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E-file 2012

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E-file 2012

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

Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits, and your correct tax. If more than one filing status applies to you, this interview will choose the one that will result in the lowest amount of tax.

Information You Will Need:

  • Marital status and spouse's year of death (if applicable)
  • The percentage of the costs that your household members paid towards keeping up a home

Estimated Completion Time: 5 minutes. However: 5 minutes of inactivity will end the interview and you will be forced to start over.

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Page Last Reviewed or Updated: 14-Feb-2014

The E-file 2012

E-file 2012 Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. E-file 2012 S. E-file 2012 Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. E-file 2012 You must meet all seven rules to qualify for the earned income credit. E-file 2012 If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. E-file 2012 If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. E-file 2012 Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E-file 2012 Adjusted gross income (AGI). E-file 2012   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. E-file 2012   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. E-file 2012 You do not need to read the rest of this publication. E-file 2012 Example—AGI is more than limit. E-file 2012 Your AGI is $38,550, you are single, and you have one qualifying child. E-file 2012 You cannot claim the EIC because your AGI is not less than $37,870. E-file 2012 However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. E-file 2012 Community property. E-file 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. E-file 2012 This is different from the community property rules that apply under Rule 7. E-file 2012 Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). E-file 2012 Any qualifying child listed on Schedule EIC also must have a valid SSN. E-file 2012 (See Rule 8 if you have a qualifying child. E-file 2012 ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. E-file 2012 An example of a federally funded benefit is Medicaid. E-file 2012 If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. E-file 2012 S. E-file 2012 citizen or permanent resident, ask the SSA for a new social security card without the legend. E-file 2012 If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. E-file 2012 S. E-file 2012 Individual Income Tax Return, to claim the EIC. E-file 2012 U. E-file 2012 S. E-file 2012 citizen. E-file 2012   If you were a U. E-file 2012 S. E-file 2012 citizen when you received your SSN, you have a valid SSN. E-file 2012 Valid for work only with INS authorization or DHS authorization. E-file 2012   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. E-file 2012 SSN missing or incorrect. E-file 2012   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. E-file 2012 Other taxpayer identification number. E-file 2012   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). E-file 2012 ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. E-file 2012 No SSN. E-file 2012   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E-file 2012 You cannot claim the EIC. E-file 2012 Getting an SSN. E-file 2012   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. E-file 2012 You can get Form SS-5 online at www. E-file 2012 socialsecurity. E-file 2012 gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. E-file 2012 Filing deadline approaching and still no SSN. E-file 2012   If the filing deadline is approaching and you still do not have an SSN, you have two choices. E-file 2012 Request an automatic 6-month extension of time to file your return. E-file 2012 You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. E-file 2012 S. E-file 2012 Individual Income Tax Return. E-file 2012 For more information, see the instructions for Form 4868. E-file 2012 File the return on time without claiming the EIC. E-file 2012 After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. E-file 2012 Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. E-file 2012 Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. E-file 2012 Your filing status cannot be “Married filing separately. E-file 2012 ” Spouse did not live with you. E-file 2012   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. E-file 2012 In that case, you may be able to claim the EIC. E-file 2012 For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. E-file 2012 Rule 4—You Must Be a U. E-file 2012 S. E-file 2012 Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. E-file 2012 You can use that filing status only if one spouse is a U. E-file 2012 S. E-file 2012 citizen or resident alien and you choose to treat the nonresident spouse as a U. E-file 2012 S. E-file 2012 resident. E-file 2012 If you make this choice, you and your spouse are taxed on your worldwide income. E-file 2012 If you need more information on making this choice, get Publication 519, U. E-file 2012 S. E-file 2012 Tax Guide for Aliens. E-file 2012 If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). E-file 2012 Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. E-file 2012 You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. E-file 2012 U. E-file 2012 S. E-file 2012 possessions are not foreign countries. E-file 2012 See Publication 54, Tax Guide for U. E-file 2012 S. E-file 2012 Citizens and Resident Aliens Abroad, for more detailed information. E-file 2012 Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. E-file 2012 If your investment income is more than $3,300, you cannot claim the credit. E-file 2012 Form 1040EZ. E-file 2012   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. E-file 2012 Form 1040A. E-file 2012   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. E-file 2012 Form 1040. E-file 2012   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. E-file 2012    Worksheet 1. E-file 2012 Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. E-file 2012 Interest and Dividends         1. E-file 2012 Enter any amount from Form 1040, line 8a 1. E-file 2012   