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2011 Tax Forms 1040ez

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2011 Tax Forms 1040ez

2011 tax forms 1040ez 6. 2011 tax forms 1040ez   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. 2011 tax forms 1040ez Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. 2011 tax forms 1040ez Also use basis to figure depreciation, amortization, depletion, and casualty losses. 2011 tax forms 1040ez If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2011 tax forms 1040ez Only the basis allocated to the business or investment use of the property can be depreciated. 2011 tax forms 1040ez Your original basis in property is adjusted (increased or decreased) by certain events. 2011 tax forms 1040ez For example, if you make improvements to the property, increase your basis. 2011 tax forms 1040ez If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. 2011 tax forms 1040ez Keep accurate records of all items that affect the basis of your assets. 2011 tax forms 1040ez For information on keeping records, see chapter 1. 2011 tax forms 1040ez Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. 2011 tax forms 1040ez Cost Basis The basis of property you buy is usually its cost. 2011 tax forms 1040ez Cost is the amount you pay in cash, debt obligations, other property, or services. 2011 tax forms 1040ez Your cost includes amounts you pay for sales tax, freight, installation, and testing. 2011 tax forms 1040ez The basis of real estate and business assets will include other items, discussed later. 2011 tax forms 1040ez Basis generally does not include interest payments. 2011 tax forms 1040ez However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. 2011 tax forms 1040ez You also may have to capitalize (add to basis) certain other costs related to buying or producing property. 2011 tax forms 1040ez Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. 2011 tax forms 1040ez Loans with low or no interest. 2011 tax forms 1040ez   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. 2011 tax forms 1040ez You generally have unstated interest if your interest rate is less than the applicable federal rate. 2011 tax forms 1040ez See the discussion of unstated interest in Publication 537, Installment Sales. 2011 tax forms 1040ez Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2011 tax forms 1040ez If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2011 tax forms 1040ez Some of these expenses are discussed next. 2011 tax forms 1040ez Lump sum purchase. 2011 tax forms 1040ez   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. 2011 tax forms 1040ez Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. 2011 tax forms 1040ez Figure the basis of each asset by multiplying the lump sum by a fraction. 2011 tax forms 1040ez The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2011 tax forms 1040ez Fair market value (FMV). 2011 tax forms 1040ez   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 2011 tax forms 1040ez Sales of similar property on or about the same date may help in figuring the FMV of the property. 2011 tax forms 1040ez If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. 2011 tax forms 1040ez Real estate taxes. 2011 tax forms 1040ez   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 2011 tax forms 1040ez   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. 2011 tax forms 1040ez Whether or not you reimburse the seller, do not include that amount in the basis of your property. 2011 tax forms 1040ez Settlement costs. 2011 tax forms 1040ez   Your basis includes the settlement fees and closing costs for buying the property. 2011 tax forms 1040ez See Publication 551 for a detailed list of items you can and cannot include in basis. 2011 tax forms 1040ez   Do not include fees and costs for getting a loan on the property. 2011 tax forms 1040ez Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2011 tax forms 1040ez Points. 2011 tax forms 1040ez   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. 2011 tax forms 1040ez You may be able to deduct the points currently or over the term of the loan. 2011 tax forms 1040ez For more information about deducting points, see Points in chapter 4 of Publication 535. 2011 tax forms 1040ez Assumption of a mortgage. 2011 tax forms 1040ez   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. 2011 tax forms 1040ez Constructing assets. 2011 tax forms 1040ez   If you build property or have assets built for you, your expenses for this construction are part of your basis. 2011 tax forms 1040ez Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. 2011 tax forms 1040ez   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. 2011 tax forms 1040ez You must capitalize them (include them in the asset's basis). 2011 tax forms 1040ez Employee wages paid for the construction work, reduced by any employment credits allowed. 2011 tax forms 1040ez Depreciation on equipment you own while it is used in the construction. 2011 tax forms 1040ez Operating and maintenance costs for equipment used in the construction. 2011 tax forms 1040ez The cost of business supplies and materials used in the construction. 2011 tax forms 1040ez    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. 2011 tax forms 1040ez Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. 2011 tax forms 1040ez To determine the basis of these assets or separate items, there must be an allocation of basis. 2011 tax forms 1040ez Group of assets acquired. 2011 tax forms 1040ez   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. 2011 tax forms 1040ez Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. 2011 tax forms 1040ez You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. 2011 tax forms 1040ez If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. 2011 tax forms 1040ez Farming business acquired. 2011 tax forms 1040ez   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. 2011 tax forms 1040ez Generally, reduce the purchase price by any cash received. 2011 tax forms 1040ez Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. 2011 tax forms 1040ez See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. 