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File 2012 taxes free 4. File 2012 taxes free   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. File 2012 taxes free Loan secured by benefits. File 2012 taxes free Waiver of survivor benefits. File 2012 taxes free Waiver of 30-day waiting period before annuity starting date. File 2012 taxes free Involuntary cash-out of benefits not more than dollar limit. File 2012 taxes free Exception for certain loans. File 2012 taxes free Exception for QDRO. File 2012 taxes free SIMPLE and safe harbor 401(k) plan exception. File 2012 taxes free Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. File 2012 taxes free Installment percentage. File 2012 taxes free Extended period for making contributions. File 2012 taxes free ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. File 2012 taxes free Caution: Form 5500-EZ not required. File 2012 taxes free Form 5500. File 2012 taxes free Electronic filing of Forms 5500 and 5500-SF. File 2012 taxes free Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. File 2012 taxes free dol. File 2012 taxes free gov/ebsa/pdf/2013-5500. File 2012 taxes free pdf www. File 2012 taxes free dol. File 2012 taxes free gov/ebsa/pdf/2013-5500-SF. File 2012 taxes free pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. File 2012 taxes free 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File 2012 taxes free 1040 U. File 2012 taxes free S. File 2012 taxes free Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. File 2012 taxes free For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. File 2012 taxes free For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. File 2012 taxes free R. File 2012 taxes free 10 plans. File 2012 taxes free A sole proprietor or a partnership can set up one of these plans. File 2012 taxes free A common-law employee or a partner cannot set up one of these plans. File 2012 taxes free The plans described here can also be set up and maintained by employers that are corporations. File 2012 taxes free All the rules discussed here apply to corporations except where specifically limited to the self-employed. File 2012 taxes free The plan must be for the exclusive benefit of employees or their beneficiaries. File 2012 taxes free These qualified plans can include coverage for a self-employed individual. File 2012 taxes free As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. File 2012 taxes free The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. File 2012 taxes free Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. File 2012 taxes free You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. File 2012 taxes free Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. File 2012 taxes free It provides benefits to a participant largely based on the amount contributed to that participant's account. File 2012 taxes free Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. File 2012 taxes free A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. File 2012 taxes free Profit-sharing plan. File 2012 taxes free   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). File 2012 taxes free A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. File 2012 taxes free An employer may even make no contribution to the plan for a given year. File 2012 taxes free   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. File 2012 taxes free   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). File 2012 taxes free Money purchase pension plan. File 2012 taxes free   Contributions to a money purchase pension plan are fixed and are not based on your business profits. File 2012 taxes free For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. File 2012 taxes free This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. File 2012 taxes free Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. File 2012 taxes free Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. File 2012 taxes free Actuarial assumptions and computations are required to figure these contributions. File 2012 taxes free Generally, you will need continuing professional help to have a defined benefit plan. File 2012 taxes free Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. File 2012 taxes free Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. File 2012 taxes free The following is a brief overview of important qualification rules that generally have not yet been discussed. File 2012 taxes free It is not intended to be all-inclusive. File 2012 taxes free See Setting Up a Qualified Plan , later. File 2012 taxes free Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. File 2012 taxes free A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. File 2012 taxes free Plan assets must not be diverted. File 2012 taxes free   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. File 2012 taxes free As a general rule, the assets cannot be diverted to the employer. File 2012 taxes free Minimum coverage requirement must be met. File 2012 taxes free   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. File 2012 taxes free 50 employees, or The greater of: 40% of all employees, or Two employees. File 2012 taxes free If there is only one employee, the plan must benefit that employee. File 2012 taxes free Contributions or benefits must not discriminate. File 2012 taxes free   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. File 2012 taxes free Contributions and benefits must not be more than certain limits. File 2012 taxes free   Your plan must not provide for contributions or benefits that are more than certain limits. File 2012 taxes free The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. File 2012 taxes free These limits are discussed later in this chapter under Contributions. File 2012 taxes free Minimum vesting standard must be met. File 2012 taxes free   Your plan must satisfy certain requirements regarding when benefits vest. File 2012 taxes free A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. File 2012 taxes free A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. File 2012 taxes free Special rules apply to forfeited benefit amounts. File 2012 taxes free In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. File 2012 taxes free   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. File 2012 taxes free Forfeitures must be used instead to reduce employer contributions. File 2012 taxes free Participation. File 2012 taxes free   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. File 2012 taxes free Has reached age 21. File 2012 taxes free Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). File 2012 taxes free A plan cannot exclude an employee because he or she has reached a specified age. File 2012 taxes free Leased employee. File 2012 taxes free   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. File 2012 taxes free These rules include those in all the following areas. File 2012 taxes free Nondiscrimination in coverage, contributions, and benefits. File 2012 taxes free Minimum age and service requirements. File 2012 taxes free Vesting. File 2012 taxes free Limits on contributions and benefits. File 2012 taxes free Top-heavy plan requirements. File 2012 taxes free Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. File 2012 taxes free Benefit payment must begin when required. File 2012 taxes free   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. File 2012 taxes free The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. File 2012 taxes free The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. File 2012 taxes free The plan year in which the participant separates from service. File 2012 taxes free Early retirement. File 2012 taxes free   Your plan can provide for payment of retirement benefits before the normal retirement age. File 2012 taxes free If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. File 2012 taxes free Satisfies the service requirement for the early retirement benefit. File 2012 taxes free Separates from service with a nonforfeitable right to an accrued benefit. File 2012 taxes free The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. File 2012 taxes free Required minimum distributions. File 2012 taxes free   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. File 2012 taxes free See Required Distributions , under Distributions, later. File 2012 taxes free Survivor benefits. File 2012 taxes free   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. File 2012 taxes free A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. File 2012 taxes free A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. File 2012 taxes free   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. File 2012 taxes free The participant does not choose benefits in the form of a life annuity. File 2012 taxes free The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. File 2012 taxes free The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. File 2012 taxes free Loan secured by benefits. File 2012 taxes free   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. File 2012 taxes free Waiver of survivor benefits. File 2012 taxes free   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. File 2012 taxes free The plan also must allow the participant to withdraw the waiver. File 2012 taxes free The spouse's consent must be witnessed by a plan representative or notary public. File 2012 taxes free Waiver of 30-day waiting period before annuity starting date. File 2012 taxes free    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. File 2012 taxes free   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. File 2012 taxes free Involuntary cash-out of benefits not more than dollar limit. File 2012 taxes free   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. File 2012 taxes free   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. File 2012 taxes free If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. File 2012 taxes free   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. File 2012 taxes free   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. File 2012 taxes free A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. File 2012 taxes free See Section 402(f) Notice under Distributions, later, for more details. File 2012 taxes free Consolidation, merger, or transfer of assets or liabilities. File 2012 taxes free   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. File 2012 taxes free (if the plan had then terminated). File 2012 taxes free Benefits must not be assigned or alienated. File 2012 taxes free   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. File 2012 taxes free Exception for certain loans. File 2012 taxes free   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. File 2012 taxes free A disqualified person is defined later in this chapter under Prohibited Transactions. File 2012 taxes free Exception for QDRO. File 2012 taxes free   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. File 2012 taxes free   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. File 2012 taxes free Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. File 2012 taxes free No benefit reduction for social security increases. File 2012 taxes free   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. File 2012 taxes free This rule also applies to plans supplementing the benefits provided by other federal or state laws. File 2012 taxes free Elective deferrals must be limited. File 2012 taxes free   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. File 2012 taxes free See Limit on Elective Deferrals later in this chapter. File 2012 taxes free Top-heavy plan requirements. File 2012 taxes free   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. File 2012 taxes free   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. File 2012 taxes free Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. File 2012 taxes free   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. File 2012 taxes free These qualification requirements for top-heavy plans are explained in section 416 and its regulations. File 2012 taxes free SIMPLE and safe harbor 401(k) plan exception. File 2012 taxes free   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. File 2012 taxes free QACAs (discussed later) also are not subject to top-heavy requirements. File 2012 taxes free Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. File 2012 taxes free First you adopt a written plan. File 2012 taxes free Then you invest the plan assets. File 2012 taxes free You, the employer, are responsible for setting up and maintaining the plan. File 2012 taxes free If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. File 2012 taxes free If you have employees, see Participation, under Qualification Rules, earlier. File 2012 taxes free Set-up deadline. File 2012 taxes free   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). File 2012 taxes free Credit for startup costs. File 2012 taxes free   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. File 2012 taxes free For more information, see Credit for startup costs under Reminders, earlier. File 2012 taxes free Adopting a Written Plan You must adopt a written plan. File 2012 taxes free The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. File 2012 taxes free Or it can be an individually designed plan. File 2012 taxes free Written plan requirement. File 2012 taxes free   To qualify, the plan you set up must be in writing and must be communicated to your employees. File 2012 taxes free The plan's provisions must be stated in the plan. File 2012 taxes free It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. File 2012 taxes free Master or prototype plans. File 2012 taxes free   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. File 2012 taxes free Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). File 2012 taxes free Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. File 2012 taxes free Under a prototype plan, a separate trust or custodial account is established for each employer. File 2012 taxes free Plan providers. File 2012 taxes free   The following organizations generally can provide IRS-approved master or prototype plans. File 2012 taxes free Banks (including some savings and loan associations and federally insured credit unions). File 2012 taxes free Trade or professional organizations. File 2012 taxes free Insurance companies. File 2012 taxes free Mutual funds. File 2012 taxes free Individually designed plan. File 2012 taxes free   If you prefer, you can set up an individually designed plan to meet specific needs. File 2012 taxes free Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. File 2012 taxes free You may need professional help for this. File 2012 taxes free See Rev. File 2012 taxes free Proc. File 2012 taxes free 2014-6, 2014-1 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 198, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2014-1_IRB/ar10. File 2012 taxes free html, as annually updated, that may help you decide whether to apply for approval. File 2012 taxes free Internal Revenue Bulletins are available on the IRS website at IRS. File 2012 taxes free gov They are also available at most IRS offices and at certain libraries. File 2012 taxes free User fee. File 2012 taxes free   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. File 2012 taxes free At least one of them must be a non-highly compensated employee participating in the plan. File 2012 taxes free The fee does not apply to requests made by the later of the following dates. File 2012 taxes free The end of the 5th plan year the plan is in effect. File 2012 taxes free The end of any remedial amendment period for the plan that begins within the first 5 plan years. File 2012 taxes free The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. File 2012 taxes free   For more information about whether the user fee applies, see Rev. File 2012 taxes free Proc. File 2012 taxes free 2014-8, 2014-1 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 242, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2014-1_IRB/ar12. File 2012 taxes free