2. E-file 2012 Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. E-file 2012   3. E-file 2012 Enter any amount from Form 1040, line 9a 3. E-file 2012   4. E-file 2012 Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. E-file 2012 (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. E-file 2012 ) 4. E-file 2012   Capital Gain Net Income         5. E-file 2012 Enter the amount from Form 1040, line 13. E-file 2012 If the amount on that line is a loss, enter -0- 5. E-file 2012       6. E-file 2012 Enter any gain from Form 4797, Sales of Business Property, line 7. E-file 2012 If the amount on that line is a loss, enter -0-. E-file 2012 (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. E-file 2012 ) 6. E-file 2012       7. E-file 2012 Substract line 6 of this worksheet from line 5 of this worksheet. E-file 2012 (If the result is less than zero, enter -0-. E-file 2012 ) 7. E-file 2012   Royalties and Rental Income From Personal Property         8. E-file 2012 Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. E-file 2012       9. E-file 2012 Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. E-file 2012       10. E-file 2012 Subtract the amount on line 9 of this worksheet from the amount on line 8. E-file 2012 (If the result is less than zero, enter -0-. E-file 2012 ) 10. E-file 2012   Passive Activities         11. E-file 2012 Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. E-file 2012 (g)), 34a (col. E-file 2012 (d)), or 40). E-file 2012 (See instructions below for lines 11 and 12. E-file 2012 ) 11. E-file 2012       12. E-file 2012 Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. E-file 2012 (f)), 34b (col. E-file 2012 (c)), or 40). E-file 2012 (See instructions below for lines 11 and 12. E-file 2012 ) 12. E-file 2012       13. E-file 2012 Combine the amounts on lines 11 and 12 of this worksheet. E-file 2012 (If the result is less than zero, enter -0-. E-file 2012 ) 13. E-file 2012   14. E-file 2012 Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. E-file 2012 Enter the total. E-file 2012 This is your investment income 14. E-file 2012   15. E-file 2012 Is the amount on line 14 more than $3,300? ❑ Yes. E-file 2012 You cannot take the credit. E-file 2012  ❑ No. E-file 2012 Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). E-file 2012       Instructions for lines 11 and 12. E-file 2012 In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. E-file 2012 To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. E-file 2012 If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. E-file 2012 Worksheet 2. E-file 2012 Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. E-file 2012 Note. E-file 2012 Fill out a separate Worksheet 2 for each Form 8814. E-file 2012     1. E-file 2012 Enter the amount from Form 8814, line 2a 1. E-file 2012   2. E-file 2012 Enter the amount from Form 8814, line 2b 2. E-file 2012   3. E-file 2012 Subtract line 2 from line 1 3. E-file 2012   4. E-file 2012 Enter the amount from Form 8814, line 1a 4. E-file 2012   5. E-file 2012 Add lines 3 and 4 5. E-file 2012   6. E-file 2012 Enter the amount of the child's Alaska Permanent Fund dividend 6. E-file 2012   7. E-file 2012 Divide line 6 by line 5. E-file 2012 Enter the result as a decimal (rounded to at least three places) 7. E-file 2012   8. E-file 2012 Enter the amount from Form 8814, line 12 8. E-file 2012   9. E-file 2012 Multiply line 7 by line 8 9. E-file 2012   10. E-file 2012 Subtract line 9 from line 8. E-file 2012 Enter the result on line 4 of Worksheet 1 10. E-file 2012     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. E-file 2012 )     Example—completing Worksheet 2. E-file 2012 Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. E-file 2012 You choose to report this income on your return. E-file 2012 You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. E-file 2012 After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. E-file 2012 On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. E-file 2012 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. E-file 2012 You then enter $200 on line 4 of Worksheet 1. E-file 2012 Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. E-file 2012 If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. E-file 2012 If you are an employee, earned income includes all the taxable income you get from your employer. E-file 2012 Rule 15 has information that will help you figure the amount of your earned income. E-file 2012 If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. E-file 2012 Earned Income Earned income includes all of the following types of income. E-file 2012 Wages, salaries, tips, and other taxable employee pay. E-file 2012 Employee pay is earned income only if it is taxable. E-file 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. E-file 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. E-file 2012 Net earnings from self-employment. E-file 2012 Gross income received as a statutory employee. E-file 2012 Wages, salaries, and tips. E-file 2012    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. E-file 2012 You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). E-file 2012 Nontaxable combat pay election. E-file 2012   You can elect to include your nontaxable combat pay in earned income for the earned income credit. E-file 2012 The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. E-file 2012 Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. E-file 2012 For details, see Nontaxable combat pay in chapter 4. E-file 2012 Net earnings from self-employment. E-file 2012   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. E-file 2012 Minister's housing. E-file 2012   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. E-file 2012 For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). E-file 2012 Statutory employee. E-file 2012   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. E-file 2012 You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). E-file 2012 Strike benefits. E-file 2012   Strike benefits paid by a union to its members are earned income. E-file 2012 Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. E-file 2012 Each approved form exempts certain income from social security taxes. E-file 2012 Each form is discussed here