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Federal Tax Form 2012

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Federal Tax Form 2012

Federal tax form 2012 4. Federal tax form 2012   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. Federal tax form 2012 S. Federal tax form 2012 Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. Federal tax form 2012 Useful Items - You may want to see: Publication 519 U. Federal tax form 2012 S. Federal tax form 2012 Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. Federal tax form 2012 S. Federal tax form 2012 Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. Federal tax form 2012 S. Federal tax form 2012 Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. Federal tax form 2012 Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. Federal tax form 2012 If you are a U. Federal tax form 2012 S. Federal tax form 2012 citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. Federal tax form 2012 However, you may qualify to exclude from income up to $97,600 of your foreign earnings. Federal tax form 2012 In addition, you can exclude or deduct certain foreign housing amounts. Federal tax form 2012 See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. Federal tax form 2012 You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. Federal tax form 2012 See Exclusion of Meals and Lodging, later. Federal tax form 2012 Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. Federal tax form 2012 Your tax home must be in a foreign country. Federal tax form 2012 You must have foreign earned income. Federal tax form 2012 You must be one of the following. Federal tax form 2012 A U. Federal tax form 2012 S. Federal tax form 2012 citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Federal tax form 2012 A U. Federal tax form 2012 S. Federal tax form 2012 resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Federal tax form 2012 A U. Federal tax form 2012 S. Federal tax form 2012 citizen or a U. Federal tax form 2012 S. Federal tax form 2012 resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Federal tax form 2012 See Publication 519 to find out if you are a U. Federal tax form 2012 S. Federal tax form 2012 resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. Federal tax form 2012 If you are a nonresident alien married to a U. Federal tax form 2012 S. Federal tax form 2012 citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. Federal tax form 2012 For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . Federal tax form 2012 Waiver of minimum time requirements. Federal tax form 2012   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Federal tax form 2012 This is fully explained under Waiver of Time Requirements , later. Federal tax form 2012   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. Federal tax form 2012 Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Federal tax form 2012 Bona fide residence and physical presence are explained later. Federal tax form 2012 Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Federal tax form 2012 Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Federal tax form 2012 Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. Federal tax form 2012 If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. Federal tax form 2012 If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. Federal tax form 2012 You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Federal tax form 2012 However, your abode is not necessarily in the United States while you are temporarily in the United States. Federal tax form 2012 Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Federal tax form 2012 “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Federal tax form 2012 It does not mean your principal place of business. Federal tax form 2012 “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. Federal tax form 2012 ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. Federal tax form 2012 Example 1. Federal tax form 2012 You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. Federal tax form 2012 You return to your family residence in the United States during your off periods. Federal tax form 2012 You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. Federal tax form 2012 You cannot claim either of the exclusions or the housing deduction. Federal tax form 2012 Example 2. Federal tax form 2012 For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. Federal tax form 2012 In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Federal tax form 2012 Before you left, you distributed business cards showing your business and home addresses in London. Federal tax form 2012 You kept ownership of your home in Toledo but rented it to another family. Federal tax form 2012 You placed your car in storage. Federal tax form 2012 In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Federal tax form 2012 Shortly after moving, you leased a car and you and your spouse got British driving licenses. Federal tax form 2012 Your entire family got library cards for the local public library. Federal tax form 2012 You and your spouse opened bank accounts with a London bank and secured consumer credit. Federal tax form 2012 You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Federal tax form 2012 Your abode is in London for the time you live there. Federal tax form 2012 You satisfy the tax home test in the foreign country. Federal tax form 2012 Please click here for the text description of the image. Federal tax form 2012 Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. Federal tax form 2012 If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. Federal tax form 2012 If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. Federal tax form 2012 If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. Federal tax form 2012 If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. Federal tax form 2012 If you expect it to last for more than 1 year, it is indefinite. Federal tax form 2012 If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. Federal tax form 2012 Once your expectation changes, it is indefinite. Federal tax form 2012 Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. Federal tax form 2012 A foreign country includes any territory under the sovereignty of a government other than that of the United States. Federal tax form 2012 The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. Federal tax form 2012 It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Federal tax form 2012 The term “foreign country” does not include Antarctica or U. Federal tax form 2012 S. Federal tax form 2012 possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. Federal tax form 2012 S. Federal tax form 2012 Virgin Islands, and Johnston Island. Federal tax form 2012 For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. Federal tax form 2012 American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. Federal tax form 2012 S. Federal tax form 2012 possession does not qualify you for the foreign earned income exclusion. Federal tax form 2012 You may, however, qualify for an exclusion of your possession income on your U. Federal tax form 2012 S. Federal tax form 2012 return. Federal tax form 2012 American Samoa. Federal tax form 2012   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. Federal tax form 2012 Gross income from sources within American Samoa may be eligible for this exclusion. Federal tax form 2012 Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Federal tax form 2012 Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. Federal tax form 2012 Guam and the Commonwealth of the Northern Mariana Islands. Federal tax form 2012   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. Federal tax form 2012   For more information, see Publication 570. Federal tax form 2012 Puerto Rico and U. Federal tax form 2012 S. Federal tax form 2012 Virgin Islands Residents of Puerto Rico and the U. Federal tax form 2012 S. Federal tax form 2012 Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. Federal tax form 2012 Puerto Rico. Federal tax form 2012   Generally, if you are a U. Federal tax form 2012 S. Federal tax form 2012 citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. Federal tax form 2012 S. Federal tax form 2012 tax on income from Puerto Rican sources. Federal tax form 2012 This does not include amounts paid for services performed as an employee of the United States. Federal tax form 2012 However, you are subject to U. Federal tax form 2012 S. Federal tax form 2012 tax on your income from sources outside Puerto Rico. Federal tax form 2012 In figuring your U. Federal tax form 2012 S. Federal tax form 2012 tax, you cannot deduct expenses allocable to income not subject to tax. Federal tax form 2012 Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Federal tax form 2012 You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. Federal tax form 2012 S. Federal tax form 2012 citizen, or A U. Federal tax form 2012 S. Federal tax form 2012 resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. Federal tax form 2012 You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. Federal tax form 2012 If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. Federal tax form 2012 The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. Federal tax form 2012 Bona fide residence. Federal tax form 2012   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Federal tax form 2012   Your bona fide residence is not necessarily the same as your domicile. Federal tax form 2012 Your domicile is your permanent home, the place to which you always return or intend to return. Federal tax form 2012 Example. Federal tax form 2012 You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. Federal tax form 2012 The fact that you go to Scotland does not automatically make Scotland your bona fide residence. Federal tax form 2012 If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. Federal tax form 2012 But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. Federal tax form 2012 You are clearly not a resident of Scotland in the first instance. Federal tax form 2012 However, in the second, you are a resident because your stay in Scotland appears to be permanent. Federal tax form 2012 If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. Federal tax form 2012 Determination. Federal tax form 2012   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. Federal tax form 2012   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Federal tax form 2012 The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. Federal tax form 2012 IRS cannot make this determination until you file Form 2555. Federal tax form 2012 Statement to foreign authorities. Federal tax form 2012   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. Federal tax form 2012 Special agreements and treaties. Federal tax form 2012   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Federal tax form 2012 Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. Federal tax form 2012 Example 1. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen employed in the United Kingdom by a U. Federal tax form 2012 S. Federal tax form 2012 employer under contract with the U. Federal tax form 2012 S. Federal tax form 2012 Armed Forces. Federal tax form 2012 You are not subject to the North Atlantic Treaty Status of Forces Agreement. Federal tax form 2012 You may be a bona fide resident of the United Kingdom. Federal tax form 2012 Example 2. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. Federal tax form 2012 You are not a bona fide resident of the United Kingdom. Federal tax form 2012 Example 3. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen employed in Japan by a U. Federal tax form 2012 S. Federal tax form 2012 employer under contract with the U. Federal tax form 2012 S. Federal tax form 2012 Armed Forces. Federal tax form 2012 You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. Federal tax form 2012 Being subject to the agreement does not make you a bona fide resident of Japan. Federal tax form 2012 Example 4. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen employed as an “official” by the United Nations in Switzerland. Federal tax form 2012 You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. Federal tax form 2012 This does not prevent you from being a bona fide resident of Switzerland. Federal tax form 2012 Effect of voting by absentee ballot. Federal tax form 2012   If you are a U. Federal tax form 2012 S. Federal tax form 2012 citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. Federal tax form 2012   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. Federal tax form 2012 Uninterrupted period including entire tax year. Federal tax form 2012   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. Federal tax form 2012 An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. Federal tax form 2012   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Federal tax form 2012 To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. Federal tax form 2012 Example 1. Federal tax form 2012 You arrived with your family in Lisbon, Portugal, on November 1, 2011. Federal tax form 2012 Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. Federal tax form 2012 You immediately established residence there. Federal tax form 2012 You spent April of 2012 at a business conference in the United States. Federal tax form 2012 Your family stayed in Lisbon. Federal tax form 2012 Immediately following the conference, you returned to Lisbon and continued living there. Federal tax form 2012 On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. Federal tax form 2012 Example 2. Federal tax form 2012 Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. Federal tax form 2012 You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. Federal tax form 2012 You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). Federal tax form 2012 Bona fide resident for part of a year. Federal tax form 2012   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Federal tax form 2012 Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. Federal tax form 2012 Example. Federal tax form 2012 You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. Federal tax form 2012 On September 15, 2013, you returned to the United States. Federal tax form 2012 Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. Federal tax form 2012 Reassignment. Federal tax form 2012   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. Federal tax form 2012 Example 1. Federal tax form 2012 You were a resident of Pakistan from October 1, 2012, through November 30, 2013. Federal tax form 2012 On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. Federal tax form 2012 Your household goods also were returned to the United States. Federal tax form 2012 Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. Federal tax form 2012 Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. Federal tax form 2012 You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. Federal tax form 2012 Example 2. Federal tax form 2012 Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. Federal tax form 2012 On December 1, 2013, you and your family returned to the United States for a month's vacation. Federal tax form 2012 On January 2, 2014, you arrived in Turkey for your new assignment. Federal tax form 2012 Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. Federal tax form 2012 Physical Presence Test You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Federal tax form 2012 The 330 days do not have to be consecutive. Federal tax form 2012 Any U. Federal tax form 2012 S. Federal tax form 2012 citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. Federal tax form 2012 The physical presence test is based only on how long you stay in a foreign country or countries. Federal tax form 2012 This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. Federal tax form 2012 330 full days. Federal tax form 2012   