html, as may be annually updated; Notice 2003-49, 2003-32 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 294, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2003-32_IRB/ar13. File 2012 taxes free html; and Notice 2011-86, 2011-45 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 698, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2011-45_IRB/ar11. File 2012 taxes free html. File 2012 taxes free Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. File 2012 taxes free You can establish a trust or custodial account to invest the funds. File 2012 taxes free You, the trust, or the custodial account can buy an annuity contract from an insurance company. File 2012 taxes free Life insurance can be included only if it is incidental to the retirement benefits. File 2012 taxes free You set up a trust by a legal instrument (written document). File 2012 taxes free You may need professional help to do this. File 2012 taxes free You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. File 2012 taxes free You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. File 2012 taxes free If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. File 2012 taxes free Other plan requirements. File 2012 taxes free   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. File 2012 taxes free Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. File 2012 taxes free Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. File 2012 taxes free For information on this funding requirement, see section 412 and its regulations. File 2012 taxes free Quarterly installments of required contributions. File 2012 taxes free   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. File 2012 taxes free If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. File 2012 taxes free Due dates. File 2012 taxes free   The due dates for the installments are 15 days after the end of each quarter. File 2012 taxes free For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). File 2012 taxes free Installment percentage. File 2012 taxes free   Each quarterly installment must be 25% of the required annual payment. File 2012 taxes free Extended period for making contributions. File 2012 taxes free   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. File 2012 taxes free Contributions A qualified plan is generally funded by your contributions. File 2012 taxes free However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. File 2012 taxes free See Employee Contributions and Elective Deferrals later. File 2012 taxes free Contributions deadline. File 2012 taxes free   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. File 2012 taxes free Self-employed individual. File 2012 taxes free   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. File 2012 taxes free Your net earnings must be from your personal services, not from your investments. File 2012 taxes free If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. File 2012 taxes free Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. File 2012 taxes free There are also limits on the amount you can deduct. File 2012 taxes free See Deduction Limits , later. File 2012 taxes free Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. File 2012 taxes free The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. File 2012 taxes free Defined benefit plan. File 2012 taxes free   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. File 2012 taxes free 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. File 2012 taxes free $205,000 ($210,000 for 2014). File 2012 taxes free Defined contribution plan. File 2012 taxes free   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. File 2012 taxes free 100% of the participant's compensation. File 2012 taxes free $51,000 ($52,000 for 2014). File 2012 taxes free   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. File 2012 taxes free Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. File 2012 taxes free Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. File 2012 taxes free Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. File 2012 taxes free See Regulations sections 1. File 2012 taxes free 401(k)-2 and 1. File 2012 taxes free 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). File 2012 taxes free When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. File 2012 taxes free But you can apply them to the previous year if all the following requirements are met. File 2012 taxes free You make them by the due date of your tax return for the previous year (plus extensions). File 2012 taxes free The plan was established by the end of the previous year. File 2012 taxes free The plan treats the contributions as though it had received them on the last day of the previous year. File 2012 taxes free You do either of the following. File 2012 taxes free You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. File 2012 taxes free You deduct the contributions on your tax return for the previous year. File 2012 taxes free A partnership shows contributions for partners on Form 1065. File 2012 taxes free Employer's promissory note. File 2012 taxes free   Your promissory note made out to the plan is not a payment that qualifies for the deduction. File 2012 taxes free Also, issuing this note is a prohibited transaction subject to tax. File 2012 taxes free See Prohibited Transactions , later. File 2012 taxes free Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. File 2012 taxes free The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. File 2012 taxes free Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. File 2012 taxes free Defined contribution plans. File 2012 taxes free   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. File 2012 taxes free If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. File 2012 taxes free See Deduction Limit for Self-Employed Individuals , later. File 2012 taxes free   When figuring the deduction limit, the following rules apply. File 2012 taxes free Elective deferrals (discussed later) are not subject to the limit. File 2012 taxes free Compensation includes elective deferrals. File 2012 taxes free The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). File 2012 taxes free Defined benefit plans. File 2012 taxes free   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. File 2012 taxes free Consequently, an actuary must figure your deduction limit. File 2012 taxes free    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. File 2012 taxes free Table 4–1. File 2012 taxes free Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. File 2012 taxes free Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. File 2012 taxes free Compensation is your net earnings from self-employment, defined in chapter 1. File 2012 taxes free This definition takes into account both the following items. File 2012 taxes free The deduction for the deductible part of your self-employment tax. File 2012 taxes free The deduction for contributions on your behalf to the plan. File 2012 taxes free The deduction for your own contributions and your net earnings depend on each other. File 2012 taxes free For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. File 2012 taxes free To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. File 2012 taxes free Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. File 2012 taxes free Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. File 2012 taxes free 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. File 2012 taxes free Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. File 2012 taxes free (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. File 2012 taxes free ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. File 2012 taxes free Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. File 2012 taxes free For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. File 2012 taxes free However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. File 2012 taxes free See Deduction Limit for Self-Employed Individuals, earlier. File 2012 taxes free The amount you carry over and deduct may be subject to the excise tax discussed next. File 2012 taxes free Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. File 2012 taxes free Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. File 2012 taxes free In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. File 2012 taxes free Special rule for self-employed individuals. File 2012 taxes free   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. File 2012 taxes free Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. File 2012 taxes free See Minimum Funding Requirement , earlier. File 2012 taxes free Reporting the tax. File 2012 taxes free   You must report the tax on your nondeductible contributions on Form 5330. File 2012 taxes free Form 5330 includes a computation of the tax. File 2012 taxes free See the separate instructions for completing the form. File 2012 taxes free Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. File 2012 taxes free A plan with this type of arrangement is popularly known as a “401(k) plan. File 2012 taxes free ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. File 2012 taxes free ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. File 2012 taxes free In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. File 2012 taxes free A profit-sharing plan. File 2012 taxes free A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. File 2012 taxes free Partnership. File 2012 taxes free   A partnership can have a 401(k) plan. File 2012 taxes free Restriction on conditions of participation. File 2012 taxes free   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. File 2012 taxes free Matching contributions. File 2012 taxes free   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. File 2012 taxes free For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. File 2012 taxes free Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. File 2012 taxes free Nonelective contributions. File 2012 taxes free   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. File 2012 taxes free These are called nonelective contributions. File 2012 taxes free Employee compensation limit. File 2012 taxes free   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. File 2012 taxes free This limit is $260,000 in 2014. File 2012 taxes free SIMPLE 401(k) plan. File 2012 taxes free   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. File 2012 taxes free A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. File 2012 taxes free For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. File 2012 taxes free Distributions. File 2012 taxes free   Certain rules apply to distributions from 401(k) plans. File 2012 taxes free See Distributions From 401(k) Plans , later. File 2012 taxes free Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. File 2012 taxes free This limit applies without regard to community property laws. File 2012 taxes free Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. File 2012 taxes free For 2013 and 2014, the basic limit on elective deferrals is $17,500. File 2012 taxes free This limit applies to all salary reduction contributions and elective deferrals. File 2012 taxes free If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. File 2012 taxes free Catch-up contributions. File 2012 taxes free   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. File 2012 taxes free The catch-up contribution limit for 2013 and 2014 is $5,500. File 2012 taxes free Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). File 2012 taxes free However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. File 2012 taxes free The catch-up contribution limit. File 2012 taxes free The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. File 2012 taxes free Treatment of contributions. File 2012 taxes free   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. File 2012 taxes free Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. File 2012 taxes free Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. File 2012 taxes free Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. File 2012 taxes free Forfeiture. File 2012 taxes free   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. File 2012 taxes free Reporting on Form W-2. File 2012 taxes free   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. File 2012 taxes free You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. File 2012 taxes free You must also include them in box 12. File 2012 taxes free Mark the “Retirement plan” checkbox in box 13. File 2012 taxes free For more information, see the Form W-2 instructions. File 2012 taxes free Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. File 2012 taxes free Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. File 2012 taxes free These contributions are elective deferrals. File 2012 taxes free An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). File 2012 taxes free For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. File 2012 taxes free Eligible automatic contribution arrangement. File 2012 taxes free   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. File 2012 taxes free This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). File 2012 taxes free There is no required deferral percentage. File 2012 taxes free Withdrawals. File 2012 taxes free   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. File 2012 taxes free The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. File 2012 taxes free The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. File 2012 taxes free   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. File 2012 taxes free The additional 10% tax on early distributions will not apply to the distribution. File 2012 taxes free Notice requirement. File 2012 taxes free   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. File 2012 taxes free The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. File 2012 taxes free The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. File 2012 taxes free The notice also must explain how contributions will be invested in the absence of an investment election by the employee. File 2012 taxes free Qualified automatic contribution arrangement. File 2012 taxes free    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. File 2012 taxes free It contains an automatic enrollment feature, and mandatory employer contributions are required. File 2012 taxes free If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). File 2012 taxes free Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. File 2012 taxes free Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. File 2012 taxes free In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). File 2012 taxes free If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. File 2012 taxes free It must be applied uniformly. File 2012 taxes free It must not exceed 10%. File 2012 taxes free It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. File 2012 taxes free It must increase to at least 4% in the following plan year. File 2012 taxes free It must increase to at least 5% in the following plan year. File 2012 taxes free It must increase to at least 6% in subsequent plan years. File 2012 taxes free Matching or nonelective contributions. File 2012 taxes free   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. File 2012 taxes free Matching contributions. File 2012 taxes free You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. File 2012 taxes free An amount equal to 100% of elective deferrals, up to 1% of compensation. File 2012 taxes free An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. File 2012 taxes free Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. File 2012 taxes free The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. File 2012 taxes free Nonelective contributions. File 2012 taxes free You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. File 2012 taxes free Vesting requirements. File 2012 taxes free   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. File 2012 taxes free These contributions are subject to special withdrawal