 online tax software Total days of personal use (including days rented at less than fair rental price) D. 2011 online tax software       E. 2011 online tax software Total days of rental and personal use. 2011 online tax software Add lines C and D E. 2011 online tax software       F. 2011 online tax software Percentage of expenses allowed for rental. 2011 online tax software Divide line C by line E     F. 2011 online tax software . 2011 online tax software PART II. 2011 online tax software Allowable Rental Expenses 1. 2011 online tax software Enter rents received 1. 2011 online tax software   2a. 2011 online tax software Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 2011 online tax software       b. 2011 online tax software Enter the rental portion of real estate taxes b. 2011 online tax software       c. 2011 online tax software Enter the rental portion of deductible casualty and theft losses (see instructions) c. 2011 online tax software       d. 2011 online tax software Enter direct rental expenses (see instructions) d. 2011 online tax software       e. 2011 online tax software Fully deductible rental expenses. 2011 online tax software Add lines 2a–2d. 2011 online tax software Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 2011 online tax software   3. 2011 online tax software Subtract line 2e from line 1. 2011 online tax software If zero or less, enter -0- 3. 2011 online tax software   4a. 2011 online tax software Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 2011 online tax software       b. 2011 online tax software Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 2011 online tax software       c. 2011 online tax software Carryover of operating expenses from 2012 worksheet c. 2011 online tax software       d. 2011 online tax software Add lines 4a–4c d. 2011 online tax software       e. 2011 online tax software Allowable expenses. 2011 online tax software Enter the smaller of line 3 or line 4d (see instructions) 4e. 2011 online tax software   5. 2011 online tax software Subtract line 4e from line 3. 2011 online tax software If zero or less, enter -0- 5. 2011 online tax software   6a. 2011 online tax software Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 2011 online tax software       b. 2011 online tax software Enter the rental portion of depreciation of the dwelling unit b. 2011 online tax software       c. 2011 online tax software Carryover of excess casualty losses and depreciation from 2012 worksheet c. 2011 online tax software       d. 2011 online tax software Add lines 6a–6c d. 2011 online tax software       e. 2011 online tax software Allowable excess casualty and theft losses and depreciation. 2011 online tax software Enter the smaller of  line 5 or line 6d (see instructions) 6e. 2011 online tax software   PART III. 2011 online tax software Carryover of Unallowed Expenses to Next Year 7a. 2011 online tax software Operating expenses to be carried over to next year. 2011 online tax software Subtract line 4e from line 4d 7a. 2011 online tax software   b. 2011 online tax software Excess casualty and theft losses and depreciation to be carried over to next year. 2011 online tax software  Subtract line 6e from line 6d b. 2011 online tax software   Worksheet 5-1 Instructions. 2011 online tax software Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 2011 online tax software Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 2011 online tax software Line 2a. 2011 online tax software Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 2011 online tax software Do not include interest on a loan that did not benefit the dwelling unit. 2011 online tax software For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 2011 online tax software Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 2011 online tax software Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 2011 online tax software   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 2011 online tax software See the Schedule A instructions. 2011 online tax software However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 2011 online tax software See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 2011 online tax software Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 2011 online tax software   Note. 2011 online tax software Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 2011 online tax software Instead, figure the personal portion on a separate Schedule A. 2011 online tax software If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 2011 online tax software           Line 2c. 2011 online tax software Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 2011 online tax software To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 2011 online tax software If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 2011 online tax software On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 2011 online tax software Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 2011 online tax software   Note. 2011 online tax software Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 2011 online tax software Instead, figure the personal portion on a separate Form 4684. 2011 online tax software           Line 2d. 2011 online tax software Enter the total of your rental expenses that are directly related only to the rental activity. 2011 online tax software These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 2011 online tax software Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 2011 online tax software           Line 2e. 2011 online tax software You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 2011 online tax software Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 2011 online tax software           Line 4b. 2011 online tax software On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 2011 online tax software If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 2011 online tax software Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). 2011 online tax software           Line 4e. 2011 online tax software You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 2011 online tax software *           Line 6a. 2011 online tax software To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 2011 online tax software   A. 2011 online tax software Enter the amount from Form 4684, line 10       B. 2011 online tax software Enter the rental portion of line A       C. 2011 online tax software Enter the amount from line 2c of this worksheet       D. 2011 online tax software Subtract line C from line B. 2011 online tax software Enter the result here and on line 6a of this worksheet               Line 6e. 2011 online tax software You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 2011 online tax software * *Allocating the limited deduction. 