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Amending A Federal Tax Return

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Amending A Federal Tax Return

Amending a federal tax return Publication 17 - Introductory Material Table of Contents What's New Reminders IntroductionIcons. Amending a federal tax return Ordering forms and publications. Amending a federal tax return Tax questions. Amending a federal tax return All material in this publication may be reprinted freely. Amending a federal tax return A citation to Your Federal Income Tax (2013) would be appropriate. Amending a federal tax return The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of: Tax laws enacted by Congress, Treasury regulations, and Court decisions. Amending a federal tax return However, the information given does not cover every situation and is not intended to replace the law or change its meaning. Amending a federal tax return This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Amending a federal tax return Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS. Amending a federal tax return All taxpayers have important rights when working with the IRS. Amending a federal tax return These rights are described in Your Rights as a Taxpayer in the back of this publication. Amending a federal tax return What's New This section summarizes important tax changes that took effect in 2013. Amending a federal tax return Most of these changes are discussed in more detail throughout this publication. Amending a federal tax return Future developments. Amending a federal tax return  For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www. Amending a federal tax return irs. Amending a federal tax return gov/pub17. Amending a federal tax return Additional Medicare Tax. Amending a federal tax return  Beginning in 2013, a 0. Amending a federal tax return 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Amending a federal tax return See Form 8959 and its instructions. Amending a federal tax return Net Investment Income Tax. Amending a federal tax return  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Amending a federal tax return The NIIT is 3. Amending a federal tax return 8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over: $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status. Amending a federal tax return See Form 8960 and its instructions. Amending a federal tax return Change in tax rates. Amending a federal tax return  The highest tax rate is 39. Amending a federal tax return 6%. Amending a federal tax return For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication. Amending a federal tax return Tax rate on net capital gain and qualified dividends. Amending a federal tax return  The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Amending a federal tax return See chapter 16. Amending a federal tax return Medical and dental expenses. Amending a federal tax return  You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7. Amending a federal tax return 5% if either you or your spouse is age 65 or older). Amending a federal tax return See chapter 21. Amending a federal tax return Personal exemption amount increased for certain taxpayers. Amending a federal tax return  Your personal exemption is increased to $3,900. Amending a federal tax return But the amount is reduced if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Amending a federal tax return See chapter 3. Amending a federal tax return Limit on itemized deductions. Amending a federal tax return  You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Amending a federal tax return See chapter 29. Amending a federal tax return Same-sex marriages. Amending a federal tax return  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Amending a federal tax return See chapter 2. Amending a federal tax return If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. Amending a federal tax return For details on filing amended returns, see chapter 1. Amending a federal tax return Health flexible spending arrangements (FSAs). Amending a federal tax return  You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. Amending a federal tax return See chapter 5. Amending a federal tax return Expiring credits. Amending a federal tax return  The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. Amending a federal tax return You cannot claim either one on your 2013 return. Amending a federal tax return See chapter 37. Amending a federal tax return Ponzi-type investment schemes. Amending a federal tax return  There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. Amending a federal tax return See chapter 25. Amending a federal tax return Home office deduction simplified method. Amending a federal tax return  If you can take a home office deduction, you may be able to use a simplified method to figure it. Amending a federal tax return See Publication 587. Amending a federal tax return Standard mileage rates. Amending a federal tax return  The 2013 rate for business use of your car is increased to 56½ cents a mile. Amending a federal tax return See chapter 26. Amending a federal tax return The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. Amending a federal tax return See chapter 21. Amending a federal tax return The 2013 rate for use of your car to move is increased to 24 cents a mile. Amending a federal tax return See Publication 521, Moving Expenses. Amending a federal tax return Reminders Listed below are important reminders and other items that may help you file your 2013 tax return. Amending a federal tax return Many of these items are explained in more detail later in this publication. Amending a federal tax return Enter your social security number (SSN). Amending a federal tax return  Enter your SSN in the space provided on your tax form. Amending a federal tax return If you filed a joint return for 2012 and are filing a joint return for 2013 with the same spouse, enter your names and SSNs in the same order as on your 2012 return. Amending a federal tax return See chapter 1. Amending a federal tax return Secure your tax records from identity theft. Amending a federal tax return  Identity theft occurs when someone uses your personal information, such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. Amending a federal tax return An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. Amending a federal tax return For more information about identity theft and how to reduce your risk from it, see chapter 1. Amending a federal tax return Taxpayer identification numbers. Amending a federal tax return  You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. Amending a federal tax return This applies even if the person was born in 2013. Amending a federal tax return Generally, this number is the person's social security number (SSN). Amending a federal tax return See chapter 1. Amending a federal tax return Foreign source income. Amending a federal tax return  If you are a U. Amending a federal tax return S. Amending a federal tax return citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U. Amending a federal tax return S. Amending a federal tax return law. Amending a federal tax return This is true whether you live inside or outside the United States and whether or not you receive a Form W-2 or Form 1099 from the foreign payer. Amending a federal tax return 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). Amending a federal tax return If you live outside the United States, you may be able to exclude part or all of your