in terms of what is or is not earned income for the EIC. E-file 2012 Form 4361. E-file 2012   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. E-file 2012 This includes wages, salaries, tips, and other taxable employee compensation. E-file 2012 A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. E-file 2012 Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. E-file 2012 Examples include fees for performing marriages and honoraria for delivering speeches. E-file 2012 Form 4029. E-file 2012   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. E-file 2012 However, amounts you received as a self-employed individual do not count as earned income. E-file 2012 Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. E-file 2012 Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. E-file 2012 Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. E-file 2012 You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. E-file 2012 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. E-file 2012 Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. E-file 2012 Disability insurance payments. E-file 2012   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. E-file 2012 It does not matter whether you have reached minimum retirement age. E-file 2012 If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. E-file 2012 ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. E-file 2012 Do not include any of these items in your earned income. E-file 2012 Earnings while an inmate. E-file 2012   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. E-file 2012 This includes amounts for work performed while in a work release program or while in a halfway house. E-file 2012 Workfare payments. E-file 2012   Nontaxable workfare payments are not earned income for the EIC. E-file 2012 These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. E-file 2012 Community property. E-file 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. E-file 2012 That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. E-file 2012 Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. E-file 2012 Nevada, Washington, and California domestic partners. E-file 2012   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. E-file 2012 Your earned income for the EIC does not include any amount earned by your partner. E-file 2012 Your earned income includes the entire amount you earned. E-file 2012 For details, see Publication 555. E-file 2012 Conservation Reserve Program (CRP) payments. E-file 2012   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. E-file 2012 Nontaxable military pay. E-file 2012   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. E-file 2012 Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). E-file 2012 See Publication 3, Armed Forces' Tax Guide, for more information. E-file 2012    Combat pay. E-file 2012 You can elect to include your nontaxable combat pay in earned income for the EIC. E-file 2012 See Nontaxable combat pay in chapter 4. E-file 2012 Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. E-file 2012 This chapter discusses Rules 8 through 10. E-file 2012 You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. E-file 2012 You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. E-file 2012 (You cannot file Form 1040EZ. E-file 2012 ) You also must complete Schedule EIC and attach it to your return. E-file 2012 If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. E-file 2012 No qualifying child. E-file 2012   If you do not meet Rule 8, you do not have a qualifying child. E-file 2012 Read chapter 3 to find out if you can get the earned income credit without a qualifying child. E-file 2012 Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. E-file 2012 The fours tests are: Relationship, Age, Residency, and Joint return. E-file 2012 The four tests are illustrated in Figure 1. E-file 2012 The paragraphs that follow contain more information about each test. E-file 2012 Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). E-file 2012 The following definitions clarify the relationship test. E-file 2012 Adopted child. E-file 2012   An adopted child is always treated as your own child. E-file 2012 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. E-file 2012 Foster child. E-file 2012   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. E-file 2012 (An authorized placement agency includes a state or local government agency. E-file 2012 It also includes a tax-exempt organization licensed by a state. E-file 2012 In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. E-file 2012 ) Example. E-file 2012 Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. E-file 2012 Debbie is your foster child. E-file 2012 Figure 1. E-file 2012 Tests for Qualifying Child Please click here for the text description of the image. E-file 2012 Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. E-file 2012 The following examples and definitions clarify the age test. E-file 2012 Example 1—child not under age 19. E-file 2012 Your son turned 19 on December 10. E-file 2012 Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. E-file 2012 Example 2—child not younger than you or your spouse. E-file 2012 Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. E-file 2012 He is not disabled. E-file 2012 Both you and your spouse are 21 years old, and you file a joint return. E-file 2012 Your brother is not your qualifying child because he is not younger than you or your spouse. E-file 2012 Example 3—child younger than your spouse but not younger than you. E-file 2012 The facts are the same as in Example 2 except that your spouse is 25 years old. E-file 2012 Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. E-file 2012 Student defined. E-file 2012   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. E-file 2012   The 5 calendar months need not be consecutive. E-file 2012   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. E-file 2012 School defined. E-file 2012   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. E-file 2012 However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. E-file 2012 Vocational high school students. E-file 2012   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. E-file 2012 Permanently and totally disabled. E-file 