2011 online tax software If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 2011 online tax software Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 2011 online tax software Prev  Up  Next   Home   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2011 online tax software Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. 2011 online tax software Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. 2011 online tax software Method 2. 2011 online tax software How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. 2011 online tax software In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 2011 online tax software You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. 2011 online tax software Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. 2011 online tax software 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. 2011 online tax software These wages must be included on line 7 of Form 1040. 2011 online tax software See Form 8919 for more information. 2011 online tax software Childcare providers. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software Babysitting. 2011 online tax software   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. 2011 online tax software Bankruptcy. 2011 online tax software   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. 2011 online tax software Your W-2 will show your total wages and withheld income tax for the year. 2011 online tax software On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. 2011 online tax software Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. 2011 online tax software If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. 2011 online tax software   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. 2011 online tax software For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. 2011 online tax software   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. 2011 online tax software The statement must show the allocation and describe the method used to make the allocation. 2011 online tax software For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. 2011 online tax software R. 2011 online tax software B. 2011 online tax software 596, available at www. 2011 online tax software irs. 2011 online tax software gov/irb/2006-40_IRB/ar12. 2011 online tax software html. 2011 online tax software Miscellaneous Compensation This section discusses many types of employee compensation. 2011 online tax software The subjects are arranged in alphabetical order. 2011 online tax software Advance commissions and other earnings. 2011 online tax software   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. 2011 online tax software    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. 2011 online tax software If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. 2011 online tax software See Repayments , later. 2011 online tax software Allowances and reimbursements. 2011 online tax software    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 2011 online tax software If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. 2011 online tax software Back pay awards. 2011 online tax software   Include in income amounts you are awarded in a settlement or judgment for back pay. 2011 online tax software These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. 2011 online tax software They should be reported to you by your employer on Form W-2. 2011 online tax software Bonuses and awards. 2011 online tax software    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. 2011 online tax software These include prizes such as vacation trips for meeting sales goals. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software Employee achievement award. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software Your employer can tell you whether your award is a qualified plan award. 2011 online tax software 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. 2011 online tax software   However, the exclusion does not apply to the following awards. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software Example. 2011 online tax software 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. 2011 online tax software Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. 2011 online tax software 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. 2011 online tax software Differential wage payments. 2011 online tax software   This is any payment made by an employer to an individual for any period during which the individual is, 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 the individual would have received from the employer for that period. 2011 online tax software These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. 2011 online tax software The payments are reported as wages on Form W-2. 2011 online tax software Government cost-of-living allowances. 2011 online tax software   Most payments received by U. 2011 online tax software S. 2011 online tax software Government civilian employees for working abroad are taxable. 2011 online tax software However, certain cost-of-living allowances are tax free. 2011 online tax software Publication 516, U. 2011 online tax software S. 2011 online tax software Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. 2011 online tax software Nonqualified deferred compensation plans. 2011 online tax software   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. 2011 online tax software This amount is shown on Form W-2, box 12, using code Y. 2011 online tax software This amount is not included in your income. 2011 online tax software   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. 2011 online tax software This amount is included in your wages shown on Form W-2, box 1. 2011 online tax software It is also shown on Form W-2, box 12, using code Z. 2011 online tax software Nonqualified deferred compensation plans of nonqualified entities. 2011 online tax software   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. 2011 online tax software For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. 2011 online tax software A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. 2011 online tax software Note received for services. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software Do not include that part again in your income. 2011 online tax software Include the rest of the payment in your income in the year of payment. 2011 online tax software   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. 