foreign source earned income. Amending a federal tax return For details, see Publication 54, Tax Guide for U. Amending a federal tax return S. Amending a federal tax return Citizens and Resident Aliens Abroad. Amending a federal tax return Foreign financial assets. Amending a federal tax return  If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. Amending a federal tax return Check www. Amending a federal tax return IRS. Amending a federal tax return gov/form8938 for details. Amending a federal tax return Automatic 6-month extension to file tax return. Amending a federal tax return  You can use Form 4868, Application for Automatic Extension of Time To File U. Amending a federal tax return S. Amending a federal tax return Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. Amending a federal tax return See chapter 1. Amending a federal tax return Include your phone number on your return. Amending a federal tax return  To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Amending a federal tax return Please enter your daytime telephone number on your tax form next to your signature and occupation. Amending a federal tax return If you are filing a joint return, you can enter either your or your spouse's daytime phone number. Amending a federal tax return Payment of taxes. Amending a federal tax return   You can pay your taxes online, by phone, or by check or money order. Amending a federal tax return You can make a direct transfer from your bank account or use a credit or debit card. Amending a federal tax return If you e-file, you can schedule an electronic payment. Amending a federal tax return See chapter 1. Amending a federal tax return Faster ways to file your return. Amending a federal tax return  The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. Amending a federal tax return You can use IRS e-file (electronic filing). Amending a federal tax return See chapter 1. Amending a federal tax return Free electronic filing. Amending a federal tax return  You may be able to file your 2013 taxes online for free. Amending a federal tax return See chapter 1. Amending a federal tax return Change of address. Amending a federal tax return  If you change your address, you should notify the IRS. Amending a federal tax return See Change of Address in chapter 1. Amending a federal tax return Refund on a late filed return. Amending a federal tax return  If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. Amending a federal tax return See chapter 1. Amending a federal tax return Frivolous tax returns. Amending a federal tax return  The IRS has published a list of positions that are identified as frivolous. Amending a federal tax return The penalty for filing a frivolous tax return is $5,000. Amending a federal tax return See chapter 1. Amending a federal tax return Filing erroneous claim for refund or credit. Amending a federal tax return  You may have to pay a penalty if you file an erroneous claim for refund or credit. Amending a federal tax return See chapter 1. Amending a federal tax return Privacy Act and paperwork reduction information. Amending a federal tax return   The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. Amending a federal tax return A complete statement on this subject can be found in your tax form instructions. Amending a federal tax return Customer service for taxpayers. Amending a federal tax return  You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. Amending a federal tax return See How To Get Tax Help in the back of this publication. Amending a federal tax return Preparer e-file mandate. Amending a federal tax return  Most paid preparers must e-file returns they prepare and file. Amending a federal tax return Your preparer may make you aware of this requirement and the options available to you. Amending a federal tax return Treasury Inspector General for Tax Administration. Amending a federal tax return   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (call 1-800-877-8339 if you are deaf, hard of hearing, or have a speech disability, and are using TTY/TDD equipment). Amending a federal tax return You can remain anonymous. Amending a federal tax return Photographs of missing children. Amending a federal tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Amending a federal tax return Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Amending a federal tax return You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Amending a federal tax return Introduction This publication covers the general rules for filing a federal income tax return. Amending a federal tax return It supplements the information contained in your tax form instructions. Amending a federal tax return It explains the tax law to make sure you pay only the tax you owe and no more. Amending a federal tax return How this publication is arranged. Amending a federal tax return   This publication closely follows Form 1040, U. Amending a federal tax return S. Amending a federal tax return Individual Income Tax Return. Amending a federal tax return It is divided into six parts which cover different sections of Form 1040. Amending a federal tax return Each part is further divided into chapters which generally discuss one line of the form. Amending a federal tax return Do not worry if you file Form 1040A or Form 1040EZ. Amending a federal tax return Anything included on a line of either of these forms is also included on Form 1040. Amending a federal tax return   The table of contents inside the front cover and the index in the back of the publication are useful tools to help you find the information you need. Amending a federal tax return What is in this publication. Amending a federal tax return   The publication begins with the rules for filing a tax return. Amending a federal tax return It explains: Who must file a return, Which tax form to use, When the return is due, How to e-file your return, and Other general information. Amending a federal tax return It will help you identify which filing status you qualify for, whether you can claim any dependents, and whether the income you receive is taxable. Amending a federal tax return The publication goes on to explain the standard deduction, the kinds of expenses you may be able to deduct, and the various kinds of credits you may be able to take to reduce your tax. Amending a federal tax return   Throughout the publication are examples showing how the tax law applies in typical situations. Amending a federal tax return Also throughout the publication are flowcharts and tables that present tax information in an easy-to-understand manner. Amending a federal tax return   Many of the subjects discussed in this publication are discussed in greater detail in other IRS publications. Amending a federal tax return References to those other publications are provided for your information. Amending a federal tax return Icons. Amending a federal tax return   Small graphic symbols, or icons, are used to draw your attention to special information. Amending a federal tax return See Table 1 later for an explanation of each icon used in this publication. Amending a federal tax return What is not covered in this publication. Amending a federal tax return   Some material that you may find helpful is not included in this publication but can be found in your tax form instruction booklet. Amending a federal tax return This includes lists of: Where to report certain items shown on information documents, and Recorded tax information topics (TeleTax). Amending a federal tax return   If you operate your own business or have other self-employment income, such as from babysitting or selling crafts, see the following publications for more information. Amending a federal tax return Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ). Amending a federal tax return Publication 535, Business Expenses. Amending a federal tax return Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Amending a federal tax return Help from the IRS. Amending a federal tax return   There are many ways you can get help from the IRS. Amending a federal tax return These are explained under How To Get Tax Help in the back of this publication. Amending a federal tax return Comments and suggestions. Amending a federal tax return   We welcome your comments about this publication and your suggestions for future editions. Amending a federal tax return   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Amending a federal tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Amending a federal tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Amending a federal tax return   You can send your comments from www. Amending a federal tax return irs. Amending a federal tax return gov/formspubs/. Amending a federal tax return Click on “More Information” and then on “Comment on Tax Forms and Publications”. Amending a federal tax return   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Amending a federal tax return Ordering forms and publications. Amending a federal tax return   Visit www. Amending a federal tax return irs. Amending a federal tax return gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Amending a federal tax return Internal Revenue Service 1201 N. Amending a federal tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Amending a federal tax return   If you have a tax question, check the information available on IRS. Amending a federal tax return gov or call 1-800-829-1040. Amending a federal tax return We cannot answer tax questions sent to either of the above addresses. Amending a federal tax return IRS mission. Amending a federal tax return   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Amending a federal tax return Table 1. Amending a federal tax return Legend of Icons Icon Explanation Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print. Amending a federal tax return An Internet site or an email address. Amending a federal tax return An address you may need. Amending a federal tax return Items you should keep in your personal records. Amending a federal tax return Items you may need to figure or a worksheet you may need to complete and keep for your records. Amending a federal tax return An important phone number. Amending a federal tax return Helpful information you may need. 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Amending a federal tax return 2. Amending a federal tax return   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Amending a federal tax return How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Amending a federal tax return Deferral percentage. Amending a federal tax return Employee compensation. Amending a federal tax return Compensation of self-employed individuals. Amending a federal tax return Choice not to treat deferrals as compensation. Amending a federal tax return Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Amending a federal tax return Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Amending a federal tax return S. Amending a federal tax return Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Amending a federal tax return Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Amending a federal tax return A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Amending a federal tax return SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Amending a federal tax return A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Amending a federal tax return Eligible employee. Amending a federal tax return   An eligible employee is an individual who meets all the following requirements. Amending a federal tax return Has reached age 21. Amending a federal tax return Has worked for you in at least 3 of the last 5 years. Amending a federal tax return Has received at least $550 in compensation from you in 2013. Amending a federal tax return This amount remains the same in 2014. Amending a federal tax return    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Amending a federal tax return Excludable employees. Amending a federal tax return   The following employees can be excluded from coverage under a SEP. Amending a federal tax return Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Amending a federal tax return Nonresident alien employees who have received no U. Amending a federal tax return S. Amending a federal tax return source wages, salaries, or other personal services compensation from you. Amending a federal tax return For more information about nonresident aliens, see Publication 519, U. Amending a federal tax return S. Amending a federal tax return Tax Guide for Aliens. Amending a federal tax return Setting Up a SEP There are three basic steps in setting up a SEP. Amending a federal tax return You must execute a formal written agreement to provide benefits to all eligible employees. Amending a federal tax return You must give each eligible employee certain information about the SEP. Amending a federal tax return A SEP-IRA must be set up by or for each eligible employee. Amending a federal tax return Many financial institutions will help you set up a SEP. Amending a federal tax return Formal written agreement. Amending a federal tax return   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Amending a federal tax return You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Amending a federal tax return However, see When not to use Form 5305-SEP, below. Amending a federal tax return   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Amending a federal tax return Keep the original form. Amending a federal tax return Do not file it with the IRS. Amending a federal tax return Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Amending a federal tax return See the Form 5305-SEP instructions for details. Amending a federal tax return If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Amending a federal tax return When not to use Form 5305-SEP. Amending a federal tax return   You cannot use Form 5305-SEP if any of the following apply. Amending a federal tax return You currently maintain any other qualified retirement plan other than another SEP. Amending a federal tax return You have any eligible employees for whom IRAs have not been set up. Amending a federal tax return You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Amending a federal tax return You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Amending a federal tax return An affiliated service group described in section 414(m). Amending a federal tax return A controlled group of corporations described in section 414(b). Amending a federal tax return Trades or businesses under common control described in section 414(c). Amending a federal tax return You do not pay the cost of the SEP contributions. Amending a federal tax return Information you must give to employees. Amending a federal tax return   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Amending a federal tax return An IRS model SEP is not considered adopted until you give each employee this information. Amending a federal tax return Setting up the employee's SEP-IRA. Amending a federal tax