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. Federal tax form 2012 You can count days you spent abroad for any reason. Federal tax form 2012 You do not have to be in a foreign country only for employment purposes. Federal tax form 2012 You can be on vacation. Federal tax form 2012   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Federal tax form 2012 Exception. Federal tax form 2012   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. Federal tax form 2012 See Waiver of Time Requirements, later. Federal tax form 2012 Full day. Federal tax form 2012   A full day is a period of 24 consecutive hours, beginning at midnight. Federal tax form 2012 Travel. Federal tax form 2012    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. Federal tax form 2012 Example. Federal tax form 2012 You leave the United States for France by air on June 10. Federal tax form 2012 You arrive in France at 9:00 a. Federal tax form 2012 m. Federal tax form 2012 on June 11. Federal tax form 2012 Your first full day of physical presence in France is June 12. Federal tax form 2012 Passing over foreign country. Federal tax form 2012   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. Federal tax form 2012 Example. Federal tax form 2012 You leave the United States by air at 9:30 a. Federal tax form 2012 m. Federal tax form 2012 on June 10 to travel to Kenya. Federal tax form 2012 You pass over western Africa at 11:00 p. Federal tax form 2012 m. Federal tax form 2012 on June 10 and arrive in Kenya at 12:30 a. Federal tax form 2012 m. Federal tax form 2012 on June 11. Federal tax form 2012 Your first full day in a foreign country is June 11. Federal tax form 2012 Change of location. Federal tax form 2012   You can move about from one place to another in a foreign country or to another foreign country without losing full days. Federal tax form 2012 If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. Federal tax form 2012 Example 1. Federal tax form 2012 You leave Ireland by air at 11:00 p. Federal tax form 2012 m. Federal tax form 2012 on July 6 and arrive in Sweden at 5:00 a. Federal tax form 2012 m. Federal tax form 2012 on July 7. Federal tax form 2012 Your trip takes less than 24 hours and you lose no full days. Federal tax form 2012 Example 2. Federal tax form 2012 You leave Norway by ship at 10:00 p. Federal tax form 2012 m. Federal tax form 2012 on July 6 and arrive in Portugal at 6:00 a. Federal tax form 2012 m. Federal tax form 2012 on July 8. Federal tax form 2012 Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. Federal tax form 2012 If you remain in Portugal, your next full day in a foreign country is July 9. Federal tax form 2012 In United States while in transit. Federal tax form 2012   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. Federal tax form 2012 You are treated as traveling over areas not within any foreign country. Federal tax form 2012    Please click here for the text description of the image. Federal tax form 2012 Figure 4-B How to figure the 12-month period. Federal tax form 2012   There are four rules you should know when figuring the 12-month period. Federal tax form 2012 Your 12-month period can begin with any day of the month. Federal tax form 2012 It ends the day before the same calendar day, 12 months later. Federal tax form 2012 Your 12-month period must be made up of consecutive months. Federal tax form 2012 Any 12-month period can be used if the 330 days in a foreign country fall within that period. Federal tax form 2012 You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. Federal tax form 2012 You can choose the 12-month period that gives you the greatest exclusion. Federal tax form 2012 In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. Federal tax form 2012 Example 1. Federal tax form 2012 You are a construction worker who works on and off in a foreign country over a 20-month period. Federal tax form 2012 You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. Federal tax form 2012 Example 2. Federal tax form 2012 You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. Federal tax form 2012 You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. Federal tax form 2012 By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. Federal tax form 2012 See Figure 4-B, on the previous page. Federal tax form 2012 Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. Federal tax form 2012 The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Federal tax form 2012 You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. Federal tax form 2012 To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. Federal tax form 2012 Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. Federal tax form 2012 If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. Federal tax form 2012 However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. Federal tax form 2012 U. Federal tax form 2012 S. Federal tax form 2012 Travel Restrictions If you are present in a foreign country in violation of U. Federal tax form 2012 S. Federal tax form 2012 law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Federal tax form 2012 Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Federal tax form 2012 Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. Federal tax form 2012 For 2013, the only country to which travel restrictions applied was Cuba. Federal tax form 2012 The restrictions applied for the entire year. Federal tax form 2012 However, individuals working at the U. Federal tax form 2012 S. Federal tax form 2012 Naval Base at Guantanamo Bay in Cuba are not in violation of U. Federal tax form 2012 S. Federal tax form 2012 law. Federal tax form 2012 Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. Federal tax form 2012 Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Federal tax form 2012 Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. Federal tax form 2012 Your tax home is in a foreign country. Federal tax form 2012 You meet either the bona fide residence test or the physical presence test. Federal tax form 2012 To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. Federal tax form 2012 To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. Federal tax form 2012 Foreign earned income does not include the following amounts. Federal tax form 2012 The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Federal tax form 2012 Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). Federal tax form 2012 Pay you receive as an employee of the U. Federal tax form 2012 S. Federal tax form 2012 Government. Federal tax form 2012 (See U. Federal tax form 2012 S. Federal tax form 2012 Government Employees, later. Federal tax form 2012 ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. Federal tax form 2012 Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. Federal tax form 2012 Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. Federal tax form 2012 Earned income. Federal tax form 2012   This is pay for personal services performed, such as wages, salaries, or professional fees. Federal tax form 2012 The list that follows classifies many types of income into three categories. Federal tax form 2012 The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. Federal tax form 2012 For more information on earned and unearned income, see Earned and Unearned Income, later. Federal tax form 2012 Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. Federal tax form 2012 Noncash income. Federal tax form 2012   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. Federal tax form 2012 Allowances or reimbursements. Federal tax form 2012   Earned income includes allowances or reimbursements you receive, such as the following amounts. Federal tax form 2012    Cost-of-living allowances. Federal tax form 2012 Overseas differential. Federal tax form 2012 Family allowance. Federal tax form 2012 Reimbursement for education or education allowance. Federal tax form 2012 Home leave allowance. Federal tax form 2012 Quarters allowance. Federal tax form 2012 Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). Federal tax form 2012 Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. Federal tax form 2012 Foreign earned income is income you receive for working in a foreign country. Federal tax form 2012 Where or how you are paid has no effect on the source of the income. Federal tax form 2012 For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. Federal tax form 2012 Example. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen, a bona fide resident of Canada, and working as a mining engineer. Federal tax form 2012 Your salary is $76,800 per year. Federal tax form 2012 You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Federal tax form 2012 Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. Federal tax form 2012 Your total income is $88,800. Federal tax form 2012 You work a 5-day week, Monday through Friday. Federal tax form 2012 After subtracting your vacation, you have a total of 240 workdays in the year. Federal tax form 2012 You worked in the United States during the year for 6 weeks (30 workdays). Federal tax form 2012 The following shows how to figure the part of your income that is for work done in Canada during the year. Federal tax form 2012   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. Federal tax form 2012 Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. Federal tax form 2012 Some types of income are not easily identified as earned or unearned income. Federal tax form 2012 Some of these types of income are further explained here. Federal tax form 2012 Income from a sole proprietorship or partnership. Federal tax form 2012   Income from a business in which capital investment is an important part of producing the income may be unearned income. Federal tax form 2012 If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. Federal tax form 2012 Capital a factor. Federal tax form 2012   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. Federal tax form 2012   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. Federal tax form 2012 Because you do not have a net profit, the 30% limit does not apply. Federal tax form 2012 Example 1. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen and meet the bona fide residence test. Federal tax form 2012 You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. Federal tax form 2012 You perform no services for the partnership. Federal tax form 2012 At the end of the tax year, your share of the net profits is $80,000. Federal tax form 2012 The entire $80,000 is unearned income. Federal tax form 2012 Example 2. Federal tax form 2012 Assume that in Example 1 you spend time operating the business. Federal tax form 2012 Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. Federal tax form 2012 If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. Federal tax form 2012 Capital not a factor. Federal tax form 2012   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. Federal tax form 2012 The entire amount of business income is earned income. Federal tax form 2012 Example. Federal tax form 2012 You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Federal tax form 2012 Because capital is not an income- producing factor, all the income from the partnership is considered earned income. Federal tax form 2012 Income from a corporation. Federal tax form 2012   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Federal tax form 2012 Any amount over what is considered a reasonable salary is unearned income. Federal tax form 2012 Example 1. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen and an officer and stockholder of a corporation in Honduras. Federal tax form 2012 You perform no work or service of any kind for the corporation. Federal tax form 2012 During the tax year you receive a $10,000 “salary” from the corporation. Federal tax form 2012 The $10,000 clearly is not for personal services and is unearned income. Federal tax form 2012 Example 2. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen and work full time as secretary-treasurer of your corporation. Federal tax form 2012 During the tax year you receive $100,000 as salary from the corporation. Federal tax form 2012 If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. Federal tax form 2012 Stock options. Federal tax form 2012   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. Federal tax form 2012   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. Federal tax form 2012   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. Federal tax form 2012 It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Federal tax form 2012 Any part of the earned income that is due to work you did outside the United States is foreign earned income. Federal tax form 2012   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. Federal tax form 2012 Pensions and annuities. Federal tax form 2012    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Federal tax form 2012 Royalties. Federal tax form 2012   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. Federal tax form 2012   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. Federal tax form 2012 Rental income. Federal tax form 2012   Generally, rental income is unearned income. Federal tax form 2012 If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. Federal tax form 2012 Example. Federal tax form 2012 Larry Smith, a U. Federal tax form 2012 S. Federal tax form 2012 citizen living in Australia, owns and operates a rooming house in Sydney. Federal tax form 2012 If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. Federal tax form 2012 On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. Federal tax form 2012 It is all unearned income. Federal tax form 2012 Professional fees. Federal tax form 2012   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. Federal tax form 2012 Income of an artist. Federal tax form 2012   Income you receive from the sale of paintings you created is earned income. Federal tax form 2012 Scholarships and fellowships. Federal tax form 2012   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. Federal tax form 2012 If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. Federal tax form 2012    Certain scholarship and fellowship income may be exempt under other provisions. Federal tax form 2012 See Publication 970, Tax Benefits for Education, chapter 1. Federal tax form 2012 Use of employer's property or facilities. Federal tax form 2012   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Federal tax form 2012 Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. Federal tax form 2012 Example. Federal tax form 2012 You are privately employed and live in Japan all year. Federal tax form 2012 You are paid a salary of $6,000 a month. Federal tax form 2012 You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. Federal tax form 2012 The house is not provided for your employer's convenience. Federal tax form 2012 You report on the calendar-year, cash basis. Federal tax form 2012 You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. Federal tax form 2012 Reimbursement of employee expenses. Federal tax form 2012   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. Federal tax form 2012   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. Federal tax form 2012 If expenses and reimbursement are equal, there is nothing to allocate to excluded income. Federal tax form 2012 If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. Federal tax form 2012 (See chapter 5. Federal tax form 2012 ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. Federal tax form 2012   These rules do not apply to the following individuals. Federal tax form 2012 Straight-commission salespersons. Federal tax form 2012 Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. Federal tax form 2012 Accountable plan. Federal tax form 2012   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. Federal tax form 2012 The expenses covered under the plan must have a business connection. Federal tax form 2012 The