2011 online tax software Severance pay. 2011 online tax software   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. 2011 online tax software Accrued leave payment. 2011 online tax software   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. 2011 online tax software   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. 2011 online tax software You can reduce gross wages by the amount you repaid in the same tax year in which you received it. 2011 online tax software 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 your return and the wages on your Forms W-2. 2011 online tax software Outplacement services. 2011 online tax software   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. 2011 online tax software    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). 2011 online tax software Sick pay. 2011 online tax software   Pay you receive from your employer while you are sick or injured is part of your salary or wages. 2011 online tax software In addition, you must include in your income sick pay benefits received from any of the following payers. 2011 online tax software A welfare fund. 2011 online tax software A state sickness or disability fund. 2011 online tax software An association of employers or employees. 2011 online tax software An insurance company, if your employer paid for the plan. 2011 online tax software However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 2011 online tax software For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. 2011 online tax software Social security and Medicare taxes paid by employer. 2011 online tax software   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. 2011 online tax software The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. 2011 online tax software However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. 2011 online tax software Stock appreciation rights. 2011 online tax software   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. 2011 online tax software 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. 2011 online tax software You include the cash payment in income in the year you use the right. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. 2011 online tax software Recipient of fringe benefit. 2011 online tax software   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. 2011 online tax software You are considered to be the recipient even if it is given to another person, such as a member of your family. 2011 online tax software An example is a car your employer gives to your spouse for services you perform. 2011 online tax software The car is considered to have been provided to you and not to your spouse. 2011 online tax software   You do not have to be an employee of the provider to be a recipient of a fringe benefit. 2011 online tax software If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. 2011 online tax software Provider of benefit. 2011 online tax software   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. 2011 online tax software The provider can be a client or customer of an independent contractor. 2011 online tax software Accounting period. 2011 online tax software   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. 2011 online tax software Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. 2011 online tax software The general rule: benefits are reported for a full calendar year (January 1–December 31). 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software   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). 2011 online tax software Form W-2. 2011 online tax software   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. 2011 online tax software Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). 2011 online tax software 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). 2011 online tax software 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. 2011 online tax software Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . 2011 online tax software 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. 2011 online tax software Long-term care coverage. 2011 online tax software   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. 2011 online tax software However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. 2011 online tax software This amount will be reported as wages in box 1 of your Form W-2. 2011 online tax software Archer MSA contributions. 2011 online tax software    Contributions by your employer to your Archer MSA generally are not included in your income. 2011 online tax software Their total will be reported in box 12 of Form W-2, with code R. 2011 online tax software You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 2011 online tax software File the form with your return. 2011 online tax software Health flexible spending arrangement (health FSA). 2011 online tax software   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. 2011 online tax software   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. 2011 online tax software The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. 2011 online tax software For more information, see Notice 2012-40, 2012-26 I. 2011 online tax software R. 2011 online tax software B. 2011 online tax software 1046, available at www. 2011 online tax software irs. 2011 online tax software gov/irb/2012-26 IRB/ar09. 2011 online tax software html. 2011 online tax software Health reimbursement arrangement (HRA). 2011 online tax software   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. 2011 online tax software Health savings accounts (HSA). 2011 online tax software   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. 2011 online tax software Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. 2011 online tax software Contributions made by your employer are not included in your income. 2011 online tax software Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. 2011 online tax software Distributions not used for qualified medical expenses are included in your income. 2011 online tax software See Publication 969 for the requirements of an HSA. 2011 online tax software   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 2011 online tax software The contributions are treated as a distribution of money and are not included in the partner's gross income. 2011 online tax software 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. 2011 online tax software In both situations, the partner can deduct the contribution made to the partner's HSA. 2011 online tax software   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. 