2011 tax forms 1040ez Transplanted embryo. 2011 tax forms 1040ez   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. 2011 tax forms 1040ez Allocate the rest of the purchase price to the basis of the calf. 2011 tax forms 1040ez Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. 2011 tax forms 1040ez Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. 2011 tax forms 1040ez You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2011 tax forms 1040ez Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. 2011 tax forms 1040ez However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. 2011 tax forms 1040ez You produce property if you construct, build, install, manufacture, develop, improve, or create the property. 2011 tax forms 1040ez You are not subject to the uniform capitalization rules if the property is produced for personal use. 2011 tax forms 1040ez In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. 2011 tax forms 1040ez Plants. 2011 tax forms 1040ez   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. 2011 tax forms 1040ez Animals. 2011 tax forms 1040ez   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. 2011 tax forms 1040ez The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. 2011 tax forms 1040ez Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. 2011 tax forms 1040ez For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. 2011 tax forms 1040ez For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. 2011 tax forms 1040ez Exceptions. 2011 tax forms 1040ez   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. 2011 tax forms 1040ez   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2011 tax forms 1040ez See Accrual Method Required under Accounting Methods in chapter 2. 2011 tax forms 1040ez   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. 2011 tax forms 1040ez If you make this election, special rules apply. 2011 tax forms 1040ez This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2011 tax forms 1040ez This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. 2011 tax forms 1040ez    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. 2011 tax forms 1040ez See chapter 7, for additional information on depreciation. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You grow trees that have a preproductive period of more than 2 years. 2011 tax forms 1040ez The trees produce an annual crop. 2011 tax forms 1040ez You are an individual and the uniform capitalization rules apply to your farming business. 2011 tax forms 1040ez You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. 2011 tax forms 1040ez You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. 2011 tax forms 1040ez Preproductive period of more than 2 years. 2011 tax forms 1040ez   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. 2011 tax forms 1040ez Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. 2011 tax forms 1040ez Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. 2011 tax forms 1040ez More information. 2011 tax forms 1040ez   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. 2011 tax forms 1040ez 263A-4. 2011 tax forms 1040ez Table 6-1. 2011 tax forms 1040ez Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. 2011 tax forms 1040ez Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. 2011 tax forms 1040ez The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. 2011 tax forms 1040ez Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2011 tax forms 1040ez These include the cost of any improvements having a useful life of more than 1 year. 2011 tax forms 1040ez The following costs increase the basis of property. 2011 tax forms 1040ez The cost of extending utility service lines to property. 2011 tax forms 1040ez Legal fees, such as the cost of defending and perfecting title. 2011 tax forms 1040ez Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. 2011 tax forms 1040ez Assessments for items such as paving roads and building ditches that increase the value of the property assessed. 2011 tax forms 1040ez Do not deduct these expenses as taxes. 2011 tax forms 1040ez However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. 2011 tax forms 1040ez If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. 2011 tax forms 1040ez See chapter 7. 2011 tax forms 1040ez Deducting vs. 2011 tax forms 1040ez capitalizing costs. 2011 tax forms 1040ez   Do not add to your basis costs you can deduct as current expenses. 2011 tax forms 1040ez For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. 2011 tax forms 1040ez However, you can elect either to deduct or to capitalize certain other costs. 2011 tax forms 1040ez See chapter 7 in Publication 535. 2011 tax forms 1040ez Decreases to Basis The following are some items that reduce the basis of property. 2011 tax forms 1040ez Section 179 deduction. 2011 tax forms 1040ez Deductions previously allowed or allowable for amortization, depreciation, and depletion. 2011 tax forms 1040ez Alternative motor vehicle credit. 2011 tax forms 1040ez See Form 8910. 2011 tax forms 1040ez Alternative fuel vehicle refueling property credit. 2011 tax forms 1040ez See Form 8911. 2011 tax forms 1040ez Residential energy efficient property credits. 2011 tax forms 1040ez See Form 5695. 2011 tax forms 1040ez Investment credit (part or all) taken. 2011 tax forms 1040ez Casualty and theft losses and insurance reimbursements. 2011 tax forms 1040ez Payments you receive for granting an easement. 2011 tax forms 1040ez Exclusion from income of subsidies for energy conservation measures. 2011 tax forms 1040ez Certain canceled debt excluded from income. 2011 tax forms 1040ez Rebates from a manufacturer or seller. 2011 tax forms 1040ez Patronage dividends received from a cooperative association as a result of a purchase of property. 2011 tax forms 1040ez See Patronage Dividends in chapter 3. 2011 tax forms 1040ez Gas-guzzler tax. 2011 tax forms 1040ez See Form 6197. 2011 tax forms 1040ez Some of these items are discussed next. 2011 tax forms 1040ez For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. 2011 tax forms 1040ez Depreciation and section 179 deduction. 