2012   Your child is permanently and totally disabled if both of the following apply. E-file 2012 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. E-file 2012 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. E-file 2012 Residency Test Your child must have lived with you in the United States for more than half of 2013. E-file 2012 The following definitions clarify the residency test. E-file 2012 United States. E-file 2012   This means the 50 states and the District of Columbia. E-file 2012 It does not include Puerto Rico or U. E-file 2012 S. E-file 2012 possessions such as Guam. E-file 2012 Homeless shelter. E-file 2012   Your home can be any location where you regularly live. E-file 2012 You do not need a traditional home. E-file 2012 For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. E-file 2012 Military personnel stationed outside the United States. E-file 2012   U. E-file 2012 S. E-file 2012 military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. E-file 2012 Extended active duty. E-file 2012   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. E-file 2012 Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. E-file 2012 Birth or death of child. E-file 2012    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. E-file 2012 Temporary absences. E-file 2012   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. E-file 2012 Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. E-file 2012 Kidnapped child. E-file 2012   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. E-file 2012 The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. E-file 2012 This treatment applies for all years until the child is returned. E-file 2012 However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. E-file 2012   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. E-file 2012 Joint Return Test To meet this test, the child cannot file a joint return for the year. E-file 2012 Exception. E-file 2012   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. E-file 2012 Example 1—child files joint return. E-file 2012 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. E-file 2012 He earned $25,000 for the year. E-file 2012 The couple files a joint return. E-file 2012 Because your daughter and her husband file a joint return, she is not your qualifying child. E-file 2012 Example 2—child files joint return to get refund of tax withheld. E-file 2012 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. E-file 2012 They do not have a child. E-file 2012 Neither is required to file a tax return. E-file 2012 Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. E-file 2012 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. E-file 2012 Example 3—child files joint return to claim American opportunity credit. E-file 2012 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. E-file 2012 He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. E-file 2012 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. E-file 2012 The exception to the joint return test does not apply, so your son is not your qualifying child. E-file 2012 Married child. E-file 2012   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. E-file 2012    Social security number. E-file 2012 Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. E-file 2012 You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. E-file 2012   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. E-file 2012 For more information about SSNs, see Rule 2. E-file 2012 Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. E-file 2012 However, only one of these persons can actually treat the child as a qualifying child. E-file 2012 Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). E-file 2012 The exemption for the child. E-file 2012 The child tax credit. E-file 2012 Head of household filing status. E-file 2012 The credit for child and dependent care expenses. E-file 2012 The exclusion for dependent care benefits. E-file 2012 The EIC. E-file 2012 The other person cannot take any of these benefits based on this qualifying child. E-file 2012 In other words, you and the other person cannot agree to divide these tax benefits between you. E-file 2012 The other person cannot take any of these tax benefits unless he or she has a different qualifying child. E-file 2012 The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. E-file 2012 However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. E-file 2012 Tiebreaker rules. E-file 2012   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. E-file 2012 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. E-file 2012 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. E-file 2012 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. E-file 2012 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. E-file 2012 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. E-file 2012 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. E-file 2012 If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. E-file 2012 See Example 8. E-file 2012   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. E-file 2012 See Examples 1 through 13. E-file 2012   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. E-file 2012 If the other person cannot claim the EIC. E-file 2012   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. E-file 2012 See Examples 6 and 7. E-file 2012 But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. E-file 2012 Examples. E-file 2012    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. E-file 2012 Example 1—child lived with parent and grandparent. E-file 2012 You and your 2-year-old son Jimmy lived with your mother all year. E-file 2012 You are 25 years old, unmarried, and your AGI is $9,000. E-file 2012 Your only income was $9,000 from a part-time job. E-file 2012 Your mother's only income was $20,000 from her job, and her AGI is $20,000. E-file 2012 Jimmy's father did not live with you or Jimmy. E-file 2012 The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. E-file 2012 Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. E-file 2012 However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). E-file 2012 He is not a qualifying child of anyone else, including his father. E-file 2012 If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). E-file 2012 Example 2—parent has higher AGI than grandparent. E-file 2012 The facts are the same as in Example 1 except your AGI is $25,000. E-file 2012 Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. E-file 2012 Only you can claim him. E-file 2012 Example 3—two persons claim same child. E-file 2012 The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. E-file 2012 In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. E-file 2012 The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. E-file 2012 Example 4—qualifying children split between two persons. E-file 2012 The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. E-file 2012 Only one of you can claim each child. E-file 2012 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. E-file 2012 For example, if you claim one child, your mother can claim the other two. E-file 2012 Example 5—taxpayer who is a qualifying child. E-file 2012 The facts are the same as in Example 1 except that you are only 18 years old. E-file 2012 This means you are a qualifying child of your mother. E-file 2012 Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. E-file 2012 Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. E-file 2012 If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. E-file 2012 Example 6—grandparent with too much earned income to claim EIC. E-file 2012 The facts are the same as in Example 1 except that your mother earned $50,000 from her job. E-file 2012 Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. E-file 2012 Example 7—parent with too much earned income to claim EIC. E-file 2012 The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. E-file 2012 Your earned income is too high for you to claim the EIC. E-file 2012 But your mother cannot claim the EIC either, because her AGI is not higher than yours. E-file 2012 Example 8—child lived with both parents and grandparent. E-file 2012 The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. E-file 2012 If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. E-file 2012 Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. E-file 2012 In other words, each parent's AGI can be treated as $15,000. E-file 2012 Example 9—separated parents. E-file 2012 You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. E-file 2012 In August and September, Joey lived with you. E-file 2012 For the rest of the year, Joey lived with your husband, who is Joey's father. E-file 2012 Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. E-file 2012 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. E-file 2012 You and your husband will file separate returns. E-file 2012 Your husband agrees to let you treat Joey as a qualifying child. E-file 2012 This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. E-file 2012 However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. E-file 2012 See Rule 3. E-file 2012 Example 10—separated parents claim same child. E-file 2012 The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. E-file 2012 In this case, only your husband will be allowed to treat Joey as a qualifying child. E-file 2012 This is because, during 2013, the boy lived with him longer than with you. E-file 2012 You cannot claim the EIC (either with or without a qualifying child). E-file 2012 However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. E-file 2012 See Rule 3. E-file 2012 Example 11—unmarried parents. E-file 2012 You, your 5-year-old son, and your son's father lived together all year. E-file 2012 You and your son's father are not married. E-file 2012 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. E-file 2012 Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. E-file 2012 Neither of you had any other income. E-file 2012 Your son's father agrees to let you treat the child as a qualifying child. E-file 2012 This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. E-file 2012 Example 12—unmarried parents claim same child. E-file 2012 The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. E-file 2012 In this case, only your son's father will be allowed to treat your son as a qualifying child. E-file 2012 This is because his AGI, $14,000, is more than your AGI, $12,000. E-file 2012 You cannot claim the EIC (either with or without a qualifying child). E-file 2012 Example 13—child did not live with a parent. E-file 2012 You and your 7-year-old niece, your sister's child, lived with your mother all year. E-file 2012 You are 25 years old, and your AGI is $9,300. E-file 2012 Your only income was from a part-time job. E-file 2012 Your mother's AGI is $15,000. E-file 2012 Her only income was from her job. E-file 2012 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. E-file 2012 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. E-file 2012 However, only your mother can treat her as a qualifying child. E-file 2012 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. E-file 2012 Special rule for divorced or separated parents (or parents who live apart). E-file 2012   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. E-file 2012 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. E-file 2012 The child received over half of his or her support for the year from the parents. E-file 2012 The child is in the custody of one or both parents for more than half of 2013. E-file 2012 Either of the following statements is true. E-file 2012 The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. E-file 2012 If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. E-file 2012 A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. E-file 2012 For details, see Publication 501. E-file 2012 Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. E-file 2012 Applying Rule 9 to divorced or separated parents (or parents who live apart). E-file 2012   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. E-file 2012 However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. E-file 2012 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. E-file 2012 Example 1. E-file 2012 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. E-file 2012 Your AGI is $10,000. E-file 2012 Your mother’s AGI is $25,000. E-file 2012 Your son's father did not live with you or your son. E-file 2012 Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. E-file 2012 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. E-file 2012 You and your mother did not have any child care expenses or dependent care benefits. E-file 2012 If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. E-file 2012 Example 2. E-file 2012 The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. E-file 2012 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. E-file 2012 Example 3. E-file 2012 The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. E-file 2012 Your mother also claims him as a qualifying child for head of household filing status. E-file 2012 You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. E-file 2012 The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. E-file 2012 Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. E-file 2012 ) if all of the following statements are true. E-file 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. E-file 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. E-file 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. E-file 2012 You lived with that person in the United States for more than half of the year. E-file 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). E-file 2012 For more details about the tests to be a qualifying child, see Rule 8. E-file 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. E-file 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. E-file 2012 Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). E-file 2012 Example. E-file 2012 You and your daughter lived with your mother all year. E-file 2012 You are 22 years old, unmarried, and attended a trade school full time. E-file 2012 You had a part-time job and earned $5,700. E-file 2012 You had no other income. E-file 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. E-file 2012 She can claim the EIC if she meets all the other requirements. E-file 2012 Because you are your mother's qualifying child, you cannot claim the EIC. E-file 2012 This is so even if your mother cannot or does not claim the EIC. E-file 2012 Child of person not required to file a return. E-file 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. E-file 2012 Example 1—return not required. E-file 2012 The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. E-file 2012 As a result, you are not your mother's qualifying child. E-file 2012 You can claim the EIC if you meet all the other requirements to do so. E-file 2012 Example 2—return filed to get refund of tax withheld. E-file 2012 The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. E-file 2012 She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. E-file 2012 As a result, you are not your mother's qualifying child. E-file 2012 You can claim the EIC if you meet all the other requirements to do so. E-file 2012 Example 3—return filed to get EIC. E-file 2012 The facts are the same as in Example 2 except your mother claimed the EIC on her return. E-file 2012 Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. E-file 2012 As a result, you are your mother's qualifying child. E-file 2012 You cannot claim the EIC. E-file 2012 Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. E-file 2012 This chapter discusses Rules 11 through 14. E-file 2012 You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. E-file 2012 You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. E-file 2012 If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. E-file 2012 If you have a qualifying child. E-file 2012   If you meet Rule 8, you have a qualifying child. E-file 2012 If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. E-file 2012 Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. E-file 2012 If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. E-file 2012 It does not matter which spouse meets the age test, as long as one of the spouses does. E-file 2012 You meet the age test if you were born after December 31, 1948, and before January 2, 1989. E-file 2012 If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. E-file 2012 If neither you nor your spouse meets the age test, you cannot claim the EIC. E-file 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E-file 2012 Death of spouse. E-file 2012   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. E-file 2012 Example 1. E-file 2012 You are age 28 and unmarried. E-file 2012 You meet the age test. E-file 2012 Example 2—spouse meets age test. E-file 2012 You are married and filing a joint return. E-file 2012 You are age 23 and your spouse is age 27. E-file 2012 You meet the age test because your spouse is at least age 25 but under age 65. E-file 2012 Example 3—spouse dies in 2013. E-file 2012 You are married and filing a joint return with your spouse who died in August 2013. E-file 2012 You are age 67. E-file 2012 Your spouse would have become age 65 in November 2013. E-file 2012 Because your spouse was under age 65 when she died, you meet the age test. E-file 2012 Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. E-file 2012 If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. E-file 2012 If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. E-file 2012 If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. E-file 2012 Example 1. E-file 2012 In 2013, you were age 25, single, and living at home with your parents. E-file 2012 You worked and were not a student. E-file 2012 You earned $7,500. E-file 2012 Your parents cannot claim you as a dependent. E-file 2012 When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. E-file 2012 You meet this rule. E-file 2012 You can claim the EIC if you meet all the other requirements. E-file 2012 Example 2. E-file 2012 The facts are the same as in Example 1, except that you earned $2,000. E-file 2012 Your parents can claim you as a dependent but decide not to. E-file 2012 You do not meet this rule. E-file 2012 You cannot claim the credit because your parents could have claimed you as a dependent. E-file 2012 Joint returns. E-file 2012   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. E-file 2012   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. E-file 2012 But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. E-file 2012 Example 1—return filed to get refund of tax withheld. E-file 