2011 online tax software The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 2011 online tax software Qualified HSA funding distribution. 2011 online tax software   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. 2011 online tax software See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. 2011 online tax software Failure to maintain eligibility. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software This income is also subject to an additional 10% tax. 2011 online tax software 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. 2011 online tax software See Instructions for Form 8839, Qualified Adoption Expenses, for more information. 2011 online tax software Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. 2011 online tax software They also are included as social security and Medicare wages in boxes 3 and 5. 2011 online tax software However, they are not included as wages in box 1. 2011 online tax software To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. 2011 online tax software File the form with your return. 2011 online tax software Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. 2011 online tax software The gym must be used primarily by employees, their spouses, and their dependent children. 2011 online tax software If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software Also see Employee Discounts , later. 2011 online tax software Holiday gifts. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. 2011 online tax software Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. 2011 online tax software The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). 2011 online tax software Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. 2011 online tax software Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. 2011 online tax software To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. 2011 online tax software See the Instructions for Form 2441 for more information. 2011 online tax software Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. 2011 online tax software For more information, see Publication 970. 2011 online tax software Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. 2011 online tax software The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. 2011 online tax software However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). 2011 online tax software The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. 2011 online tax software For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. 2011 online tax software (Ask your employer for this percentage. 2011 online tax software ) For a discount on services, 20%. 2011 online tax software Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. 2011 online tax software If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). 2011 online tax software Qualified retirement planning services paid for you by your employer may be excluded from your income. 2011 online tax software For more information, see Retirement Planning Services , later. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. 2011 online tax software 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. 2011 online tax software Also, it is shown separately in box 12 with code C. 2011 online tax software Group-term life insurance. 2011 online tax software   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. 2011 online tax software Permanent benefits. 2011 online tax software   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. 2011 online tax software Your employer should be able to tell you the amount to include in your income. 2011 online tax software Accidental death benefits. 2011 online tax software   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. 2011 online tax software Former employer. 2011 online tax software   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. 2011 online tax software Also, it is shown separately in box 12 with code C. 2011 online tax software Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. 2011 online tax software You must pay these taxes with your income tax return. 2011 online tax software Include them on line 60, Form 1040, and follow the instructions forline 60. 2011 online tax software For more information, see the Instructions for Form 1040. 2011 online tax software Two or more employers. 2011 online tax software   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. 2011 online tax software 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. 2011 online tax software You must figure how much to include in your income. 2011 online tax software 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. 2011 online tax software Figuring the taxable cost. 2011 online tax software    Use the following worksheet to figure the amount to include in your income. 2011 online tax software   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. 2011 online tax software However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . 2011 online tax software Worksheet 1. 2011 online tax software Figuring the Cost of Group-Term Life Insurance To Include in Income 1. 2011 online tax software Enter the total amount of your insurance coverage from your employer(s) 1. 2011 online tax software   2. 2011 online tax software Limit on exclusion for employer-provided group-term life insurance coverage 2. 2011 online tax software 50,000 3. 2011 online tax software Subtract line 2 from line 1 3. 2011 online tax software   4. 2011 online tax software Divide line 3 by $1,000. 2011 online tax software Figure to the nearest tenth 4. 2011 online tax software   5. 2011 online tax software Go to Table 1. 2011 online tax software 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. 2011 online tax software   6. 2011 online tax software Multiply line 4 by line 5 6. 2011 online tax software     7. 2011 online tax software Enter the number of full months of coverage at this cost 7. 2011 online tax software   8. 2011 online tax software Multiply line 6 by line 7 8. 2011 online tax software   9. 2011 online tax software Enter the premiums you paid per month 9. 2011 online tax software       10. 2011 online tax software Enter the number of months you paid the  premiums 10. 2011 online tax software       11. 2011 online tax software Multiply line 9 by line 10. 2011 online tax software 11. 2011 online tax software   12. 2011 online tax software Subtract line 11 from line 8. 2011 online tax software Include this amount in your income as wages 12. 2011 online tax software   Table 1. 2011 online tax software Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . 2011 online tax software 05     25 through 29 . 2011 online tax software 06     30 through 34 . 