restrictions, discussed later. File 2012 taxes free Notice requirements. File 2012 taxes free   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. File 2012 taxes free The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. File 2012 taxes free The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. File 2012 taxes free Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. File 2012 taxes free The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. File 2012 taxes free Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. File 2012 taxes free He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. File 2012 taxes free The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. File 2012 taxes free Excess withdrawn by April 15. File 2012 taxes free   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. File 2012 taxes free However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. File 2012 taxes free The distribution is not subject to the additional 10% tax on early distributions. File 2012 taxes free   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. File 2012 taxes free   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. File 2012 taxes free Excess not withdrawn by April 15. File 2012 taxes free   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. File 2012 taxes free In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. File 2012 taxes free Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. File 2012 taxes free Reporting corrective distributions on Form 1099-R. File 2012 taxes free   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. File 2012 taxes free For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. File 2012 taxes free Tax on excess contributions of highly compensated employees. File 2012 taxes free   The law provides tests to detect discrimination in a plan. File 2012 taxes free If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. File 2012 taxes free Report the tax on Form 5330. File 2012 taxes free The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. File 2012 taxes free Also, the ACP test does not apply to these plans if certain additional requirements are met. File 2012 taxes free   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. File 2012 taxes free Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. File 2012 taxes free   See Regulations sections 1. File 2012 taxes free 401(k)-2 and 1. File 2012 taxes free 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). File 2012 taxes free    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. File 2012 taxes free Safe harbor 401(k) plan. File 2012 taxes free If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. File 2012 taxes free For your plan to be a safe harbor plan, you must meet the following conditions. File 2012 taxes free Matching or nonelective contributions. File 2012 taxes free You must make matching or nonelective contributions according to one of the following formulas. File 2012 taxes free Matching contributions. File 2012 taxes free You must make matching contributions according to the following rules. File 2012 taxes free You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. File 2012 taxes free You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. File 2012 taxes free The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. File 2012 taxes free Nonelective contributions. File 2012 taxes free You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. File 2012 taxes free These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. File 2012 taxes free Notice requirement. File 2012 taxes free You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. File 2012 taxes free The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. File 2012 taxes free Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. File 2012 taxes free Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. File 2012 taxes free However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. File 2012 taxes free Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. File 2012 taxes free Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. File 2012 taxes free Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. File 2012 taxes free An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. File 2012 taxes free The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. File 2012 taxes free Rollover. File 2012 taxes free   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. File 2012 taxes free For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 872, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2010-51_IRB/ar11. File 2012 taxes free html, and Notice 2013-74. File 2012 taxes free A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. File 2012 taxes free Rollover amounts do not apply toward the annual deferral limit. File 2012 taxes free Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. File 2012 taxes free See the Form W-2 and 1099-R instructions for detailed information. File 2012 taxes free Distributions Amounts paid to plan participants from a qualified plan are called distributions. File 2012 taxes free Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. File 2012 taxes free Also, certain loans may be treated as distributions. File 2012 taxes free See Loans Treated as Distributions in Publication 575. File 2012 taxes free Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). File 2012 taxes free These distribution rules apply individually to each qualified plan. File 2012 taxes free You cannot satisfy the requirement for one plan by taking a distribution from another. File 2012 taxes free The plan must provide that these rules override any inconsistent distribution options previously offered. File 2012 taxes free Minimum distribution. File 2012 taxes free   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. File 2012 taxes free This minimum is figured by dividing the account balance by the applicable life expectancy. File 2012 taxes free The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. File 2012 taxes free For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. File 2012 taxes free Required beginning date. File 2012 taxes free   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. File 2012 taxes free   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. File 2012 taxes free Calendar year in which he or she reaches age 70½. File 2012 taxes free Calendar year in which he or she retires from employment with the employer maintaining the plan. File 2012 taxes free However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. File 2012 taxes free   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. File 2012 taxes free For more information, see Tax on Excess Accumulation in Publication 575. File 2012 taxes free Distributions after the starting year. File 2012 taxes free   The distribution required to be made by April 1 is treated as a distribution for the starting year. File 2012 taxes free (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. File 2012 taxes free ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. File 2012 taxes free If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). File 2012 taxes free Distributions after participant's death. File 2012 taxes free   See Publication 575 for the special rules covering distributions made after the death of a participant. File 2012 taxes free Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. File 2012 taxes free The employee retires, dies, becomes disabled, or otherwise severs employment. File 2012 taxes free The plan ends and no other defined contribution plan is established or continued. File 2012 taxes free In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. File 2012 taxes free For the rules on hardship distributions, including the limits on them, see Regulations section 1. File 2012 taxes free 401(k)-1(d). File 2012 taxes free The employee becomes eligible for a qualified reservist distribution (defined next). File 2012 taxes free Certain distributions listed above may be subject to the tax on early distributions discussed later. File 2012 taxes free Qualified reservist distributions. File 2012 taxes free   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. File 2012 taxes free All or part of a qualified reservist distribution can be recontributed to an IRA. File 2012 taxes free The additional 10% tax on early distributions does not apply to a qualified reservist distribution. File 2012 taxes free Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. File 2012 taxes free Since most recipients have no cost basis, a distribution is generally fully taxable. File 2012 taxes free An exception is a distribution that is properly rolled over as discussed under Rollover, next. File 2012 taxes free The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. File 2012 taxes free See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. File 2012 taxes free Note. File 2012 taxes free A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. File 2012 taxes free Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. File 2012 taxes free See Qualified distributions under Qualified Roth Contribution Program, earlier. File 2012 taxes free Rollover. File 2012 taxes free   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. File 2012 taxes free However, it may be subject to withholding as discussed under Withholding requirement, later. File 2012 taxes free A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. File 2012 taxes free Eligible rollover distribution. File 2012 taxes free   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. File 2012 taxes free A required minimum distribution. File 2012 taxes free See Required Distributions , earlier. File 2012 taxes free Any of a series of substantially equal payments made at least once a year over any of the following periods. File 2012 taxes free The employee's life or life expectancy. File 2012 taxes free The joint lives or life expectancies of the employee and beneficiary. File 2012 taxes free A period of 10 years or longer. File 2012 taxes free A hardship distribution. File 2012 taxes free The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. File 2012 taxes free See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. File 2012 taxes free Loans treated as distributions. File 2012 taxes free Dividends on employer securities. File 2012 taxes free The cost of any life insurance coverage provided under a qualified retirement plan. File 2012 taxes free Similar items designated by the IRS in published guidance. File 2012 taxes free See, for example, the Instructions for Forms 1099-R and 5498. File 2012 taxes free Rollover of nontaxable amounts. File 2012 taxes free   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. File 2012 taxes free If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. File 2012 taxes free If the rollover is to an IRA, the transfer can be made by any rollover method. File 2012 taxes free Note. File 2012 taxes free A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. File 2012 taxes free If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). File 2012 taxes free More information. File 2012 taxes free   For more information about rollovers, see Rollovers in Pubs. File 2012 taxes free 575 and 590. File 2012 taxes free Withholding requirement. File 2012 taxes free   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. File 2012 taxes free Exceptions. File 2012 taxes free   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. File 2012 taxes free   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. File 2012 taxes free Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). File 2012 taxes free However, the participant can choose not to have tax withheld from these distributions. File 2012 taxes free If the participant does not make this choice, the following withholding rules apply. File 2012 taxes free For periodic distributions, withholding is based on their treatment as wages. File 2012 taxes free For nonperiodic distributions, 10% of the taxable part is withheld. File 2012 taxes free Estimated tax payments. File 2012 taxes free   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. File 2012 taxes free For more information, see Withholding Tax and Estimated Tax in Publication 575. File 2012 taxes free Section 402(f) Notice. File 2012 taxes free   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. File 2012 taxes free That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. File 2012 taxes free That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. File 2012 taxes free That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. File 2012 taxes free Certain other rules that may be applicable. File 2012 taxes free   Notice 2009-68, 2009-39 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 423, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2009-39_IRB/ar14. File 2012 taxes free html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. File 2012 taxes free If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. File 2012 taxes free Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. File 2012 taxes free Timing of notice. File 2012 taxes free   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. File 2012 taxes free Method of notice. File 2012 taxes free   The written notice must be provided individually to each distributee of an eligible rollover distribution. File 2012 taxes free Posting of the notice is not sufficient. File 2012 taxes free However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. File 2012 taxes free See Regulations section 1. File 2012 taxes free 401(a)-21. File 2012 taxes free Tax on failure to give notice. File 2012 taxes free   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. File 2012 taxes free The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. File 2012 taxes free Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. File 2012 taxes free This tax applies to the amount received that the employee must include in income. File 2012 taxes free Exceptions. File 2012 taxes free   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. File 2012 taxes free Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. File 2012 taxes free Made due to the employee having a qualifying disability. File 2012 taxes free Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. File 2012 taxes free (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. File 2012 taxes free ) Made to an employee after separation from service if the separation occurred during o
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Understanding your CP13M Notice

We made changes to your return involving the Making Work Pay credit or the Government Retiree Credit. You're not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain how the Making Work Pay credit or the Government Retiree Credit relate to the changes we made.
  • Review the notice and compare our changes to the information on your tax return.
  • Correct the copy of your tax return that you kept for your records.
  • You don't need to do anything if you agree with the notice.
  • If you disagree with the notice, please contact us at the toll-free number listed on its top right corner (within 60 days of its date).

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Answers to Common Questions

What is the Making Work Pay credit?
It is a refundable tax credit that can go up to $400 for individuals and $800 for married taxpayers.

What is the Government Retiree Credit?
It is a refundable tax credit that can go up to $250 for individuals and $500 for married taxpayers.

What should I do if I disagree with the changes you made?
Contact us at the toll free number listed on the top right corner of your notice if you disagree with the changes we made.

What should I do if I need to make another correction to my tax return?
You'll need to file an amended return to make a correction.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Perform a quick check on the amount you have withheld to make sure you won't owe money next year. You can use this IRS withholding calculator.