return   A SEP-IRA must be set up by or for each eligible employee. Amending a federal tax return SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Amending a federal tax return You send SEP contributions to the financial institution where the SEP-IRA is maintained. Amending a federal tax return Deadline for setting up a SEP. Amending a federal tax return   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Amending a federal tax return Credit for startup costs. Amending a federal tax return   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Amending a federal tax return For more information, see Credit for startup costs under Reminders, earlier. Amending a federal tax return How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Amending a federal tax return If you are self-employed, you can contribute to your own SEP-IRA. Amending a federal tax return Contributions must be in the form of money (cash, check, or money order). Amending a federal tax return You cannot contribute property. Amending a federal tax return However, participants may be able to transfer or roll over certain property from one retirement plan to another. Amending a federal tax return See Publication 590 for more information about rollovers. Amending a federal tax return You do not have to make contributions every year. Amending a federal tax return But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Amending a federal tax return When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Amending a federal tax return Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Amending a federal tax return A SEP-IRA cannot be a Roth IRA. Amending a federal tax return Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Amending a federal tax return Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Amending a federal tax return If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Amending a federal tax return Participants age 70½ or over must take required minimum distributions. Amending a federal tax return Time limit for making contributions. Amending a federal tax return   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Amending a federal tax return Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Amending a federal tax return Compensation generally does not include your contributions to the SEP. Amending a federal tax return The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Amending a federal tax return Example. Amending a federal tax return Your employee, Mary Plant, earned $21,000 for 2013. Amending a federal tax return The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Amending a federal tax return Contributions for yourself. Amending a federal tax return   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Amending a federal tax return However, special rules apply when figuring your maximum deductible contribution. Amending a federal tax return See Deduction Limit for Self-Employed Individuals , later. Amending a federal tax return Annual compensation limit. Amending a federal tax return   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Amending a federal tax return However, $51,000 is the maximum contribution for an eligible employee. Amending a federal tax return These limits are $260,000 and $52,000, respectively, in 2014. Amending a federal tax return Example. Amending a federal tax return Your employee, Susan Green, earned $210,000 for 2013. Amending a federal tax return Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Amending a federal tax return More than one plan. Amending a federal tax return   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Amending a federal tax return When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Amending a federal tax return Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Amending a federal tax return Tax treatment of excess contributions. Amending a federal tax return   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Amending a federal tax return 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Amending a federal tax return $51,000. Amending a federal tax return Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Amending a federal tax return For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Amending a federal tax return Reporting on Form W-2. Amending a federal tax return   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Amending a federal tax return Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Amending a federal tax return If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Amending a federal tax return Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Amending a federal tax return Your contributions (including any excess contributions carryover). Amending a federal tax return 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Amending a federal tax return In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Amending a federal tax return Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Amending a federal tax return When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Amending a federal tax return The deduction for the deductible part of your self-employment tax. Amending a federal tax return The deduction for contributions to your own SEP-IRA. Amending a federal tax return The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Amending a federal tax return For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Amending a federal tax return To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Amending a federal tax return Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Amending a federal tax return Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Amending a federal tax return However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Amending a federal tax return If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Amending a federal tax return Excise tax. Amending a federal tax return   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Amending a federal tax return For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Amending a federal tax return When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Amending a federal tax return If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Amending a federal tax return If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Amending a federal tax return Example. Amending a federal tax return You are a fiscal year taxpayer whose tax year ends June 30. Amending a federal tax return You maintain a SEP on a calendar year basis. Amending a federal tax return You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Amending a federal tax return Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Amending a federal tax return For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Amending a federal tax return S. Amending a federal tax return Return of Partnership Income; and corporations deduct them on Form 1120, U. Amending a federal tax return S. Amending a federal tax return Corporation Income Tax Return, or Form 1120S, U. Amending a federal tax return S. Amending a federal tax return Income Tax Return for an S Corporation. Amending a federal tax return Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Amending a federal tax return (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Amending a federal tax return , you receive from the partnership. Amending a federal tax return ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Amending a federal tax return Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Amending a federal tax return (See the Caution, next. Amending a federal tax return ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Amending a federal tax return This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Amending a federal tax return You are not allowed to set up a SARSEP after 1996. Amending a federal tax return However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Amending a federal tax return If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Amending a federal tax return Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Amending a federal tax return At least 50% of your employees eligible to participate choose to make elective deferrals. Amending a federal tax return You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Amending a federal tax return The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Amending a federal tax return SARSEP ADP test. Amending a federal tax return   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Amending a federal tax return A highly compensated employee is defined in chapter 1. Amending a federal tax return Deferral percentage. Amending a federal tax return   The deferral percentage for an employee for a year is figured as follows. Amending a federal tax return   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Amending a federal tax return Employee compensation. Amending a federal tax return   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Amending a federal tax return Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Amending a federal tax return See Compensation in chapter 1. Amending a federal tax return Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Amending a federal tax return Compensation of self-employed individuals. Amending a federal tax return   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Amending a federal tax return   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Amending a federal tax return Choice not to treat deferrals as compensation. Amending a federal tax return   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Amending a federal tax return Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Amending a federal tax return 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Amending a federal tax return $17,500. Amending a federal tax return The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Amending a federal tax return Cash or deferred arrangement (section 401(k) plan). Amending a federal tax return Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Amending a federal tax return SIMPLE IRA plan. Amending a federal tax return In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Amending a federal tax return Catch-up contributions. Amending a federal tax return   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Amending a federal tax return The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Amending a federal tax return Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Amending a federal tax return However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Amending a federal tax return The catch-up contribution limit. Amending a federal tax return The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Amending a federal tax return   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Amending a federal tax return Overall limit on SEP contributions. Amending a federal tax return   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Amending a federal tax return The same rule applies to contributions you make to your own SEP-IRA. Amending a federal tax return See Contribution Limits , earlier. Amending a federal tax return Figuring the elective deferral. Amending a federal tax return   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Amending a federal tax return Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Amending a federal tax return However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Amending a federal tax return Excess deferrals. Amending a federal tax return   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Amending a federal tax return For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Amending a federal tax return The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Amending a federal tax return See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Amending a federal tax return Excess SEP contributions. Amending a federal tax return   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Amending a federal tax return You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Amending a federal tax return If you do not notify them within this time period, you must pay a 10% tax on the excess. Amending a federal tax return For an explanation of the notification requirements, see Rev. Amending a federal tax return Proc. Amending a federal tax return 91-44, 1991-2 C. Amending a federal tax return B. Amending a federal tax return 733. Amending a federal tax return If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Amending a federal tax return Reporting on Form W-2. Amending a federal tax return   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Amending a federal tax return You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Amending a federal tax return You must also include them in box 12. Amending a federal tax return Mark the “Retirement plan” checkbox in box 13. Amending a federal tax return For more information, see the Form W-2 instructions. Amending a federal tax return Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Amending a federal tax return Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Amending a federal tax return Distributions are subject to IRA rules. Amending a federal tax return Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Amending a federal tax return For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Amending a federal tax return Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Amending a federal tax return Making excess contributions. Amending a federal tax return Making early withdrawals. Amending a federal tax return Not making required withdrawals. Amending a federal tax return For information about these taxes, see chapter 1 in Publication 590. Amending a federal tax return Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Amending a federal tax return Prohibited transaction. Amending a federal tax return   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Amending a federal tax return In that case, the SEP-IRA will no longer qualify as an IRA. Amending a federal tax return For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Amending a federal tax return Effects on employee. Amending a federal tax return   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Amending a federal tax return The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Amending a federal tax return Also, the employee may have to pay the additional tax for making early withdrawals. Amending a federal tax return Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Amending a federal tax return See Setting Up a SEP , earlier. Amending a federal tax return Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Amending a federal tax return You must also give them notice of any excess contributions. Amending a federal tax return For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Amending a federal tax return Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Amending a federal tax return For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Amending a federal tax return Prev  Up  Next   Home   More Online Publications