2011 online tax software 08     35 through 39 . 2011 online tax software 09     40 through 44 . 2011 online tax software 10     45 through 49 . 2011 online tax software 15     50 through 54 . 2011 online tax software 23     55 through 59 . 2011 online tax software 43     60 through 64 . 2011 online tax software 66     65 through 69 1. 2011 online tax software 27     70 and older 2. 2011 online tax software 06   Example. 2011 online tax software You are 51 years old and work for employers A and B. 2011 online tax software Both employers provide group-term life insurance coverage for you for the entire year. 2011 online tax software Your coverage is $35,000 with employer A and $45,000 with employer B. 2011 online tax software You pay premiums of $4. 2011 online tax software 15 a month under the employer B group plan. 2011 online tax software You figure the amount to include in your income as follows. 2011 online tax software   Worksheet 1. 2011 online tax software Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. 2011 online tax software Enter the total amount of your insurance coverage from your employer(s) 1. 2011 online tax software 80,000 2. 2011 online tax software Limit on exclusion for employer-provided group-term life insurance coverage 2. 2011 online tax software 50,000 3. 2011 online tax software Subtract line 2 from line 1 3. 2011 online tax software 30,000 4. 2011 online tax software Divide line 3 by $1,000. 2011 online tax software Figure to the nearest tenth 4. 2011 online tax software 30. 2011 online tax software 0 5. 2011 online tax software Go to Table 1. 2011 online tax software 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. 2011 online tax software . 2011 online tax software 23 6. 2011 online tax software Multiply line 4 by line 5 6. 2011 online tax software 6. 2011 online tax software 90 7. 2011 online tax software Enter the number of full months of coverage at this cost. 2011 online tax software 7. 2011 online tax software 12 8. 2011 online tax software Multiply line 6 by line 7 8. 2011 online tax software 82. 2011 online tax software 80 9. 2011 online tax software Enter the premiums you paid per month 9. 2011 online tax software 4. 2011 online tax software 15     10. 2011 online tax software Enter the number of months you paid the premiums 10. 2011 online tax software 12     11. 2011 online tax software Multiply line 9 by line 10. 2011 online tax software 11. 2011 online tax software 49. 2011 online tax software 80 12. 2011 online tax software Subtract line 11 from line 8. 2011 online tax software Include this amount in your income as wages 12. 2011 online tax software 33. 2011 online tax software 00 The total amount to include in income for the cost of excess group-term life insurance is $33. 2011 online tax software Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. 2011 online tax software You must add it to the wages shown on your Forms W-2 and include the total on your return. 2011 online tax software Entire cost excluded. 2011 online tax software   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. 2011 online tax software You are permanently and totally disabled and have ended your employment. 2011 online tax software Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. 2011 online tax software A charitable organization 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. 2011 online tax software (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. 2011 online tax software ) 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. 2011 online tax software Entire cost taxed. 2011 online tax software   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. 2011 online tax software The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. 2011 online tax software You are a key employee and your employer's plan discriminates in favor of key employees. 2011 online tax software Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. 2011 online tax software The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. 2011 online tax software The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. 2011 online tax software (You must accept it in order to be able to properly perform your duties. 2011 online tax software ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. 2011 online tax software See De Minimis (Minimal) Benefits , earlier. 2011 online tax software Faculty lodging. 2011 online tax software   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. 2011 online tax software However, the lodging must be qualified campus lodging, and you must pay an adequate rent. 2011 online tax software Academic health center. 2011 online tax software   This is an organization that meets the following conditions. 2011 online tax software Its principal purpose or function is to provide medical or hospital care or medical education or research. 2011 online tax software It receives payments for graduate medical education under the Social Security Act. 2011 online tax software One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. 2011 online tax software Qualified campus lodging. 2011 online tax software   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. 2011 online tax software The lodging must be located on or near a campus of the educational institution or academic health center. 2011 online tax software Adequate rent. 2011 online tax software   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. 2011 online tax software If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. 2011 online tax software   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. 2011 online tax software Example. 2011 online tax software Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. 2011 online tax software The house is appraised at $200,000. 2011 online tax software The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. 2011 online tax software Carl pays an annual rent of $11,000. 2011 online tax software Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). 2011 online tax software If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). 2011 online tax software Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. 2011 online tax software See Publication 521 for more information. 2011 online tax software No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). 2011 online tax software In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. 2011 online tax software Example. 2011 online tax software You are employed as a flight attendant for a company that owns both an airline and a hotel chain. 2011 online tax software Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. 