2012 You are 26 years old. E-file 2012 You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. E-file 2012 Neither you nor your wife is required to file a tax return. E-file 2012 You do not have a child. E-file 2012 Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. E-file 2012 Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. E-file 2012 They can claim exemptions for you and your wife if all the other tests to do so are met. E-file 2012 Example 2—return filed to get EIC. E-file 2012 The facts are the same as in Example 1except no taxes were taken out of your pay. E-file 2012 Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. E-file 2012 Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. E-file 2012 Your parents cannot claim an exemption for either you or your wife. E-file 2012 Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. E-file 2012 ) if all of the following statements are true. E-file 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. E-file 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. E-file 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. E-file 2012 You lived with that person in the United States for more than half of the year. E-file 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). E-file 2012 For more details about the tests to be a qualifying child, see Rule 8. E-file 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. E-file 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. E-file 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E-file 2012 Example. E-file 2012 You lived with your mother all year. E-file 2012 You are age 26, unmarried, and permanently and totally disabled. E-file 2012 Your only income was from a community center where you went three days a week to answer telephones. E-file 2012 You earned $5,000 for the year and provided more than half of your own support. E-file 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. E-file 2012 She can claim the EIC if she meets all the other requirements. E-file 2012 Because you are a qualifying child of your mother, you cannot claim the EIC. E-file 2012 This is so even if your mother cannot or does not claim the EIC. E-file 2012 Joint returns. E-file 2012   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. E-file 2012   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. E-file 2012 But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. E-file 2012 Child of person not required to file a return. E-file 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. E-file 2012 Example 1—return not required. E-file 2012 You lived all year with your father. E-file 2012 You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. E-file 2012 You have no other income, no children, and provided more than half of your own support. E-file 2012 Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. E-file 2012 As a result, you are not your father's qualifying child. E-file 2012 You can claim the EIC if you meet all the other requirements to do so. E-file 2012 Example 2—return filed to get refund of tax withheld. E-file 2012 The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. E-file 2012 He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. E-file 2012 As a result, you are not your father's qualifying child. E-file 2012 You can claim the EIC if you meet all the other requirements to do so. E-file 2012 Example 3—return filed to get EIC. E-file 2012 The facts are the same as in Example 2 except your father claimed the EIC on his return. E-file 2012 Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. E-file 2012 As a result, you are your father's qualifying child. E-file 2012 You cannot claim the EIC. E-file 2012 Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. E-file 2012 If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E-file 2012 United States. E-file 2012   This means the 50 states and the District of Columbia. E-file 2012 It does not include Puerto Rico or U. E-file 2012 S. E-file 2012 possessions such as Guam. E-file 2012 Homeless shelter. E-file 2012   Your home can be any location where you regularly live. E-file 2012 You do not need a traditional home. E-file 2012 If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. E-file 2012 Military personnel stationed outside the United States. E-file 2012   U. E-file 2012 S. E-file 2012 military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. E-file 2012 Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. E-file 2012 You need to know the amount of your earned income to see if you meet the rule in this chapter. E-file 2012 You also need to know that amount to figure your EIC. E-file 2012 Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E-file 2012 Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. E-file 2012 Employee pay is earned income only if it is taxable. E-file 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. E-file 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income. E-file 2012 Earned income is explained in detail in Rule 7 in chapter 1. E-file 2012 Figuring earned income. E-file 2012   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. E-file 2012   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. E-file 2012   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). E-file 2012 You will then reduce that amount by any amount included on that line and described in the following list. E-file 2012 Scholarship or fellowship grants not reported on a Form W-2. E-file 2012 A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. E-file 2012 Inmate's income. E-file 2012 Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. E-file 2012 This includes amounts received for work performed while in a work release program or while in a halfway house. E-file 2012 If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). E-file 2012 Pension or annuity from deferred compensation plans. E-file 2012 A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. E-file 2012 If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). E-file 2012 This amount may be reported in box 11 of your Form W-2. E-file 2012 If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. E-file 2012 Clergy. E-file 2012   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re