2011 tax forms 1040ez   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. 2011 tax forms 1040ez For more information on these deductions, see chapter 7. 2011 tax forms 1040ez Section 179 deduction. 2011 tax forms 1040ez   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. 2011 tax forms 1040ez Depreciation. 2011 tax forms 1040ez   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. 2011 tax forms 1040ez If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. 2011 tax forms 1040ez If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. 2011 tax forms 1040ez   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. 2011 tax forms 1040ez   See chapter 7 for information on figuring the depreciation you should have claimed. 2011 tax forms 1040ez   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. 2011 tax forms 1040ez Casualty and theft losses. 2011 tax forms 1040ez   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. 2011 tax forms 1040ez Also, decrease it by any deductible loss not covered by insurance. 2011 tax forms 1040ez See chapter 11 for information about figuring your casualty or theft loss. 2011 tax forms 1040ez   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. 2011 tax forms 1040ez To make this determination, compare the repaired property to the property before the casualty. 2011 tax forms 1040ez Easements. 2011 tax forms 1040ez   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. 2011 tax forms 1040ez It reduces the basis of the affected part of the property. 2011 tax forms 1040ez If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 2011 tax forms 1040ez See Easements and rights-of-way in chapter 3. 2011 tax forms 1040ez Exclusion from income of subsidies for energy conservation measures. 2011 tax forms 1040ez   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2011 tax forms 1040ez Reduce the basis of the property by the excluded amount. 2011 tax forms 1040ez Canceled debt excluded from income. 2011 tax forms 1040ez   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. 2011 tax forms 1040ez A debt includes any indebtedness for which you are liable or which attaches to property you hold. 2011 tax forms 1040ez   You can exclude your canceled debt from income if the debt is any of the following. 2011 tax forms 1040ez Debt canceled in a bankruptcy case or when you are insolvent. 2011 tax forms 1040ez Qualified farm debt. 2011 tax forms 1040ez Qualified real property business debt (provided you are not a C corporation). 2011 tax forms 1040ez Qualified principal residence indebtedness. 2011 tax forms 1040ez Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. 2011 tax forms 1040ez If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. 2011 tax forms 1040ez If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. 2011 tax forms 1040ez   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. 2011 tax forms 1040ez For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. 2011 tax forms 1040ez For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. 2011 tax forms 1040ez For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2011 tax forms 1040ez Basis Other Than Cost There are times when you cannot use cost as basis. 2011 tax forms 1040ez In these situations, the fair market value or the adjusted basis of property may be used. 2011 tax forms 1040ez Examples are discussed next. 2011 tax forms 1040ez Property changed from personal to business or rental use. 2011 tax forms 1040ez   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. 2011 tax forms 1040ez An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. 2011 tax forms 1040ez   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. 2011 tax forms 1040ez   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. 2011 tax forms 1040ez The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2011 tax forms 1040ez Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 2011 tax forms 1040ez Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2011 tax forms 1040ez Property received for services. 2011 tax forms 1040ez   If you receive property for services, include the property's FMV in income. 2011 tax forms 1040ez The amount you include in income becomes your basis. 2011 tax forms 1040ez If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez George Smith is an accountant and also operates a farming business. 2011 tax forms 1040ez George agreed to do some accounting work for his neighbor in exchange for a dairy cow. 2011 tax forms 1040ez The accounting work and the cow are each worth $1,500. 2011 tax forms 1040ez George must include $1,500 in income for his accounting services. 2011 tax forms 1040ez George's basis in the cow is $1,500. 2011 tax forms 1040ez Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. 2011 tax forms 1040ez A taxable gain or deductible loss also is known as a recognized gain or loss. 2011 tax forms 1040ez A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. 2011 tax forms 1040ez If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. 2011 tax forms 1040ez You must report a taxable gain of $4,000 for the land. 2011 tax forms 1040ez The tractor has a basis of $6,000. 2011 tax forms 1040ez Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. 2011 tax forms 1040ez Similar or related property. 2011 tax forms 1040ez   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. 2011 tax forms 1040ez However, make the following adjustments. 2011 tax forms 1040ez Decrease the basis by the following amounts. 2011 tax forms 1040ez Any loss you recognize on the involuntary conversion. 2011 tax forms 1040ez Any money you receive that you do not spend on similar property. 2011 tax forms 1040ez Increase the basis by the following amounts. 2011 tax forms 1040ez Any gain you recognize on the involuntary conversion. 2011 tax forms 1040ez Any cost of acquiring the replacement property. 2011 tax forms 1040ez Money or property not similar or related. 2011 tax forms 1040ez   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. 2011 tax forms 1040ez Allocating the basis. 2011 tax forms 1040ez   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2011 tax forms 1040ez Basis for depreciation. 