2011 online tax software The value of the personal flight is not included in your income. 2011 online tax software However, the value of the hotel room is included in your income because you do not work in the hotel business. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. 2011 online tax software Also, see Financial Counseling Fees , earlier. 2011 online tax software Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. 2011 online tax software 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. 2011 online tax software Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. 2011 online tax software 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. 2011 online tax software Exclusion limit. 2011 online tax software   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. 2011 online tax software   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. 2011 online tax software   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. 2011 online tax software   If the benefits have a value that is more than these limits, the excess must be included in your income. 2011 online tax software You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. 2011 online tax software Commuter highway vehicle. 2011 online tax software   This is a highway vehicle that seats at least six adults (not including the driver). 2011 online tax software 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). 2011 online tax software Transit pass. 2011 online tax software   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. 2011 online tax software Qualified parking. 2011 online tax software   This is parking provided to an employee at or near the employer's place of business. 2011 online tax software 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. 2011 online tax software It does not include parking at or near the employee's home. 2011 online tax software Qualified bicycle commuting. 2011 online tax software   This is reimbursement based on the number of qualified bicycle commuting months for the year. 2011 online tax software 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. 2011 online tax software The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. 2011 online tax software Tuition Reduction You can exclude a qualified tuition reduction from your income. 2011 online tax software This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. 2011 online tax software For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. 2011 online tax software Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. 2011 online tax software For more information, see Publication 970. 2011 online tax software Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. 2011 online tax software Example. 2011 online tax software You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. 2011 online tax software The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. 2011 online tax software Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. 2011 online tax software For an exception, see Group-Term Life Insurance , earlier. 2011 online tax software General valuation rule. 2011 online tax software   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. 2011 online tax software If you pay fair market value for a fringe benefit, no amount is included in your income. 2011 online tax software Fair market value. 2011 online tax software   The fair market value of a fringe benefit is determined by all the facts and circumstances. 2011 online tax software It is the amount you would have to pay a third party to buy or lease the benefit. 2011 online tax software This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. 2011 online tax software Employer-provided vehicles. 2011 online tax software   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. 2011 online tax software   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. 2011 online tax software An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. 2011 online tax software The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. 2011 online tax software Flights on employer-provided aircraft. 2011 online tax software   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. 2011 online tax software   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. 2011 online tax software The division must be based on all the facts, including which employee or employees control the use of the aircraft. 2011 online tax software Special valuation rules. 2011 online tax software   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. 2011 online tax software If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. 2011 online tax software You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. 2011 online tax software   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. 2011 online tax software The special valuation rules are the following. 2011 online tax software The automobile lease rule. 2011 online tax software The vehicle cents-per-mile rule. 2011 online tax software The commuting rule. 2011 online tax software The unsafe conditions commuting rule. 2011 online tax software The employer-operated eating-facility rule. 2011 online tax software   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 2011 online tax software    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. 2011 online tax software 61-21(g) and 1. 2011 online tax software 61-21(h) of the regulations. 2011 online tax software Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. 2011 online tax software (Your employer can tell you whether your retirement plan is qualified. 2011 online tax software ) However, the cost of life insurance coverage included in the plan may have to be included. 2011 online tax software See Group-Term Life Insurance , earlier, under Fringe Benefits. 2011 online tax software 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. 2011 online tax software 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. 2011 online tax software For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. 2011 online tax software S. 2011 online tax software Civil Service Retirement Benefits, if you are a federal employee or retiree). 2011 online tax software Elective Deferrals 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. 2011 online tax software The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. 2011 online tax software An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. 2011 online tax software However, it is included in wages subject to social security and Medicare taxes. 2011 online tax software Elective deferrals include elective contributions to the following retirement plans. 