Page Last Reviewed or Updated: 20-Feb-2014

The File 2012 Taxes Free

File 2012 taxes free Publication 3 - Main Content Table of Contents Gross IncomeForeign Source Income Military Spouses Residency Relief Act (MSRRA) Community Property Form W-2 Codes Adjustments to IncomeArmed Forces Reservists Individual Retirement Arrangements Moving Expenses Combat Zone ExclusionCombat Zone Serving in a Combat Zone Amount of Exclusion Alien StatusResident Aliens Nonresident Aliens Dual-Status Aliens Sale of HomePeriod of suspension. File 2012 taxes free Qualified official extended duty. File 2012 taxes free ForeclosuresLump Sum Portion of Settlement Payment. File 2012 taxes free Interest Payment on Lump Sum Portion of Settlement Payment. File 2012 taxes free Lost Equity Portion of Settlement Payment. File 2012 taxes free The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. File 2012 taxes free Interest Payment on Lost Equity Portion of Settlement Payment. File 2012 taxes free Itemized DeductionsEmployee Business Expenses Repayments CreditsFirst-Time Homebuyer Credit Child Tax Credit Earned Income Credit Credit for Excess Social Security Tax Withheld Forgiveness of Decedent's Tax LiabilityCombat Zone Related Forgiveness Terrorist or Military Action Related Forgiveness Claims for Tax Forgiveness Filing ReturnsSame-Sex Marriage Where To File When To File Signing Returns Extension of DeadlinesService That Qualifies for an Extension of Deadline Length of Extension Actions for Which Deadlines Are Extended Deferral of Payment Maximum Rate of Interest How To Get Tax HelpLow Income Taxpayer Clinics Gross Income Members of the Armed Forces receive many different types of pay and allowances. File 2012 taxes free Some are included in gross income while others are excluded from gross income. File 2012 taxes free Included items (Table 1) are subject to tax and must be reported on your tax return. File 2012 taxes free Excluded items (Table 2) are not subject to tax, but may have to be shown on your tax return. File 2012 taxes free For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Zone Exclusion and Extension of Deadlines , later. File 2012 taxes free Table 1. File 2012 taxes free Included Items These items are included in gross income, unless the pay is for service in a combat zone. File 2012 taxes free Basic pay • Active duty   Bonus pay • Career status   • Attendance at a designated service school     • Enlistment  • Officer   • Back wages     • Overseas extension   • CONUS COLA       • Reenlistment   • Drills         • Reserve training         • Training duty   Other pay  • Accrued leave          • High deployment per diem Special • Aviation career incentives      • Personal money allowances paid to pay • Career sea     high-ranking officers   • Diving duty      • Student loan repayment from programs   • Foreign duty (outside the 48 contiguous     such as the Department of Defense   states and the District of Columbia)     Educational Loan Repayment Program   • Foreign language proficiency     when year's service (requirement) is not   • Hardship duty     attributable to a combat zone   • Hostile fire or imminent danger         • Medical and dental officers   Incentive pay  • Submarine   • Nuclear-qualified officers      • Flight   • Optometry      • Hazardous duty   • Pharmacy      • High altitude/Low Opening (HALO)   • Special compensation for assistance with activities of daily living (SCAADL)         • Special duty assignment pay         • Veterinarian         • Voluntary Separation Incentive       Basic allowance for housing (BAH). File 2012 taxes free   You can still deduct mortgage interest and real estate taxes on your home if you pay these expenses with your BAH. File 2012 taxes free Table 2. File 2012 taxes free Excluded Items The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance. File 2012 taxes free There is no exclusion for the personal use of a government-provided vehicle. File 2012 taxes free Combat  zone pay • Compensation for active service while in a combat zone Note: Limited amount for officers     • Housing and cost-of-living allowances abroad paid by the U. File 2012 taxes free S. File 2012 taxes free Government or by a foreign government         • OHA (Overseas Housing Allowance)                     Other pay • Defense counseling         • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action         • Group-term life insurance   Moving • Dislocation   • Professional education   allowances • Military base realignment and   • ROTC educational and subsistence     closure benefit    allowances     (the exclusion is limited as   • State bonus pay for service in a     described above)   combat zone     • Move-in housing   • Survivor and retirement protection     • Moving household and   plan premiums     personal items   • Uniform allowances     • Moving trailers or mobile homes   • Uniforms furnished to enlisted     • Storage   personnel     • Temporary lodging and         temporary lodging expenses                 Travel • Annual round trip for dependent Death • Burial services   allowances students allowances • Death gratuity payments to     • Leave between consecutive   eligible survivors     overseas tours   • Travel of dependents to burial site     • Reassignment in a dependent         restricted status Family • Certain educational expenses for     • Transportation for you or your allowances dependents     dependents during ship overhaul   • Emergencies     or inactivation   • Evacuation to a place of safety     • Per diem   • Separation             In-kind military • Dependent-care assistance program Living • BAH (Basic Allowance for Housing)   benefits • Legal assistance allowances • BAS (Basic Allowance for Subsistence)     • Medical/dental care         • Commissary/exchange discounts         • Space-available travel on government aircraft           Death gratuity. File 2012 taxes free   Any death gratuity paid to a survivor of a member of the Armed Forces is excluded from gross income. File 2012 taxes free Differential wage payments. File 2012 taxes free   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and that represent all or a portion of the wages the individual would have received from the employer if the individual was performing services for the employer. File 2012 taxes free These amounts are taxable and cannot be excluded as combat pay. File 2012 taxes free Military base realignment and closure benefit. File 2012 taxes free   Payments made under the Homeowners Assistance Program (HAP) generally are excluded from income. File 2012 taxes free However, the excludable amount cannot be more than the maximum amount described in subsection (c) of 42 USC 3374 as in effect on November 6, 2009. File 2012 taxes free Any part of the payment that is more than this limit is included in gross income. File 2012 taxes free For more information about the HAP, see http://hap. File 2012 taxes free usace. File 2012 taxes free army. File 2012 taxes free mil/Overview. File 2012 taxes free html. File 2012 taxes free Qualified reservist distribution (QRD). File 2012 taxes free   A QRD is a distribution to an individual of all or part of the individual's balance in a cafeteria plan or health flexible spending arrangement if: The individual was a reservist who was ordered or called to active duty for more than 179 days or for an indefinite period, and The distribution is made no sooner than the date the reservist was ordered or called to active duty and no later than the last day reimbursements could otherwise be made under the arrangement for the plan year which includes the date of the order or the call to duty. File 2012 taxes free A QRD is included in gross income and is subject to employment taxes. File 2012 taxes free The employer must include the QRD (reduced by after-tax contributions to the health flexible spending arrangement) as wages on Form W-2, Wage and Tax Statement. File 2012 taxes free Thrift Savings Plan (TSP) distributions. File 2012 taxes free   If you participate in the Uniformed Services TSP and receive a distribution from your account, the distribution is generally included in your taxable income. File 2012 taxes free   If your contributions included tax-exempt combat zone pay, the part of the distribution attributable to those contributions is tax exempt. File 2012 taxes free However, the earnings on the tax-exempt portion of the distribution are taxable. File 2012 taxes free The TSP will provide a statement showing the taxable and non-taxable portions of the distribution. File 2012 taxes free Roth Thrift Savings Plan (TSP) balance. File 2012 taxes free   You may be able to contribute to a designated Roth Account through the TSP known as the Roth TSP. File 2012 taxes free Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. File 2012 taxes free Qualified distributions from a Roth TSP are not included in your income. File 2012 taxes free For more details, see Thrift Savings Accounts in Part II of Publication 721, Tax Guide to U. File 2012 taxes free S. File 2012 taxes free Civil Service Retirement Benefits. File 2012 taxes free State bonus payments. File 2012 taxes free   Bonus payments made by a state (or a political subdivision thereof) to a member or former member of the uniformed services of the United States or to a dependent of such member are considered combat pay (and therefore may not be taxable) if the payments are made only because of the member's service in a combat zone. File 2012 taxes free See Combat Zone , later, for a list of designated combat zones. File 2012 taxes free Foreign Source Income If you are a U. File 2012 taxes free S. File 2012 taxes free citizen with income from sources outside the United States (foreign income), you must report all of that income (except for amounts that U. File 2012 taxes free S. File 2012 taxes free law allows you to exclude) on your tax return. File 2012 taxes free This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or a Form 1099. File 2012 taxes free This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). File 2012 taxes free Certain taxpayers can exclude income earned in foreign countries. File 2012 taxes free For 2013, this exclusion amount can be as much as $97,600. File 2012 taxes free However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U. File 2012 taxes free S. File 2012 taxes free Government. File 2012 taxes free Employees of the U. File 2012 taxes free S. File 2012 taxes free Government include those who work at United States Armed Forces exchanges, commissioned and noncommissioned officers' messes, Armed Forces motion picture services, and similar personnel. File 2012 taxes free Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. File 2012 taxes free For more information on the exclusion, see Publication 54. File 2012 taxes free Residents of American Samoa may be able to exclude income from American Samoa. File 2012 taxes free This possession exclusion does not apply to wages and salaries of military and civilian employees of the U. File 2012 taxes free S. File 2012 taxes free Government. File 2012 taxes free If you need information on the possession exclusion, see Publication 570, Tax Guide for Individuals With Income From U. File 2012 taxes free S. File 2012 taxes free Possessions. File 2012 taxes free Military Spouses Residency Relief Act (MSRRA) If you are the civilian spouse of an active duty U. File 2012 taxes free S. File 2012 taxes free military servicemember and your domicile is the same as the servicemember's, you can choose to keep your prior residence or domicile for tax purposes when you accompany the servicemember spouse, who is relocating under military orders to a new duty station in one of the 50 states, the District of Columbia, or a U. File 2012 taxes free S. File 2012 taxes free possession. File 2012 taxes free See Publication 570 for more information. File 2012 taxes free Domicile. File 2012 taxes free   Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. File 2012 taxes free It is not always where you presently live. File 2012 taxes free Community Property The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. File 2012 taxes free The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File 2012 taxes free Marital status. File 2012 taxes free   Community property rules apply to married persons whose domicile during the tax year was in a community property state. File 2012 taxes free The rules may affect your tax liability if you file separate returns or are divorced during the year. File 2012 taxes free Nevada, Washington, and California domestic partners. File 2012 taxes free   A registered domestic partner in Nevada, Washington, or California generally must report half the combined income of the individual and his or her domestic partner. File 2012 taxes free See Form 8958 and Publication 555, Community Property. File 2012 taxes free Nature of the payment. File 2012 taxes free   Active duty military pay is subject to community property laws. File 2012 taxes free Armed Forces retired or retainer pay may be subject to community property laws. File 2012 taxes free   For more information on community property laws, see Publication 555. File 2012 taxes free Form W-2 Codes Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. File 2012 taxes free Form W-2 also shows other amounts that you may find important in box 12. File 2012 taxes free The amounts shown in box 12 are generally preceded by a code. File 2012 taxes free A list of codes used in box 12 is shown, next. File 2012 taxes free Form W-2 Reference Guide for Box 12 Codes A Uncollected