2011 tax forms 1040ez   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2011 tax forms 1040ez For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2011 tax forms 1040ez For more information about involuntary conversions, see chapter 11. 2011 tax forms 1040ez Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2011 tax forms 1040ez A nontaxable gain or loss also is known as an unrecognized gain or loss. 2011 tax forms 1040ez If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. 2011 tax forms 1040ez Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2011 tax forms 1040ez For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. 2011 tax forms 1040ez There must also be an exchange of like-kind property. 2011 tax forms 1040ez For more information, see Like-Kind Exchanges in  chapter 8. 2011 tax forms 1040ez The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. 2011 tax forms 1040ez Example 1. 2011 tax forms 1040ez You traded a truck you used in your farming business for a new smaller truck to use in farming. 2011 tax forms 1040ez The adjusted basis of the old truck was $10,000. 2011 tax forms 1040ez The FMV of the new truck is $30,000. 2011 tax forms 1040ez Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. 2011 tax forms 1040ez Example 2. 2011 tax forms 1040ez You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). 2011 tax forms 1040ez You use both the field cultivator and the planter in your farming business. 2011 tax forms 1040ez The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. 2011 tax forms 1040ez   Exchange expenses generally are the closing costs that you pay. 2011 tax forms 1040ez They include such items as brokerage commissions, attorney fees, and deed preparation fees. 2011 tax forms 1040ez Add them to the basis of the like-kind property you receive. 2011 tax forms 1040ez Property plus cash. 2011 tax forms 1040ez   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. 2011 tax forms 1040ez Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). 2011 tax forms 1040ez Special rules for related persons. 2011 tax forms 1040ez   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. 2011 tax forms 1040ez Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. 2011 tax forms 1040ez Each person reports it on the tax return filed for the year in which the later disposition occurred. 2011 tax forms 1040ez If this rule applies, the basis of the property received in the original exchange will be its FMV. 2011 tax forms 1040ez For more information, see chapter 8. 2011 tax forms 1040ez Exchange of business property. 2011 tax forms 1040ez   Exchanging the property of one business for the property of another business generally is a multiple property exchange. 2011 tax forms 1040ez For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. 2011 tax forms 1040ez Basis for depreciation. 2011 tax forms 1040ez   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. 2011 tax forms 1040ez For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2011 tax forms 1040ez Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2011 tax forms 1040ez The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. 2011 tax forms 1040ez Decrease the basis by the following amounts. 2011 tax forms 1040ez Any money you receive. 2011 tax forms 1040ez Any loss you recognize on the exchange. 2011 tax forms 1040ez Increase the basis by the following amounts. 2011 tax forms 1040ez Any additional costs you incur. 2011 tax forms 1040ez Any gain you recognize on the exchange. 2011 tax forms 1040ez If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2011 tax forms 1040ez Example 1. 2011 tax forms 1040ez You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. 2011 tax forms 1040ez You realize a gain of $40,000. 2011 tax forms 1040ez This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). 2011 tax forms 1040ez Include your gain in income (recognize gain) only to the extent of the cash received. 2011 tax forms 1040ez Your basis in the land you received is figured as follows. 2011 tax forms 1040ez Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. 2011 tax forms 1040ez You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. 2011 tax forms 1040ez You realize a gain of $7,250. 2011 tax forms 1040ez This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). 2011 tax forms 1040ez You include all the gain in your income (recognize gain) because the gain is less than the cash you received. 2011 tax forms 1040ez Your basis in the truck you received is figured as follows. 2011 tax forms 1040ez Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. 2011 tax forms 1040ez   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2011 tax forms 1040ez The rest is the basis of the like-kind property. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. 2011 tax forms 1040ez You also received $1,000 cash and a truck that had an FMV of $3,000. 2011 tax forms 1040ez The truck is unlike property. 2011 tax forms 1040ez You realized a gain of $1,500. 2011 tax forms 1040ez This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). 2011 tax forms 1040ez You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. 2011 tax forms 1040ez Your basis in the properties you received is figured as follows. 2011 tax forms 1040ez Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). 2011 tax forms 1040ez This is the truck's FMV. 2011 tax forms 1040ez The rest ($12,500) is the basis of the tractor. 2011 tax forms 1040ez Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You used a tractor on your farm for 3 years. 2011 tax forms 1040ez Its adjusted basis is $22,000 and its FMV is $40,000. 2011 tax forms 1040ez You are interested in a new tractor, which sells for $60,000. 2011 tax forms 1040ez Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. 2011 tax forms 1040ez Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). 2011 tax forms 1040ez However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. 2011 tax forms 1040ez Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). 2011 tax forms 1040ez Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. 