2011 online tax software Cash or deferred arrangements (section 401(k) plans). 2011 online tax software The Thrift Savings Plan for federal employees. 2011 online tax software Salary reduction simplified employee pension plans (SARSEP). 2011 online tax software Savings incentive match plans for employees (SIMPLE plans). 2011 online tax software Tax-sheltered annuity plans (403(b) plans). 2011 online tax software Section 501(c)(18)(D) plans. 2011 online tax software (But see Reporting by employer , later. 2011 online tax software ) Section 457 plans. 2011 online tax software Qualified automatic contribution arrangements. 2011 online tax software   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. 2011 online tax software You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. 2011 online tax software 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. 2011 online tax software   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. 2011 online tax software Overall limit on deferrals. 2011 online tax software   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), earlier. 2011 online tax software The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. 2011 online tax software Amounts deferred under specific plan limits are part of the overall limit on deferrals. 2011 online tax software   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. 2011 online tax software However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. 2011 online tax software Catch-up contributions. 2011 online tax software   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. 2011 online tax software For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. 2011 online tax software   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. 2011 online tax software SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. 2011 online tax software Section 457 plans, see Limit for deferrals under section 457 plans , later. 2011 online tax software Limit for deferrals under SIMPLE plans. 2011 online tax software   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. 2011 online tax software Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. 2011 online tax software Limit for tax-sheltered annuities. 2011 online tax software   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. 2011 online tax software However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. 2011 online tax software $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. 2011 online tax software   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. 2011 online tax software   For more information, see Publication 571. 2011 online tax software Limit for deferral under section 501(c)(18) plans. 2011 online tax software   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. 2011 online tax software Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. 2011 online tax software Limit for deferrals under section 457 plans. 2011 online tax software   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. 2011 online tax software However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. 2011 online tax software See Increased limit , later. 2011 online tax software Includible compensation. 2011 online tax software   This is the pay you received for the year from the employer who maintained the section 457 plan. 2011 online tax software In most cases, it includes all the following payments. 2011 online tax software Wages and salaries. 2011 online tax software Fees for professional services. 2011 online tax software The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. 2011 online tax software Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. 2011 online tax software Commissions and tips. 2011 online tax software Fringe benefits. 2011 online tax software Bonuses. 2011 online tax software Employer contributions (elective deferrals) to: The section 457 plan. 2011 online tax software Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. 2011 online tax software A salary reduction simplified employee pension (SARSEP). 2011 online tax software A tax-sheltered annuity (section 403(b) plan). 2011 online tax software A savings incentive match plan for employees (SIMPLE plan). 2011 online tax software A section 125 cafeteria plan. 2011 online tax software   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. 2011 online tax software Your wages as defined for income tax withholding purposes. 2011 online tax software Your wages as reported in box 1 of Form W-2. 2011 online tax software Your wages that are subject to social security withholding (including elective deferrals). 2011 online tax software Increased limit. 2011 online tax software   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). 2011 online tax software Catch-up contributions. 2011 online tax software   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. 2011 online tax software If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. 2011 online tax software However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. 2011 online tax software Designated Roth contributions. 2011 online tax software   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. 2011 online tax software Designated Roth contributions are treated as elective deferrals, except that they are included in income. 2011 online tax software Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. 2011 online tax software   Qualified distributions from a Roth plan are not included in income. 2011 online tax software In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. 2011 online tax software Reporting by employer. 2011 online tax software   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. 2011 online tax software Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. 2011 online tax software Section 501(c)(18)(D) contributions. 2011 online tax software   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. 2011 online tax software The amount you contributed should be identified with code “H” in box 12. 2011 online tax software You may deduct the amount deferred subject to the limits that apply. 2011 online tax software Include your deduction in the total on Form 1040, line 36. 2011 online tax software Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. 2011 online tax software Designated Roth contributions. 2011 online tax software    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. 2011 online tax software Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. 2011 online tax software Excess deferrals. 2011 online tax software   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. 