social security or RRTA J Nontaxable sick pay T Adoption benefits   tax on tips             K 20% excise tax on excess golden V Income from exercise of B Uncollected Medicare tax on tips   parachute payments   nonstatutory stock option(s)             C Taxable cost of group-term life L Substantiated employee business W Employer contributions (including   insurance over $50,000   expense reimbursements   employee contributions through a           cafeteria plan) to an employee's D Elective deferrals under a section M Uncollected social security or RRTA   health savings account (HSA)   401(k) cash or deferred arrangement   tax on taxable cost of group-term life       plan (including a SIMPLE 401(k)   insurance over $50,000 (former Y Deferrals under a section 409A   arrangement)   employees only)   nonqualified deferred           compensation plan E Elective deferrals under a section N Uncollected Medicare tax on taxable       403(b) salary reduction agreement   cost of group-term life insurance Z Income under section 409A on a       over $50,000 (former employees only)   nonqualified deferred F Elective deferrals under a section       compensation plan   408(k)(6) salary reduction SEP P Excludable moving expense           reimbursements paid directly to AA Designated Roth contributions G Elective deferrals and employer   employee   under a section 401(k) plan   contributions (including nonelective           deferrals) to a section 457(b) Q Nontaxable combat pay BB Designated Roth contributions   deferred compensation plan       under a section 403(b) plan     R Employer contributions to an Archer     H Elective deferrals to a section   MSA DD Cost of employer-sponsored   501(c)(18)(D) tax-exempt       health coverage   organization plan S Employee salary reduction contributions under a section 408(p) SIMPLE  EE  Designated Roth contributions under a governmental section 457(b) plan  Note. File 2012 taxes free For more information on these codes, see your Form(s) W-2. File 2012 taxes free Adjustments to Income Adjusted gross income is your total income minus certain adjustments. File 2012 taxes free The following adjustments are of particular interest to members of the Armed Forces. File 2012 taxes free Armed Forces Reservists If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your unreimbursed travel expenses as an adjustment to income on line 24 of Form 1040, U. File 2012 taxes free S. File 2012 taxes free Individual Income Tax Return, rather than as a miscellaneous itemized deduction. File 2012 taxes free Include all unreimbursed expenses from the time you leave home until the time you return home. File 2012 taxes free The deduction is limited to the amount the federal government generally reimburses its employees for travel expenses. File 2012 taxes free For more information about this limit, see Per Diem and Car Allowances in chapter 6 of Publication 463. File 2012 taxes free Member of a reserve component. File 2012 taxes free   You are a member of a reserve component of the Armed Forces if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. File 2012 taxes free How to report. File 2012 taxes free   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. File 2012 taxes free Then enter on Form 1040, line 24, the part of your expenses, up to the federal rate, included on Form 2106, line 10, or Form 2106-EZ, line 6, that is for reserve-related travel more than 100 miles from your home. File 2012 taxes free Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. File 2012 taxes free Example. File 2012 taxes free Captain Harris, a member of the Army Reserve, traveled to a location 220 miles from his home to perform his work in the reserves in April 2013. File 2012 taxes free He incurred $1,549 of unreimbursed expenses consisting of $249 for mileage (440 miles × 56. File 2012 taxes free 5 cents per mile), $300 for meals, and $1,000 for lodging. File 2012 taxes free He also had other deductible mileage expenses of $110 for several trips to a location 20 miles from his home. File 2012 taxes free Only 50% of his meal expenses are deductible. File 2012 taxes free He shows his total deductible travel expenses of $1,509 ($249 + $150 (50% of $300) + $1,000 + $110) on Form 2106, line 10. File 2012 taxes free He enters the $1,399 ($249 + $150 + $1,000) for travel over 100 miles from home on Form 1040, line 24. File 2012 taxes free He then subtracts that $1,399 from the amount on Form 2106, $1,509, and enters $110 on Schedule A (Form 1040), line 21. File 2012 taxes free Individual Retirement Arrangements Generally, you can deduct the lesser of the contributions to your traditional individual retirement arrangement (IRA) for the year or the general limit (or spousal IRA limit, if applicable). File 2012 taxes free However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. File 2012 taxes free The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. File 2012 taxes free The “Retirement plan” box should have a mark in it if you were covered. File 2012 taxes free For purposes of a deduction for contributions to a traditional IRA, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan. File 2012 taxes free Individuals serving in the U. File 2012 taxes free S. File 2012 taxes free Armed Forces or in support of the U. File 2012 taxes free S. File 2012 taxes free Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. File 2012 taxes free For more information on this extension of deadline provision, see Extension of Deadlines , later. File 2012 taxes free For more information on IRAs, see Publication 590. File 2012 taxes free Combat Pay For IRA purposes, your compensation includes nontaxable combat pay. File 2012 taxes free This means that even though you do not have to include the combat pay in your gross income, you do include it in your compensation when figuring the limits on contributions and deductions of contributions to IRAs. File 2012 taxes free Qualified Reservist Distributions A qualified reservist distribution is defined below. File 2012 taxes free It is not subject to the 10% additional tax on early distributions from certain retirement plans. File 2012 taxes free Definition. File 2012 taxes free   A distribution you receive is a qualified reservist distribution if the following requirements are met. File 2012 taxes free You were ordered or called to active duty after September 11, 2001. File 2012 taxes free You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component (see Member of a reserve component , earlier, under Armed Forces Reservists. File 2012 taxes free ) The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement. File 2012 taxes free The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period. File 2012 taxes free Qualified Reservist Repayments You may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined earlier) you received. File 2012 taxes free You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. File 2012 taxes free You make these repayment contributions to an IRA, even if you received the qualified reservist distribution from a section 401(k) or 403(b) plan or a similar arrangement. File 2012 taxes free Limit. File 2012 taxes free   Your qualified reservist repayments cannot be more than your qualified reservist distributions. File 2012 taxes free When repayment contributions can be made. File 2012 taxes free   You cannot make these repayment contributions after the date that is 2 years after your active duty period ends. File 2012 taxes free No deduction. File 2012 taxes free   You cannot deduct qualified reservist repayments. File 2012 taxes free Figuring your IRA deduction. File 2012 taxes free   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. File 2012 taxes free Reporting the repayment. File 2012 taxes free   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606, Nondeductible IRAs. File 2012 taxes free Moving Expenses To deduct moving expenses, you generally must meet certain time and distance tests. File 2012 taxes free However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. File 2012 taxes free You can deduct your unreimbursed moving expenses on Form 3903. File 2012 taxes free Permanent change of station. File 2012 taxes free   A permanent change of station includes: A move from your home to your first post of active duty, A move from one permanent post of duty to another, and A move from your last post of duty to your home or to a nearer point in the United States. File 2012 taxes free The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Federal Travel Regulations. File 2012 taxes free Spouse and dependents. File 2012 taxes free   If you are the spouse or dependent of a member of the Armed Forces who deserts, is imprisoned, or dies, a permanent change of station for you includes a move to: The member's place of enlistment or induction, Your, or the member's, home of record, or A nearer point in the United States. File 2012 taxes free   If the military moves you to or from a different location than the member, the moves are treated as a single move to your new main job location. File 2012 taxes free Services or reimbursements provided by the government. File 2012 taxes free   Do not include in your income the value of moving and storage services provided by the government because of a permanent change of station. File 2012 taxes free Similarly, do not include in income amounts received as a dislocation allowance, temporary lodging expense, temporary lodging allowance, or move-in housing allowance. File 2012 taxes free   Generally, if the total reimbursements or allowances that you receive from the government because of the move are more than your actual moving expenses, the excess is included in your wages on Form W-2. File 2012 taxes free However, if any reimbursements or allowances (other than dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not included in your wages on Form W-2, the excess still must be included in gross income on Form 1040, line 7. File 2012 taxes free   Use Form 3903 to deduct qualified expenses that exceed your reimbursements and allowances (including dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances that are excluded from gross income). File 2012 taxes free   If you must relocate and your spouse and dependents move to or from a different location, do not include in income reimbursements, allowances, or the value of moving and storage services provided by the government to move you and your spouse and dependents to and from the separate locations. File 2012 taxes free   Do not deduct any expenses for moving services that were provided by the government. File 2012 taxes free Also, do not deduct any expenses that were reimbursed by an allowance you did not include in income. File 2012 taxes free Deductible Moving Expenses If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household. File 2012 taxes free You can deduct expenses (if not reimbursed or furnished in kind) for: Moving household goods and personal effects, and Travel. File 2012 taxes free Moving household goods and personal effects. File 2012 taxes free   You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. File 2012 taxes free You cannot deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home. File 2012 taxes free Storing and insuring household goods and personal effects. File 2012 taxes free   You can include only the cost of storing and insuring your household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home. File 2012 taxes free Travel. File 2012 taxes free   You can deduct the expenses of traveling (including lodging but not meals) from your old home to your new home, including car expenses and air fare. File 2012 taxes free You can deduct as car expenses either: Your actual out-of-pocket expenses such as gas and oil, or The standard mileage rate of 24 cents a mile. File 2012 taxes free   You can add parking fees and tolls to the amount claimed under either method. File 2012 taxes free You cannot deduct any expenses for meals. File 2012 taxes free You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging. File 2012 taxes free Member of your household. File 2012 taxes free   A member of your household is anyone who has both your former home and your new home as his or her main home. File 2012 taxes free It does not include a tenant or employee unless you can claim that person as a dependent. File 2012 taxes free Foreign Moves A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country to another foreign country. File 2012 taxes free A move from a foreign country to the United States or its possessions is not a foreign move. File 2012 taxes free For a foreign move, the deductible moving expenses described earlier are expanded to include the reasonable expenses of: Moving your household goods and personal effects to and from storage, and Storing these items for part or all of the time the new job location remains your main job location. File 2012 taxes free The new job location must be outside the United States. File 2012 taxes free Reporting Moving Expenses Figure moving expense deductions on Form 3903. File 2012 taxes free Carry the deduction from Form 3903 to Form 1040, line 26. File 2012 taxes free For more information, see Publication 521 and Form 3903. File 2012 taxes free Combat Zone Exclusion If you are a member of the U. File 2012 taxes free S. File 2012 taxes free Armed Forces who serves in a combat zone (defined later), you can exclude certain pay from your income. File 2012 taxes free This pay is generally referred to as “combat pay. File 2012 taxes free ” You do not actually need to show the exclusion on your tax return because income that qualifies for the combat zone exclusion is not included in the wages reported on your Form W-2. File 2012 taxes free (See Form W-2 , later. File 2012 taxes free ) The month for which you receive the pay must be a month in which you either served in a combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone. File 2012 taxes free You do not have to receive the excluded pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. File 2012 taxes free If you are an enlisted member, warrant officer, or commissioned warrant officer, you can exclude the following amounts from your income. File 2012 taxes free (Other officer personnel are discussed under Amount of Exclusion , later. File 2012 taxes free ) Active duty pay earned in any month you served in a combat zone. File 2012 taxes free Imminent danger/hostile fire pay. File 2012 taxes free A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone. File 2012 taxes free Pay for accrued leave earned in any month you served in a combat zone. File 2012 taxes free The Department of Defense must determine that the unused leave was earned during that period. File 2012 taxes free Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other nonappropriated fund activities. File 2012 taxes free The pay must be earned in a month you served in a combat zone. File 2012 taxes free Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone. File 2012 taxes free Student loan repayments. File 2012 taxes free If the entire year of service required to earn the repayment was performed in a combat zone, the entire repayment made because of that year of service is excluded. File 2012 taxes free If only part of that year of service was performed in a combat zone, only part of the repayment qualifies for exclusion. File 2012 taxes free For example, if you served in a combat zone for 5 months, 5/12 of your repayment qualifies for exclusion. File 2012 taxes free Retirement pay and pensions do not qualify for the combat zone exclusion. File 2012 taxes free Partial (month) service. File 2012 taxes free   If you serve in a combat zone for any part of one or more days during a particular month, you are entitled to an exclusion for that entire month. File 2012 taxes free Form W-2. File 2012 taxes free   The wages shown in box 1 of your 2013 Form W-2 should not include military pay excluded from your income under the combat zone exclusion provisions. File 2012 taxes free If it does, you will need to get a corrected Form W-2 from your finance office. File 2012 taxes free   You cannot exclude as combat pay any wages shown in box 1 of Form W-2. File 2012 taxes free Combat Zone A combat zone is any area the President of the United States designates by Executive Order as an area in which the U. File 2012 taxes free S. File 2012 taxes free Armed Forces are engaging or have engaged in combat. File 2012 taxes free An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order. File 2012 taxes free Afghanistan area. File 2012 taxes free   By Executive Order No. File 2012 taxes free 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September 19, 2001. File 2012 taxes free On December 14, 2001, the following countries were certified by the Department of Defense for combat zone tax benefits due to their direct support of military operations in the Afghanistan combat zone. File 2012 taxes free Djibouti. File 2012 taxes free Jordan. File 2012 taxes free Kyrgyzstan. File 2012 taxes free Pakistan. File 2012 taxes free Somalia. File 2012 taxes free Syria. File 2012 taxes free Tajikistan. File 2012 taxes free Uzbekistan. File 2012 taxes free Yemen. File 2012 taxes free The Philippines. File 2012 taxes free  Note. File 2012 taxes free For the Philippines only, the personnel must be deployed in conjunction with Operation Enduring Freedom supporting military operations in the Afghanistan combat zone. File 2012 taxes free The Kosovo area. File 2012 taxes free   By Executive Order No. File 2012 taxes free 13119, the following locations (including airspace above) were designated as a combat zone beginning March 24, 1999. File 2012 taxes free Federal Republic of Yugoslavia (Serbia/Montenegro). File 2012 taxes free Albania. File 2012 taxes free Kosovo. File 2012 taxes free The Adriatic Sea. File 2012 taxes free The Ionian Sea—north of the 39th parallel. File 2012 taxes free Note. File 2012 taxes free The combat zone designation for Montenegro and Kosovo (previously a province within Serbia) under Executive Order 13119 remains in force even though Montenegro and Kosovo became independent nations since EO 13119 was signed. File 2012 taxes free Arabian peninsula. File 2012 taxes free   By Executive Order No. File 2012 taxes free 12744, the following locations (and airspace above) were designated as a combat zone beginning January 17, 1991. File 2012 taxes free The Persian Gulf. File 2012 taxes free The Red Sea. File 2012 taxes free The Gulf of Oman. File 2012 taxes free The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude. File 2012 taxes free The Gulf of Aden. File 2012 taxes free The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates. File 2012 taxes free Jordan which is in direct support of the Arabian Peninsula. File 2012 taxes free Serving in a Combat Zone You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone. File 2012 taxes free Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. File 2012 taxes free If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes. File 2012 taxes free Hospitalized While Serving in a Combat Zone If you are hospitalized while serving in a combat zone, the wound, disease, or injury causing the hospitalization will be presumed to have been incurred while serving in the combat zone unless there is clear evidence to the contrary. File 2012 taxes free Example. File 2012 taxes free You are hospitalized for a specific disease in a combat zone where you have been serving for 3 weeks, and the disease for which you are hospitalized has an incubation period of 2 to 4 weeks. File 2012 taxes free The disease is presumed to have been incurred while you were serving in the combat zone. File 2012 taxes free On the other hand, if the incubation period of the disease is 1 year, the disease would not have been incurred while you were serving in the combat zone. File 2012 taxes free Hospitalized After Leaving a Combat Zone In some cases, the wound, disease, or injury may have been incurred while you were serving in the combat zone, even though you were not hospitalized until after you left. File 2012 taxes free In that case, you can exclude military pay earned while you are hospitalized as a result of the wound, disease, or injury. File 2012 taxes free Example. File 2012 taxes free You were hospitalized for a specific disease 3 weeks after you left the combat zone. File 2012 taxes free The incubation period of the disease is from 2 to 4 weeks. File 2012 taxes free The disease is presumed to have been incurred while serving in the combat zone. File 2012 taxes free Nonqualifying Presence in Combat Zone None of the following types of military service qualify as service in a combat zone. File 2012 taxes free Presence in a combat zone while on leave from a duty station located outside the combat zone. File 2012 taxes free Passage over or through a combat zone during a trip between two points that are outside a combat zone. File 2012 taxes free Presence in a combat zone solely for your personal convenience. File 2012 taxes free Service Outside Combat Zone Considered Service in Combat Zone Military service outside a combat zone is considered to be performed in a combat zone if: The Department of Defense designates that the service is in direct support of military operations in the combat zone, and The service qualifies you for special military pay for duty subject to hostile fire or imminent danger. File 2012 taxes free Military pay received for this service will qualify for the combat zone exclusion if all of the requirements (other than service in a combat zone) are met and the pay is verifiable by reference to military pay records. File 2012 taxes free Amount of Exclusion If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, you can exclude all of your military pay for that month. File 2012 taxes free It should not be included in the wages reported on your Form W-2. File 2012 taxes free You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. File 2012 taxes free If you are hospitalized, you cannot exclude any military pay received for any month of service that begins more than 2 years after the end of combat activities in the combat zone. File 2012 taxes free Your hospitalization does not have to be in the combat zone. File 2012 taxes free If you are a commissioned officer (other than a commissioned warrant officer), you can exclude your pay according to the rules just discussed. File 2012 taxes free However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there. File 2012 taxes free Alien Status For tax purposes, an alien is an individual who is not a U. File 2012 taxes free S. File 2012 taxes free citizen. File 2012 taxes free An alien is in one of three categories: resident, nonresident, or dual-status. File 2012 taxes free Placement in the correct category is crucial in determining what income to report and what forms to file. File 2012 taxes free Under peacetime enlistment rules, you generally cannot enlist in the Armed Forces unless you are a citizen or have been legally admitted to the United States for permanent residence. File 2012 taxes free If you are an alien enlistee in the Armed Forces, you are probably a resident alien. File 2012 taxes free If, under an income tax treaty, you are considered a resident of a foreign country, see your base legal officer. File 2012 taxes free Other aliens who are in the United States only because of military assignments and who have a home outside the United States are nonresident aliens. File 2012 taxes free Guam and Puerto Rico have special rules. File 2012 taxes free Residents of those areas should contact their taxing authority with their questions. File 2012 taxes free Most members of the Armed Forces are U. File 2012 taxes free S. File 2012 taxes free citizens or resident aliens. File 2012 taxes free However, if you have questions about your alien status or the alien status of your dependents or spouse, you should read the information in the following paragraphs and see Publication 519. File 2012 taxes free Resident Aliens You are considered a resident alien of the United States for tax purposes if you meet either the “green card test” or the “substantial presence test” for the calendar year (January 1–December 31). File 2012 taxes free If you meet the substantial presence test for 2014, you did not meet either the green card test or the substantial presence test for 2012 or 2013, and you did not choose to be treated as a resident for part of 2012, you may be able to choose to be treated as a U. File 2012 taxes free S. File 2012 taxes free resident for part of 2013. File 2012 taxes free See First-Year Choice in Publication 519. File 2012 taxes free These tests are explained in Publication 519. File 2012 taxes free Generally, resident aliens are taxed on their worldwide income and file the same tax forms as U. File 2012 taxes free S. File 2012 taxes free citizens. File 2012 taxes free Treating nonresident alien spouse as resident alien. File 2012 taxes free   A nonresident alien spouse can be treated as a resident alien if all the following conditions are met. File 2012 taxes free One spouse is a U. File 2012 taxes free S. File 2012 taxes free citizen or resident alien at the end of the tax year. File 2012 taxes free That spouse is married to the nonresident alien at the end of the tax year. File 2012 taxes free You both choose to treat the nonresident alien spouse as a resident alien. File 2012 taxes free Making the choice. File 2012 taxes free   Both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which the choice applies. File 2012 taxes free Include in the statement: A declaration that one spouse was a nonresident alien and the other was a U. File 2012 taxes free S. File 2012 taxes free citizen or resident alien on the last day of the year, A declaration that both spouses choose to be treated as U. File 2012 taxes free S. File 2012 taxes free residents for the entire tax year, and The name, address, and taxpayer identification number (social security number or individual taxpayer identification number) of each spouse. File 2012 taxes free If the nonresident alien spouse is not eligible to get a social security number, he or she should file Form W-7, Application for IRS Individual Taxpayer Identification Number. File 2012 taxes free    Once you make this choice, the nonresident alien spouse's worldwide income is subject to U. File 2012 taxes free S. File 2012 taxes free tax. File 2012 taxes free If the nonresident alien spouse has substantial foreign income, there may be no advantage to making this choice. File 2012 taxes free Ending the choice. File 2012 taxes free   Once you make this choice, it applies to all later years unless one of the following situations occurs. File 2012 taxes free You or your spouse revokes the choice. File 2012 taxes free You or your spouse dies. File 2012 taxes free You and your spouse become legally separated under a decree of divorce or separate maintenance. File 2012 taxes free The Internal Revenue Service ends the choice because you or your spouse kept inadequate records. File 2012 taxes free For specific details on these situations, see Publication 519. File 2012 taxes free   If the choice is ended for any of these reasons, neither spouse can make the choice for any later year. File 2012 taxes free Choice not made. File 2012 taxes free   If you and your nonresident alien spouse do not make this choice: You cannot file a joint return. File 2012 taxes free You can file as married filing separately, or head of household if you qualify. File 2012 taxes free You can claim an exemption for your nonresident alien spouse if he or she has no gross income for U. File 2012 taxes free S. File 2012 taxes free tax purposes and is not another taxpayer's dependent. File 2012 taxes free The nonresident alien spouse generally does not have to file a federal income tax return if he or she had no income from sources in the United States. File 2012 taxes free If a return has to be filed, see the next discussion. File 2012 taxes free The nonresident alien spouse is not eligible for the earned income credit if he or she has to file a return. File 2012 taxes free Nonresident Aliens If you are an alien who does not meet the requirements discussed earlier to be a resident alien, you are a nonresident alien. File 2012 taxes free If you are required to file a federal tax return, you must file either Form 1040NR, U. File 2012 taxes free S. File 2012 taxes free Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U. File 2012 taxes free S. File 2012 taxes free Income Tax Return for Certain Nonresident Aliens With No Dependents. File 2012 taxes free See the form instructions for information on who must file and filing status. File 2012 taxes free If you are a nonresident alien, you generally must pay tax on income from sources in the United States. File 2012 taxes free Your income from conducting a trade or business in the United States is taxed at graduated U. File 2012 taxes free S. File 2012 taxes free tax rates. File 2012 taxes free Other income from U. File 2012 taxes free S. File 2012 taxes free sources is taxed at a flat 30% (or lower treaty) rate. File 2012 taxes free For example, dividends from a U. File 2012 taxes free S. File 2012 taxes free corporation paid to a nonresident alien generally are subject to a 30% (or lower treaty) rate. File 2012 taxes free Dual-Status Aliens You can be both a nonresident and resident alien during the same tax year. File 2012 taxes free This usually occurs in the year you arrive in or depart from the United States. File 2012 taxes free If you are a dual-status alien, you are taxed on income from all sources for the part of the year you are a resident alien. File 2012 taxes free Generally, for the part of the year you are a nonresident alien, you are taxed only on income from sources in the United States. File 2012 taxes free Sale of Home You may not have to pay tax on all or part of the gain from the sale of your main home. File 2012 taxes free Usually, your main home is the one you live in most of the time. File 2012 taxes free It can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. File 2012 taxes free You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2013. File 2012 taxes free The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. File 2012 taxes free To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test). File 2012 taxes free Exception to ownership and use tests. File 2012 taxes free   You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station. File 2012 taxes free 5-year test period suspended. File 2012 taxes free   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. File 2012 taxes free This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. File 2012 taxes free Example. File 2012 taxes free David bought and moved into a home in 2005. File 2012 taxes free He lived in it as his main home for 2½ years. File 2012 taxes free For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. File 2012 taxes free He then sold the home at a gain in 2013. File 2012 taxes free To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. File 2012 taxes free This means he can disregard those 6 years. File 2012 taxes free Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. File 2012 taxes free He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. File 2012 taxes free Period of suspension. File 2012 taxes free   The period of suspension cannot last more than 10 years. File 2012 taxes free You cannot suspend the 5-year period for more than one property at a time. File 2012 taxes free You can revoke your choice to suspend the 5-year period at any time. File 2012 taxes free Qualified official extended duty. File 2012 taxes free   You are on qualified official extended duty if you serve on extended duty either: At a duty station at least 50 miles from your main home, or While you live in Government quarters under Government orders. File 2012 taxes free   You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. File 2012 taxes free Property used for rental or business. File 2012 taxes free   You may be able to exclude your gain from the sale of a home that you have used as a rental property or for business. File 2012 taxes free However, you must meet the ownership and use tests discussed in Publication 523. File 2012 taxes free Nonqualified use. File 2012 taxes free   If the sale of your main home results in a gain that is allocated to one or more period(s) of nonqualified use, you cannot exclude that gain from your income. File 2012 taxes free   Nonqualified use means any period after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions. File 2012 taxes free For example, a period of nonqualified use does not include any period (not to exceed a total of 10 years) during which you or your spouse is serving on qualified official extended duty. File 2012 taxes free Loss. File 2012 taxes free   You cannot deduct a loss from the sale of your main home. File 2012 taxes free More information. File 2012 taxes free   For more information, see Publication 523. File 2012 taxes free Foreclosures There may be tax consequences as a result of compensation payments for foreclosures. File 2012 taxes free Payments made for violations of the Service Members Civil Relief Act (SCRA). File 2012 taxes free   All service members who received a settlement payment reported on a Form 1099 may need to report the amount on their tax return. File 2012 taxes free Generally, you must include settlement payments in income. File 2012 taxes free However, the tax treatment of settlement payments will depend on the facts and circumstances. File 2012 taxes free Lump Sum Portion of Settlement Payment. File 2012 taxes free    Generally, you must include the lump sum payment in gross income. File 2012 taxes free In limited circumstances you may be able to exclude part or all of the lump sum payment from gross income. File 2012 taxes free For example, you may qualify to exclude part or all of the payment from gross income if you can show that the payment was made to reimburse specific nondeductible expenses (such as living expenses) you incurred because of the SCRA violation. File 2012 taxes free Interest Payment on Lump Sum Portion of Settlement Payment. File 2012 taxes free    You must include any interest on the lump sum portion of your settlement payment in your income. File 2012 taxes free Lost Equity Portion of Settlement Payment. File 2012 taxes free    If you lost your main home in foreclosure, you should treat the lost equity payment as an additional amount you received on the foreclosure of the home. File 2012 taxes free You will have a gain on the foreclosure only if the sum of the lost equity payment and the value of the main home at foreclosure is more than what you paid for the home. File 2012 taxes free In many cases, this gain may be excluded from income. File 2012 taxes free For more information on the rules for excluding all or part of any gain from the sale (including a foreclosure) of a main home, see Pub. File 2012 taxes free 523, Selling Your Home. File 2012 taxes free The rules that apply to a lost equity payment you received for the foreclosure of a property that was not your main home are different. File 2012 taxes free    To find rules for reporting gain or loss on the foreclosure of property that was not your main home, see Pub. File 2012 taxes free 544, Sales and Other Dispositions of Assets. File 2012 taxes free Interest Payment on Lost Equity Portion of Settlement Payment. File 2012 taxes free    You must include any interest on the lost equity portion of your settlement payment in your income. File 2012 taxes free Itemized Deductions To figure your taxable income, you must subtract either your standard deduction or your itemized deductions from adjusted gross income. File 2012 taxes free For information on the standard deduction, see Publication 501. File 2012 taxes free Itemized deductions are figured on Schedule A (Form 1040). File 2012 taxes free This chapter discusses miscellaneous itemized deductions of particular interest to members of the Armed Forces. File 2012 taxes free For information on other itemized deductions, see the publications listed below. File 2012 taxes free Publication 502, Medical and Dental Expenses. File 2012 taxes free Publication 526, Charitable Contributions. File 2012 taxes free Publication 547, Casualties, Disasters, and Thefts. File 2012 taxes free Publication 550, Investment Income and Expenses. File 2012 taxes free You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. File 2012 taxes free For information on deductions that are not subject to the 2% limit, see Publication 529. File 2012 taxes free Employee Business Expenses Deductible employee business expenses generally are miscellaneous itemized deductions subject to the 2% limit. File 2012 taxes free Certain employee business expenses are deductible as adjustments to income. File 2012 taxes free For information on many employee business expenses, see Publication 463. File 2012 taxes free Generally, you must file Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to claim these expenses. File 2012 taxes free You do not have to file Form 2106 or Form 2106-EZ if you are claiming only unreimbursed expenses for uniforms, professional society dues, and work-related educational expenses (all discussed later). File 2012 taxes free You can deduct these expenses directly on Schedule A (Form 1040). File 2012 taxes free Reimbursement. File 2012 taxes free   Generally, to receive advances, reimbursements, or other allowances from the government, you must adequately account for your expenses and return any excess reimbursement. File 2012 taxes free Your reimbursed expenses are not deductible. File 2012 taxes free   If your expenses are more than your reimbursement, the excess expenses are deductible (subject to the 2% limit) if you can prove them. File 2012 taxes free You must file Form 2106 to report these expenses. File 2012 taxes free   You can use the shorter Form 2106-EZ if you meet all three of the following conditions. File 2012 taxes free You are an employee deducting expenses related to your job. File 2012 taxes free You were not reimbursed by your employer for your expenses. File 2012 taxes free (Amounts included in box 1 of Form W-2 are not considered reimbursements. File 2012 taxes free ) If you claim car expenses, you use the standard mileage rate. File 2012 taxes free    For 2013, the standard mileage rate is 56. File 2012 taxes free 5 cents a mile for all business miles driven. File 2012 taxes free This rate is adjusted periodically. File 2012 taxes free Travel Expenses You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home. File 2012 taxes free If you are a member of the U. File 2012 taxes free S. File 2012 taxes free Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. File 2012 taxes free You cannot deduct your expenses for meals and lodging while at your permanent duty station. File 2012 taxes free You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. File 2012 taxes free A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a home aboard ship for travel expense purposes. File 2012 taxes free To be deductible, your travel expenses must be work related. File 2012 taxes free You cannot deduct any expenses for personal travel, such as visits to family while on furlough, leave, or liberty. File 2012 taxes free Away from home. File 2012 taxes free   Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. File 2012 taxes free You are away from home if you are away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away from home. File 2012 taxes free   Examples of deductible travel expenses include: Expenses for business-related meals (generally limited to 50% of your unreimbursed cost), lodging, taxicabs, business telephone calls, tips, laundry, and dry cleaning while you are away from home on temporary duty or temporary additional duty, and Expenses of carrying out official business while on “No Cost” orders. File 2012 taxes free    You cannot deduct any expenses for travel away from home if the temporary assignment in a single location is realistically expected to last (and does in fact last) for more than 1 year. File 2012 taxes free This rule may not apply if you are participating in a federal crime investigation or prosecution. File 2012 taxes free For more information, see Publication 463 and the Form 2106 instructions. File 2012 taxes free Transportation Expenses These expenses include the ordinary and necessary costs of: Getting from one workplace to another when you are not away from home, Going to a business meeting away from your regular workplace, and Getting from your home to a temporary workplace when you have a regular place of work. File 2012 taxes free These expenses include the costs of transportation by air, bus, rail, taxi, and driving and maintaining your car. File 2012 taxes free Transportation expenses incurred while traveling away from home are included with your travel expenses, discussed earlier. File 2012 taxes free However, if you use your car while traveling away from home overnight, see the rules in chapter 4 of Publication 463 to figure your car expense deduction. File 2012 taxes free If you must go from one workplace to another while on duty (for example, as a courier or to attend meetings) without being away from home, your unreimbursed transportation expenses are deductible. File 2012 taxes free However, the expenses of getting to and from your regular place of work (commuting) are not deductible. File 2012 taxes free Temporary work location. File 2012 taxes free   If you have one or more regular places of business away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location. File 2012 taxes free   Generally, if your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary. File 2012 taxes free   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. File 2012 taxes free If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. File 2012 taxes free    If you do not have a regular place of business, but you ordinarily work in the metropolitan area where you live, you can deduct daily transportation expenses between your home and a temporary work site outside your metropolitan area. File 2012 taxes free However, you cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. File 2012 taxes free These are nondeductible commuting costs. File 2012 taxes free Armed Forces reservists. File 2012 taxes free   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. File 2012 taxes free You can deduct the expense of getting from one workplace to the other. File 2012 taxes free You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. File 2012 taxes free In this case, your transportation generally is a nondeductible commuting expense. File 2012 taxes free However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. File 2012 taxes free   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. File 2012 taxes free If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. File 2012 taxes free See Armed Forces Reservists under Adjustments to Income, earlier. File 2012 taxes free Uniforms You usually cannot deduct the expenses for uniform cost and upkeep. File 2012 taxes free Generally, you must wear uniforms when on duty and you are allowed to wear them when off duty. File 2012 taxes free If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of the uniforms, but you must reduce your expenses by any allowance or reimbursement you receive. File 2012 taxes free Unreimbursed expenses for the cost and upkeep of the following articles are deductible. File 2012 taxes free Military battle dress uniforms and utility uniforms that you cannot wear when off duty. File 2012 taxes free Articles not replacing regular clothing, including insignia of rank, corps devices, epaulets, aiguillettes, and swords. File 2012 taxes free Reservists' uniforms if you can wear the uniform only while performing duties as a reservist. File 2012 taxes free Professional Dues You can deduct unreimbursed dues paid to professional societies directly related to your military position. File 2012 taxes free However, you cannot deduct amounts paid to an officers' club or a noncommissioned officers' club. File 2012 taxes free Example. File 2012 taxes free Lieutenant Margaret Allen, an electrical engineer at Maxwell Air Force Base, can deduct professional dues paid to the American Society of Electrical Engineers. File 2012 taxes free Educational Expenses You can deduct the unreimbursed costs of qualifying work-related education. File 2012 taxes free This is education that meets at least one of the following two tests. File 2012 taxes free The education is required by your employer or the law to keep your present salary, status, or job. File 2012 taxes free The required education must serve a bona fide business purpose of your employer. File 2012 taxes free The education maintains or improves skills needed in your present work. File 2012 taxes free However, even if the education meets one or both of the above tests, it is not qualifying education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. File 2012 taxes free You can deduct the expenses for qualifying work-related education even if the education could lead to a degree. File 2012 taxes free Example 1. File 2012 taxes free Lieutenant Colonel Mason has a degree in financial management and is in charge of base finances at her post of duty. File 2012 taxes free She took an advanced finance course. File 2012 taxes free She already meets the minimum qualifications for her job. File 2012 taxes free By taking the course, she is improving skills in her current position. File 2012 taxes free The course does not qualify her for a new trade or business. File 2012 taxes free She can deduct educational expenses that are more than the educational allowance she received. File 2012 taxes free Example 2. File 2012 taxes free Major Williams worked in the military base legal office as a legal intern. File 2012 taxes free He was placed in excess leave status by his employer to attend law school. File 2012 taxes free He paid all his educational expenses and was not reimbursed. File 2012 taxes free After obtaining his law degree, he passed the state bar exam and worked as a judge advocate. File 2012 taxes free His educational expenses are not deductible because the law degree qualified him for a new trade or business, even though the education maintained and improved his skills in his work. File 2012 taxes free Travel to obtain education. File 2012 taxes free   If your work-related education qualifies, you can deduct the costs of travel, including meals (subject to the 50% limit), and lodging, if the main purpose of the trip is to obtain the education. File 2012 taxes free   You cannot deduct the cost of travel that is itself a form of education, even if it is directly related to your duties in your work or business. File 2012 taxes free Transportation for education. File 2012 taxes free   If your work-related education qualifies for a deduction, you can deduct the costs of transportation to obtain that education. File 2012 taxes free However, you cannot deduct the cost of services provided in kind, such as base-provided transportation to or from class. File 2012 taxes free Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. File 2012 taxes free   If you need more information on educational expenses, see Publication 970. File 2012 taxes free Repayments If you had to repay to your employer an amount that you included in your income in an earlier year, you may be able to deduct the repaid amount from your income for the year in which you repaid it. File 2012 taxes free Repayment of $3,000 or less. File 2012 taxes free   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. File 2012 taxes free If you reported it as wages, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. File 2012 taxes free Repayment over $3,000. File 2012 taxes free   If the amount you repaid was more than $3,000, see Repayments in Publication 525. File 2012 taxes free Credits After you have figured your taxable income and tax liability, you can determine if you are entitled to any tax credits. File 2012 taxes free This publication discusses the first-time homebuyer credit, child tax credit, earned income credit, and credit for excess social security tax withheld. File 2012 taxes free For information on other credits, see your tax form instructions. File 2012 taxes free First-Time Homebuyer Credit The first-time homebuyer credit is not available for homes purchased after 2011. File 2012 taxes free In 2011, this credit had already expired for most taxpayers, however, certain members of the uniformed services and Foreign Service and certain employees of the intelligence community could claim the credit for homes purchased in 2011. File 2012 taxes free If you bought the home (and claimed the credit) after 2008, you generally must repay the credit if you dispose of the home or the home stops being your main home within the 36-month period beginning on the purchase date. File 2012 taxes free If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit. File 2012 taxes free If you bought your home in 2008, you generally must repay the credit over a 15-year period in 15 equal installments. File 2012 taxes free For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. File 2012 taxes free Child Tax Credit The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children. File 2012 taxes free The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit. File 2012 taxes free The child tax credit is not the same as the credit for child and dependent care expenses. File 2012 taxes free See Publication 503 for information on the credit for child and dependent care expenses. File 2012 taxes free Qualifying Child A qualifying child for purposes of the child tax credit is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was under age 17 at the end of 2013, Did not provide over half of his or her own support for 2013, Lived with you for more than half of 2013 (see Exceptions to time lived with you, later), Is claimed as a dependent on your return, Does not file a joint return for the year (or files it only as a claim for refund), and Was a U. File 2012 taxes free S. File 2012 taxes free citizen, a U. File 2012 taxes free S. File 2012 taxes free national, or a U. File 2012 taxes free S. File 2012 taxes free resident alien. File 2012 taxes free If the child was adopted, see Adopted child . File 2012 taxes free For each qualifying child you must check the box on Form 1040 or Form 1040A, line 6c, column (4). File 2012 taxes free Exceptions to time lived with you. File 2012 taxes free   A child is considered to have lived with you for all of 2013 if the child was born or died in 2013 and your home was this child's home for the entire time he or she was alive. File 2012 taxes free Temporary absences by you or the child for special circumstances, such as school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you. File 2012 taxes free   There are also exceptions for kidnapped children and children of divorced or separated parents. File 2012 taxes free For details, see Publication 501. File 2012 taxes free Qualifying child of more than one person. File 2012 taxes free   A special rule applies if your qualifying child is the qualifying child of more than one person. File 2012 taxes free For details, see Publication 501. File 2012 taxes free Adopted child. File 2012 taxes free   An adopted child is always treated as your own child. File 2012 taxes free An adopted child includes a child lawfully placed with you for legal adoption. File 2012 taxes free   If you are a U. File 2012 taxes free S. File 2012 taxes free citizen or U. File 2012 taxes free S. File 2012 taxes free national and your adopted child lived with you as a member of your household all year, that child meets condition (7) above to be a qualifying child for the child tax credit. File 2012 taxes free Amount of Credit The maximum amount you can claim for the credit is $1,000 for each qualifying child. File 2012 taxes free Limits on the credit. File 2012 taxes free   You must reduce your child tax credit if either (1) or (2), below, applies. File 2012 taxes free The amount on Form 1040, line 46, or Form 1040A, line 28, is less than the credit. File 2012 taxes free If the amount is zero, you cannot take this credit because there is no tax to reduce. File 2012 taxes free However, you may be able to take the additional child tax credit. File 2012 taxes free See Additional Child Tax Credit , later. File 2012 taxes free Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status. File 2012 taxes free Married filing jointly — $110,000. File 2012 taxes free Single, head of household,  or qualifying widow(er) — $75,000. File 2012 taxes free Married filing separately — $55,000. File 2012 taxes free Modified AGI. File 2012 taxes free   For purposes of the child tax credit, your modified AGI is the amount on Form 1040, line 38, or Form 1040A, line 22, plus the following amounts that may apply to you. File 2012 taxes free Any amount excluded from income because of the exclusion of income from Puerto Rico. File 2012 taxes free Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. File 2012 taxes free Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion. File 2012 taxes free Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa. File 2012 taxes free   If you do not have any of the above, your modified AGI is the same as your AGI. File 2012 taxes free Claiming the Credit To claim the child tax credit, you must file Form 1040 or Form 1040A. File 2012 taxes free For more information on the child tax credit, see the instructions for Form 1040 or Form 1040A. File 2012 taxes free Also attach Schedule 8812, Child Tax Credit, if required. File 2012 taxes free Additional Child Tax Credit This credit is for certain individuals who get less than the full amount of the child tax credit. File 2012 taxes free The additional child tax credit may give you a refund even if you do not owe any tax. File 2012 taxes free For more information, see the instructions for Form 1040 or Form 1040A, and Schedule 8812. File 2012 taxes free Earned Income Credit The earned income credit (EIC) is a cr