employee must adequately account to the employer for these expenses within a reasonable period of time. Federal tax form 2012 The employee must return any excess reimbursement or allowance within a reasonable period of time. Federal tax form 2012 Reimbursement of moving expenses. Federal tax form 2012   Reimbursement of moving expenses may be earned income. Federal tax form 2012 You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. Federal tax form 2012 This section discusses reimbursements that must be included in earned income. Federal tax form 2012 Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. Federal tax form 2012   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Federal tax form 2012   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. Federal tax form 2012 You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Federal tax form 2012 Move from U. Federal tax form 2012 S. Federal tax form 2012 to foreign country. Federal tax form 2012   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. Federal tax form 2012 The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. Federal tax form 2012   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. Federal tax form 2012 To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. Federal tax form 2012 The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. Federal tax form 2012   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. Federal tax form 2012 The part earned in each year is figured as shown in the following example. Federal tax form 2012 Example. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen working in the United States. Federal tax form 2012 You were told in October 2012 that you were being transferred to a foreign country. Federal tax form 2012 You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. Federal tax form 2012 Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. Federal tax form 2012 Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. Federal tax form 2012 You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. Federal tax form 2012 The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. Federal tax form 2012 The remaining part of the reimbursement is for services performed in the foreign country in 2013. Federal tax form 2012 This computation is used only to determine when the reimbursement is considered earned. Federal tax form 2012 You would include the amount of the reimbursement in income in 2013, the year you received it. Federal tax form 2012 Move between foreign countries. Federal tax form 2012   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. Federal tax form 2012 Move to U. Federal tax form 2012 S. Federal tax form 2012   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. Federal tax form 2012 S. Federal tax form 2012 source income. Federal tax form 2012   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. Federal tax form 2012 The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. Federal tax form 2012 Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. Federal tax form 2012   See the discussion under Move from U. Federal tax form 2012 S. Federal tax form 2012 to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. Federal tax form 2012 The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. Federal tax form 2012 Example. Federal tax form 2012 You are a U. Federal tax form 2012 S. Federal tax form 2012 citizen employed in a foreign country. Federal tax form 2012 You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. Federal tax form 2012 A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. Federal tax form 2012 In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. Federal tax form 2012 Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. Federal tax form 2012 You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. Federal tax form 2012 The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). Federal tax form 2012 The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. Federal tax form 2012 You report the amount of the includible reimbursement in 2013, the year you received it. Federal tax form 2012    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. Federal tax form 2012 Storage expense reimbursements. Federal tax form 2012   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. Federal tax form 2012 U. Federal tax form 2012 S. Federal tax form 2012 Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. Federal tax form 2012 This includes amounts paid from both appropriated and nonappropriated funds. Federal tax form 2012 The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. Federal tax form 2012 United States Armed Forces exchanges. Federal tax form 2012 Commissioned and noncommissioned officers' messes. Federal tax form 2012 Armed Forces motion picture services. Federal tax form 2012 Kindergartens on foreign Armed Forces installations. Federal tax form 2012 Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. Federal tax form 2012 If you are a U. Federal tax form 2012 S. Federal tax form 2012 Government employee paid by a U. Federal tax form 2012 S. Federal tax form 2012 agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. Federal tax form 2012 S. Federal tax form 2012 Government and does not qualify for exclusion or deduction. Federal tax form 2012 If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. Federal tax form 2012 American Institute in Taiwan. Federal tax form 2012   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Federal tax form 2012 If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Federal tax form 2012 S. Federal tax form 2012 tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. Federal tax form 2012 S. Federal tax form 2012 Government. Federal tax form 2012 Allowances. Federal tax form 2012   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. Federal tax form 2012 S. Federal tax form 2012 civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. Federal tax form 2012 Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. Federal tax form 2012 More information. Federal tax form 2012   Publication 516, U. Federal tax form 2012 S. Federal tax form 2012 Government Civilian Employees Stationed Abroad, has more information for U. Federal tax form 2012 S. Federal tax form 2012 Government employees abroad. Federal tax form 2012 Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Federal tax form 2012 The meals are furnished: On the business premises of your employer, and For the convenience of your employer. Federal tax form 2012 The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. Federal tax form 2012 If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. Federal tax form 2012 Amounts you do not include in income because of these rules are not foreign earned income. Federal tax form 2012 If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. Federal tax form 2012 Family. Federal tax form 2012   Your family, for this purpose, includes only your spouse and your dependents. Federal tax form 2012 Lodging. Federal tax form 2012   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. Federal tax form 2012 Business premises of employer. Federal tax form 2012   Generally, the business premises of your employer is wherever you work. Federal tax form 2012 For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. Federal tax form 2012 Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. Federal tax form 2012 Convenience of employer. Federal tax form 2012   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. Federal tax form 2012 Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. Federal tax form 2012   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. Federal tax form 2012 Condition of employment. Federal tax form 2012   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. Federal tax form 2012 You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. Federal tax form 2012 Foreign camps. Federal tax form 2012   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. Federal tax form 2012 The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. Federal tax form 2012 Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. Federal tax form 2012 Foreign earned income was defined earlier in this chapter. Federal tax form 2012 You also can choose to exclude from your income a foreign housing amount. Federal tax form 2012 This is explained later under Foreign Housing Exclusion. Federal tax form 2012 If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Federal tax form 2012 Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. Federal tax form 2012 If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Federal tax form 2012 This includes any expenses, losses, and other normally deductible items allocable to the excluded income. Federal tax form 2012 For more information about deductions and credits, see chapter 5 . Federal tax form 2012 Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. Federal tax form 2012 You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). Federal tax form 2012 If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. Federal tax form 2012 You do not both need to meet the same test. Federal tax form 2012 Together, you and your spouse can exclude as much as $195,200. Federal tax form 2012 Paid in year following work. Federal tax form 2012   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. Federal tax form 2012 If you report your income on a cash basis, you report the income on your return for the year you receive it. Federal tax form 2012 If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. Federal tax form 2012 For an exception to this general rule, see Year-end payroll period, later. Federal tax form 2012 Example. Federal tax form 2012 You were a bona fide resident of Brazil for all of 2012 and 2013. Federal tax form 2012 You report your income on the cash basis. Federal tax form 2012 In 2012, you were paid $84,200 for work you did in Brazil during that year. Federal tax form 2012 You excluded all of the $84,200 from your income in 2012. Federal tax form 2012 In 2013, you were paid $117,300 for your work in Brazil. Federal tax form 2012 $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. Federal tax form 2012 You can exclude $10,900 of the $18,800 from your income in 2013. Federal tax form 2012 This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. Federal tax form 2012 You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. Federal tax form 2012 You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. Federal tax form 2012 Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). Federal tax form 2012 You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). Federal tax form 2012 Year-end payroll period. Federal tax form 2012   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. Federal tax form 2012 If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. Federal tax form 2012 The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. Federal tax form 2012 The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). Federal tax form 2012 The payroll period is not longer than 16 days. Federal tax form 2012 The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. Federal tax form 2012 Example. Federal tax form 2012 You are paid twice a month. Federal tax form 2012 For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. Federal tax form 2012 For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. Federal tax form 2012 Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. Federal tax form 2012 Income earned over more than 1 year. Federal tax form 2012   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. Federal tax form 2012 For example, a bonus may be based on work you did over several years. Federal tax form 2012 You determine the amount of the bonus that is considered earned in a particular year in two steps. Federal tax form 2012 Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. Federal tax form 2012 Multiply the result of (1) by the number of months you did the work during the year. Federal tax form 2012 This is the amount that is subject to the exclusion limit for that tax year. Federal tax form 2012 Income received more than 1 year after it was earned. Federal tax form 2012   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. Federal tax form 2012 Example. Federal tax form 2012   You were a bona fide resident of Sweden for 2011, 2012, and 2013. Federal tax form 2012 You report your income on the cash basis. Federal tax form 2012 In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. Federal tax form 2012 You excluded all the income on your 2011 and 2012 returns. Federal tax form 2012   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. Federal tax form 2012 You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. Federal tax form 2012 You must include the $10,000 in income. Federal tax form 2012 You can exclude all of the $82,000 received for work you did in 2013. Federal tax form 2012 Community income. Federal tax form 2012   The maximum exclusion applies separately to the earnings of spouses. Federal tax form 2012 Ignore any community property laws when you figure your limit on the foreign earned income exclusion. Federal tax form 2012 Part-year exclusion. Federal tax form 2012   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. Federal tax form 2012 The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. Federal tax form 2012   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. Federal tax form 2012 To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. Federal tax form 2012 Example. Federal tax form 2012 You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. Federal tax form 2012 You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. Federal tax form 2012 If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. Federal tax form 2012 Physical presence test. Federal tax form 2012   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. Federal tax form 2012 If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. Federal tax form 2012 Example. Federal tax form 2012 You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. Federal tax form 2012 You figure the maximum exclusion for 2012 as follows. Federal tax form 2012 Beginning with June 1, 2012, count forward 330 full days. Federal tax form 2012 Do not count the 16 days you spent in the United States. Federal tax form 2012 The 330th day, May 12, 2013, is the last day of a 12-month period. Federal tax form 2012 Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. Federal tax form 2012 This 12-month period runs from May 12, 2012, through May 11, 2013. Federal tax form 2012 Count the total days during 2012 that fall within this 12-month period. Federal tax form 2012 This is 234 days (May 12, 2012 – December 31, 2012). Federal tax form 2012 Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). Federal tax form 2012 You figure the maximum exclusion for 2013 in the opposite manner. Federal tax form 2012 Beginning with your last full day, September 30, 2013, count backward 330 full days. Federal tax form 2012 Do not count the 16 days you spent in the United States. Federal tax form 2012 That day, October 20, 2012, is the first day of a 12-month period. Federal tax form 2012 Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. Federal tax form 2012 This 12-month period runs from October 20, 2012, through October 19, 2013. Federal tax form 2012 Count the total days during 2013 that fall within this 12-month period. Federal tax form 2012 This is 292 days (January 1, 2013 – October 19, 2013). Federal tax form 2012 Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). Federal tax form 2012 Choosing the Exclusion The foreign earned income exclusion is voluntary. Federal tax form 2012 You can choose the exclusion by completing the appropriate parts of Form 2555. Federal tax form 2012 When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. Federal tax form 2012 A return filed by the due date (including any extensions). Federal tax form 2012 A return amending a timely-filed return. Federal tax form 2012 Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. Federal tax form 2012 A return filed within 1 year from the original due date of the return (determined without regard to any extensions). Federal tax form 2012 Filing after the above periods. Federal tax form 2012   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. Federal tax form 2012 If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Federal tax form 2012 Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. Federal tax form 2012 911-7(a)(2)(i)(D). Federal tax form 2012 ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. Federal tax form 2012 You must request a private letter ruling under Income Tax Regulation 301. Federal tax form 2012 9100-3 and Revenue Procedure 2013-1, 2013-1 I. Federal tax form 2012 R. Federal tax form 2012 B. Federal tax form 2012 1, available at www. Federal tax form 2012 irs. Federal tax form 2012 gov/irb/2013-01_IRB/ar06. Federal tax form 2012 html. Federal tax form 2012 Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. Federal tax form 2012 Foreign tax credit or deduction. Federal tax form 2012  
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The Federal Tax Form 2012

Federal tax form 2012 3. Federal tax form 2012   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. Federal tax form 2012 Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. Federal tax form 2012 In addition, you will contribute matching or nonelective contributions. Federal tax form 2012 SIMPLE plans can only be maintained on a calendar-year basis. Federal tax form 2012 A SIMPLE plan can be set up in either of the following ways. Federal tax form 2012 Using SIMPLE IRAs (SIMPLE IRA plan). Federal tax form 2012 As part of a 401(k) plan (SIMPLE 401(k) plan). Federal tax form 2012 Many financial institutions will help you set up a SIMPLE plan. Federal tax form 2012 SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. Federal tax form 2012 Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Federal tax form 2012 For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. Federal tax form 2012 Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. Federal tax form 2012 You meet the employee limit. Federal tax form 2012 You do not maintain another qualified plan unless the other plan is for collective bargaining employees. Federal tax form 2012 Employee limit. Federal tax form 2012   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Federal tax form 2012 Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. Federal tax form 2012 Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). Federal tax form 2012   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. Federal tax form 2012 Grace period for employers who cease to meet the 100-employee limit. Federal tax form 2012   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. Federal tax form 2012   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. Federal tax form 2012 Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. Federal tax form 2012 Coverage under the plan has not significantly changed during the grace period. Federal tax form 2012 The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. Federal tax form 2012    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. Federal tax form 2012 Other qualified plan. Federal tax form 2012   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. Federal tax form 2012 Exception. Federal tax form 2012   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. Federal tax form 2012 Who Can Participate in a SIMPLE IRA Plan? Eligible employee. Federal tax form 2012   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. Federal tax form 2012 The term “employee” includes a self-employed individual who received earned income. Federal tax form 2012   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. Federal tax form 2012 For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. Federal tax form 2012 However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. Federal tax form 2012 Excludable employees. Federal tax form 2012   The following employees do not need to be covered under a SIMPLE IRA plan. Federal tax form 2012 Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Federal tax form 2012 Nonresident alien employees who have received no U. Federal tax form 2012 S. Federal tax form 2012 source wages, salaries, or other personal services compensation from you. Federal tax form 2012 Compensation. Federal tax form 2012   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Federal tax form 2012 Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. Federal tax form 2012 If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. Federal tax form 2012 How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. Federal tax form 2012 Each form is a model savings incentive match plan for employees (SIMPLE) plan document. Federal tax form 2012 Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. Federal tax form 2012 Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. Federal tax form 2012 Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. Federal tax form 2012 The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. Federal tax form 2012 Keep the original form. Federal tax form 2012 Do not file it with the IRS. Federal tax form 2012 Other uses of the forms. Federal tax form 2012   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. Federal tax form 2012 Meeting employer notification requirements for the SIMPLE IRA plan. Federal tax form 2012 Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. Federal tax form 2012 Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. Federal tax form 2012 Deadline for setting up a SIMPLE IRA plan. Federal tax form 2012   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. Federal tax form 2012 This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. Federal tax form 2012 If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. Federal tax form 2012 A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. Federal tax form 2012 Setting up a SIMPLE IRA. Federal tax form 2012   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. Federal tax form 2012 A SIMPLE IRA must be set up for each eligible employee. Federal tax form 2012 Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. Federal tax form 2012   A SIMPLE IRA cannot be a Roth IRA. Federal tax form 2012 Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Federal tax form 2012 Deadline for setting up a SIMPLE IRA. Federal tax form 2012   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. Federal tax form 2012 See Time limits for contributing funds , later, under Contribution Limits. Federal tax form 2012 Credit for startup costs. Federal tax form 2012   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. Federal tax form 2012 For more information, see Credit for startup costs under Reminders, earlier. Federal tax form 2012 Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. Federal tax form 2012 The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. Federal tax form 2012 Your decision to make either matching contributions or nonelective contributions (discussed later). Federal tax form 2012 A summary description provided by the financial institution. Federal tax form 2012 Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. Federal tax form 2012 Election period. Federal tax form 2012   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). Federal tax form 2012 However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. Federal tax form 2012   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. Federal tax form 2012 For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. Federal tax form 2012 Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. Federal tax form 2012 Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. Federal tax form 2012 You, as the employer, must make either matching contributions or nonelective contributions, defined later. Federal tax form 2012 No other contributions can be made to the SIMPLE IRA plan. Federal tax form 2012 These contributions, which you can deduct, must be made timely. Federal tax form 2012 See Time limits for contributing funds , later. Federal tax form 2012 Salary reduction contributions. Federal tax form 2012   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. Federal tax form 2012 These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. Federal tax form 2012 You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. Federal tax form 2012   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. Federal tax form 2012 Catch-up contributions. Federal tax form 2012   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Federal tax form 2012 The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. Federal tax form 2012 Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. Federal tax form 2012 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Federal tax form 2012 The catch-up contribution limit. Federal tax form 2012 The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Federal tax form 2012 Employer matching contributions. Federal tax form 2012   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Federal tax form 2012 This requirement does not apply if you make nonelective contributions as discussed later. Federal tax form 2012 Example. Federal tax form 2012 In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Federal tax form 2012 Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Federal tax form 2012 You make 3% matching contributions. Federal tax form 2012 The total contribution you make for John is $2,000, figured as follows. Federal tax form 2012 Salary reduction contributions ($25,000 × . Federal tax form 2012 05) $1,250 Employer matching contribution ($25,000 × . Federal tax form 2012 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. Federal tax form 2012 Salary reduction contributions ($40,000 × . Federal tax form 2012 10) $4,000 Employer matching contribution ($40,000 × . Federal tax form 2012 03) 1,200 Total contributions $5,200 Lower percentage. Federal tax form 2012   If you choose a matching contribution less than 3%, the percentage must be at least 1%. Federal tax form 2012 You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Federal tax form 2012 You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Federal tax form 2012 Nonelective contributions. Federal tax form 2012   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. Federal tax form 2012 If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Federal tax form 2012 Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). Federal tax form 2012   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Federal tax form 2012 Example 1. Federal tax form 2012 In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Federal tax form 2012 Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Federal tax form 2012 You make a 2% nonelective contribution. Federal tax form 2012 Both of you are under age 50. Federal tax form 2012 The total contribution you make for Jane is $4,320, figured as follows. Federal tax form 2012 Salary reduction contributions ($36,000 × . Federal tax form 2012 10) $3,600 2% nonelective contributions ($36,000 × . Federal tax form 2012 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. Federal tax form 2012 Salary reduction contributions ($50,000 × . Federal tax form 2012 10) $5,000 2% nonelective contributions ($50,000 × . Federal tax form 2012 02) 1,000 Total contributions $6,000 Example 2. Federal tax form 2012 Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. Federal tax form 2012 Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . Federal tax form 2012 02) 1,500 Total contributions $13,500 Time limits for contributing funds. Federal tax form 2012   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Federal tax form 2012 You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Federal tax form 2012 Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. Federal tax form 2012 When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. Federal tax form 2012 You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. Federal tax form 2012 Example 1. Federal tax form 2012 Your tax year is the fiscal year ending June 30. Federal tax form 2012 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. Federal tax form 2012 Example 2. Federal tax form 2012 You are a sole proprietor whose tax year is the calendar year. Federal tax form 2012 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. Federal tax form 2012 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Federal tax form 2012 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. Federal tax form 2012 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Federal tax form 2012 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. Federal tax form 2012 ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. Federal tax form 2012 SIMPLE IRA plan contributions are not subject to federal income tax withholding. Federal tax form 2012 However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. Federal tax form 2012 Matching and nonelective contributions are not subject to these taxes. Federal tax form 2012 Reporting on Form W-2. Federal tax form 2012   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. Federal tax form 2012 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Federal tax form 2012 You must also include them in box 12. Federal tax form 2012 Mark the “Retirement plan” checkbox in box 13. Federal tax form 2012 For more information, see the Form W-2 instructions. Federal tax form 2012 Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. Federal tax form 2012 Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. Federal tax form 2012 However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. Federal tax form 2012 Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Federal tax form 2012 Early withdrawals generally are subject to a 10% additional tax. Federal tax form 2012 However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. Federal tax form 2012 More information. Federal tax form 2012   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. Federal tax form 2012 More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. Federal tax form 2012 SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. Federal tax form 2012 A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. Federal tax form 2012 However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. Federal tax form 2012 Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. Federal tax form 2012 If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. Federal tax form 2012 See Catch-up contributions , earlier under Contribution Limits. Federal tax form 2012 You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. Federal tax form 2012 No other contributions can be made to the trust. Federal tax form 2012 No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. Federal tax form 2012 The employee's rights to any contributions are nonforfeitable. Federal tax form 2012 No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). Federal tax form 2012 Compensation is defined earlier in this chapter. Federal tax form 2012 Employee notification. Federal tax form 2012   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. Federal tax form 2012 See Notification Requirement in this chapter. Federal tax form 2012 Credit for startup costs. Federal tax form 2012   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. Federal tax form 2012 For more information, see Credit for startup costs under Reminders, earlier. Federal tax form 2012 Note on Forms. Federal tax form 2012   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. Federal tax form 2012 To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. Federal tax form 2012 Prev  Up  Next   Home   More Online Publications