2011 tax forms 1040ez Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. 2011 tax forms 1040ez You also must know its FMV at the time it was given to you and any gift tax paid on it. 2011 tax forms 1040ez FMV equal to or greater than donor's adjusted basis. 2011 tax forms 1040ez   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. 2011 tax forms 1040ez Increase your basis by all or part of any gift tax paid, depending on the date of the gift. 2011 tax forms 1040ez   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2011 tax forms 1040ez See Adjusted Basis , earlier. 2011 tax forms 1040ez   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2011 tax forms 1040ez Figure the increase by multiplying the gift tax paid by the following fraction. 2011 tax forms 1040ez Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2011 tax forms 1040ez The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2011 tax forms 1040ez Her adjusted basis was $20,000. 2011 tax forms 1040ez The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2011 tax forms 1040ez She paid a gift tax of $7,320. 2011 tax forms 1040ez Your basis, $26,076, is figured as follows. 2011 tax forms 1040ez Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2011 tax forms 1040ez 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2011 tax forms 1040ez If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2011 tax forms 1040ez However, your basis cannot exceed the FMV of the gift when it was given to you. 2011 tax forms 1040ez FMV less than donor's adjusted basis. 2011 tax forms 1040ez   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 2011 tax forms 1040ez Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2011 tax forms 1040ez Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2011 tax forms 1040ez (See Adjusted Basis , earlier. 2011 tax forms 1040ez )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. 2011 tax forms 1040ez Example. 2011 tax forms 1040ez You received farmland as a gift from your parents when they retired from farming. 2011 tax forms 1040ez At the time of the gift, the land had an FMV of $80,000. 2011 tax forms 1040ez Your parents' adjusted basis was $100,000. 2011 tax forms 1040ez After you received the land, no events occurred that would increase or decrease your basis. 2011 tax forms 1040ez If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. 2011 tax forms 1040ez If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. 2011 tax forms 1040ez If the sales price is between $80,000 and $100,000, you have neither gain nor loss. 2011 tax forms 1040ez For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. 2011 tax forms 1040ez If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. 2011 tax forms 1040ez Business property. 2011 tax forms 1040ez   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2011 tax forms 1040ez Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2011 tax forms 1040ez The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. 2011 tax forms 1040ez However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. 2011 tax forms 1040ez The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2011 tax forms 1040ez For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. 2011 tax forms 1040ez Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2011 tax forms 1040ez If a federal estate return is filed, you can use its appraised value. 2011 tax forms 1040ez The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. 2011 tax forms 1040ez For information on the alternate valuation, see the Instructions for Form 706. 2011 tax forms 1040ez The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. 2011 tax forms 1040ez If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 2011 tax forms 1040ez Special-use valuation method. 2011 tax forms 1040ez   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. 2011 tax forms 1040ez If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. 2011 tax forms 1040ez If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. 2011 tax forms 1040ez The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. 2011 tax forms 1040ez   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. 2011 tax forms 1040ez Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. 2011 tax forms 1040ez Figure all FMVs without regard to the special-use valuation. 2011 tax forms 1040ez   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. 2011 tax forms 1040ez This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. 2011 tax forms 1040ez The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. 2011 tax forms 1040ez   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. 2011 tax forms 1040ez To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. 2011 tax forms 1040ez If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. 2011 tax forms 1040ez The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. 2011 tax forms 1040ez   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. 2011 tax forms 1040ez   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. 2011 tax forms 1040ez Property inherited from a decedent who died in 2010. 2011 tax forms 1040ez   If you inherited property from a decedent who died in 2010, different rules may apply. 2011 tax forms 1040ez See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. 2011 tax forms 1040ez Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. 2011 tax forms 1040ez Partner's basis. 2011 tax forms 1040ez   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. 2011 tax forms 1040ez However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2011 tax forms 1040ez For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. 2011 tax forms 1040ez Shareholder's basis. 2011 tax forms 1040ez   The basis of property distributed by a corporation to a shareholder is its fair market value. 2011 tax forms 1040ez For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 2011 tax forms 1040ez Prev  Up  Next   Home   More Online Publications
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The 2011 Tax Forms 1040ez

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