2011 online tax software If the plan permits, the excess amount will be distributed to you. 2011 online tax software If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. 2011 online tax software You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. 2011 online tax software The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. 2011 online tax software   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. 2011 online tax software File Form 1040 to add the excess deferral amount to your wages on line 7. 2011 online tax software Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. 2011 online tax software Excess not distributed. 2011 online tax software   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. 2011 online tax software Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. 2011 online tax software Excess distributed to you. 2011 online tax software   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. 2011 online tax software If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. 2011 online tax software Any income on the excess deferral taken out is taxable in the tax year in which you take it out. 2011 online tax software If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. 2011 online tax software    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. 2011 online tax software Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. 2011 online tax software If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. 2011 online tax software Add the excess deferral amount to your wages on your 2013 tax return. 2011 online tax software If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. 2011 online tax software Do not add this amount to your wages on your 2013 return. 2011 online tax software If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. 2011 online tax software If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. 2011 online tax software S. 2011 online tax software Individual Income Tax Return. 2011 online tax software If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. 2011 online tax software If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. 2011 online tax software Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. 2011 online tax software Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. 2011 online tax software Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. 2011 online tax software ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2011 online tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2011 online tax software Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. 2011 online tax software If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. 2011 online tax software You must include the excess contributions in your income as wages on Form 1040, line 7. 2011 online tax software You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. 2011 online tax software If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. 2011 online tax software The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. 2011 online tax software You should receive a Form 1099-R for the year the excess contributions are distributed to you. 2011 online tax software Add the distribution to your wages for that year. 2011 online tax software Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2011 online tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2011 online tax software Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. 2011 online tax software Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. 2011 online tax software A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. 2011 online tax software A corrective payment consisting of your after-tax contributions is not taxable. 2011 online tax software If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. 2011 online tax software Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. 2011 online tax software Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. 2011 online tax software Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 2011 online tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 2011 online tax software Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), 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 or property acquired through exercise of the option. 2011 online tax software The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. 2011 online tax software Your employer can tell you which kind of option you hold. 2011 online tax software Nonstatutory Stock Options Grant of option. 2011 online tax software   If you are granted a nonstatutory stock option, you may have income when you receive the option. 2011 online tax software The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. 2011 online tax software The fair market value of an option can be readily determined if it is actively traded on an established market. 2011 online tax software    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. 2011 online tax software You can transfer the option. 2011 online tax software You can exercise the option immediately in full. 2011 online tax software The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. 2011 online tax software The fair market value of the option privilege can be readily determined. 2011 online tax software The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. 2011 online tax software For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. 2011 online tax software The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. 2011 online tax software If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. 2011 online tax software For more information on the excise tax, see Internal Revenue Code section 4985. 2011 online tax software Option with readily determinable value. 2011 online tax software   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. 2011 online tax software See Restricted Property , later, for rules on how much income to include and when to include it. 2011 online tax software However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. 2011 online tax software Option without readily determinable value. 2011 online tax software   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. 2011 online tax software    Exercise or transfer of option. 2011 online tax software   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. 2011 online tax software Option with readily determinable value. 2011 online tax software   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. 2011 online tax software Option without readily determinable value. 2011 online tax software   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope