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Free irs e file Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Free irs e file Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Free irs e file An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Free irs e file 7701-3. Free irs e file The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Free irs e file Check your state's requirements and the federal tax regulations for further information. Free irs e file Classification of an LLC Default classification rules. Free irs e file   An LLC with at least two members is classified as a partnership for federal income tax purposes. Free irs e file An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Free irs e file Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Free irs e file Elected classification. Free irs e file   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Free irs e file After an LLC has determined its federal tax classification, it can later elect to change that classification. Free irs e file For details, see Subsequent Elections, later. Free irs e file LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Free irs e file S. Free irs e file Return of Partnership Income. Free irs e file Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Free irs e file For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Free irs e file For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Free irs e file 469-5T(e)). Free irs e file See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Free irs e file Member manager. Free irs e file   Only a member manager of an LLC can sign the partnership tax return. Free irs e file And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Free irs e file A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Free irs e file If there are no elected or designated member managers, each owner is treated as a member manager. Free irs e file Change in default classification. Free irs e file   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Free irs e file 7701-3(f)(2). Free irs e file However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Free irs e file   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free irs e file If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Free irs e file Example 1. Free irs e file Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Free irs e file Each holds an equal membership interest. Free irs e file The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free irs e file Ethel sells her entire interest in the LLC to Francis for $10,000. Free irs e file After the sale, the business is continued by the LLC, which is owned solely by Francis. Free irs e file No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free irs e file The partnership terminates when Francis buys Ethel's entire interest. Free irs e file Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Free irs e file For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Free irs e file Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Free irs e file Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Free irs e file Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Free irs e file See Partnership Distributions in Publication 541. Free irs e file Example 2. Free irs e file George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Free irs e file Each holds an equal membership interest. Free irs e file The LLC does not hold any unrealized receivables or substantially appreciated inventory. Free irs e file George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Free irs e file After the sale, the business is continued by the LLC, which is owned solely by Ian. Free irs e file No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Free irs e file The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Free irs e file George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Free irs e file For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Free irs e file Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Free irs e file   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Free irs e file R. Free irs e file B. Free irs e file 6. Free irs e file You can find Revenue Ruling 99-6 at www. Free irs e file irs. Free irs e file gov/pub/irs-irbs/irb99-06. Free irs e file pdf. Free irs e file LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Free irs e file For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Free irs e file Employment tax and certain excise taxes. Free irs e file   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Free irs e file For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Free irs e file A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Free irs e file See the employment and excise tax returns for more information. Free irs e file Self-employment tax rule for disregarded entity LLCs. Free irs e file   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Free irs e file Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Free irs e file Example 3. Free irs e file LLC is a disregarded entity owned by Irene. Free irs e file LLC has three employees (Kent, Patricia, and Tex) and pays wages. Free irs e file LLC is treated as an entity separate from its owner for purposes of employment taxes. Free irs e file For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Free irs e file In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Free irs e file Irene is self-employed for purposes of the self-employment tax. Free irs e file Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Free irs e file Irene is not an employee of LLC for purposes of employment taxes. Free irs e file Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Free irs e file Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Free irs e file Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Free irs e file Taxpayer identification number. Free irs e file   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Free irs e file This includes all information returns and reporting related to income tax. Free irs e file For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Free irs e file   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Free irs e file An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Free irs e file See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Free irs e file Change in default classification. Free irs e file   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Free irs e file 7701-3(f)(2). Free irs e file However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Free irs e file   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Free irs e file If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Free irs e file Example 4. Free irs e file Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Free irs e file Alain does not contribute any portion of the $5,000 to the LLC. Free irs e file Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Free irs e file The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Free irs e file Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Free irs e file Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Free irs e file Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Free irs e file Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Free irs e file Example 5. Free irs e file Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Free irs e file The LLC uses all of the contributed cash in its business. Free irs e file Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Free irs e file The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Free irs e file Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Free irs e file Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Free irs e file Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Free irs e file   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Free irs e file R. Free irs e file B. Free irs e file 8. Free irs e file You can find Revenue Ruling 99-5 at www. Free irs e file irs. Free irs e file gov/pub/irs-irbs/irb99-06. Free irs e file pdf. Free irs e file LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Free irs e file File Form 8832, Entity Classification Election, to elect classification as a C corporation. Free irs e file File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Free irs e file LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Free irs e file By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Free irs e file If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Free irs e file Example 6. Free irs e file Classification as a corporation without an S election. Free irs e file Wanda and Sylvester are members of an LLC. Free irs e file They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Free irs e file The LLC must file Form 8832. Free irs e file Example 7. Free irs e file Classification as a corporation with an S election. Free irs e file Evelyn and Carol are members of an LLC. Free irs e file They agree that the LLC should be classified as an S corporation. Free irs e file The LLC must file Form 2553 instead of Form 8832. Free irs e file If the LLC is classified as a corporation, it must file a corporation income tax return. Free irs e file If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Free irs e file If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Free irs e file Corporations generally file either: Form 1120, U. Free irs e file S. Free irs e file Corporation Income Tax Return; or Form 1120S, U. Free irs e file S. Free irs e file Income Tax Return for an S Corporation. Free irs e file For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Free irs e file For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Free irs e file S. Free irs e file Income Tax Return for an S Corporation. Free irs e file Subsequent Elections An LLC can elect to change its classification. Free irs e file Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Free irs e file An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Free irs e file For more information and exceptions, see Regulations section 301. Free irs e file 7701-3(c) and the Form 8832 instructions. Free irs e file An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Free irs e file Partnership to corporation. Free irs e file   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Free irs e file   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Free irs e file Corporation to partnership. Free irs e file   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Free irs e file   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Free irs e file Corporation to disregarded entity. Free irs e file   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Free irs e file   For more information, see Distributions to Shareholders in Publication 542. Free irs e file Disregarded entity to corporation. Free irs e file   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Free irs e file   For more information, see Property Exchanged for Stock in Publication 542. Free irs e file How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Free irs e file Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Free irs e file By selecting the method that is best for you, you will have quick and easy access to tax help. Free irs e file Contacting your Taxpayer Advocate. Free irs e file   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Free irs e file   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Free irs e file You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Free irs e file You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Free irs e file For more information, go to www. Free irs e file irs. Free irs e file gov/advocate. Free irs e file Low Income Taxpayer Clinics (LITCs). Free irs e file   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Free irs e file The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Free irs e file Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Free irs e file It is available at www. Free irs e file irs. Free irs e file gov or at your local IRS office. Free irs e file Small business workshops. Free irs e file   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Free irs e file Workshops are sponsored and presented by IRS partners who are federal tax specialists. Free irs e file Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Free irs e file Although most are free, some workshops have fees associated with them. Free irs e file Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Free irs e file   For more information, visit www. Free irs e file irs. Free irs e file gov/businesses/small. Free irs e file Subscribe to e-news for small businesses. Free irs e file   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Free irs e file Visit the website at www. Free irs e file irs. Free irs e file gov/businesses/small and click on “Subscribe to e-News. Free irs e file ” Free tax services. Free irs e file   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Free irs e file It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Free irs e file   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Free irs e file Internet. Free irs e file You can access the IRS website at www. Free irs e file irs. Free irs e file gov 24 hours a day, 7 days a week, to: E-file your return. Free irs e file Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Free irs e file Check the status of your refund. Free irs e file Go to www. Free irs e file irs. Free irs e file gov and click on Where's My Refund. Free irs e file Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free irs e file If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free irs e file Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free irs e file Download forms, instructions, and publications. Free irs e file Order IRS products online. Free irs e file Research your tax questions online. Free irs e file Search publications online by topic or keyword. Free irs e file View Internal Revenue Bulletins (IRBs) published in the last few years. Free irs e file Figure your withholding allowances using the withholding calculator online at www. Free irs e file irs. Free irs e file gov/individuals. Free irs e file Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Free irs e file Sign up to receive local and national tax news by email. Free irs e file Get information on starting and operating a small business. Free irs e file Phone. Free irs e file Many services are available by phone. Free irs e file Ordering forms, instructions, and publications. Free irs e file Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Free irs e file You should receive your order within 10 days. Free irs e file Asking tax questions. Free irs e file Call the IRS with your tax questions at 1-800-829-1040. Free irs e file Solving problems. Free irs e file You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Free irs e file An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Free irs e file Call your local Taxpayer Assistance Center for an appointment. Free irs e file To find the number, go to www. Free irs e file irs. Free irs e file gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free irs e file TTY/TDD equipment. Free irs e file If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Free irs e file TeleTax topics. Free irs e file Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Free irs e file Refund information. Free irs e file To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Free irs e file Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Free irs e file If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Free irs e file Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Free irs e file Refunds are sent out weekly on Fridays. Free irs e file If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Free irs e file Evaluating the quality of our telephone services. Free irs e file To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Free irs e file One method is for a second IRS representative to listen in on or record random telephone calls. Free irs e file Another is to ask some callers to complete a short survey at the end of the call. Free irs e file Walk-in. Free irs e file Many products and services are available on a walk-in basis. Free irs e file Products. Free irs e file You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free irs e file Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Free irs e file Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Free irs e file Services. Free irs e file You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Free irs e file An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Free irs e file If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Free irs e file No appointment is necessary—just walk in. Free irs e file If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Free irs e file A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Free irs e file If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Free irs e file All other issues will be handled without an appointment. Free irs e file To find the number of your local office, go to www. Free irs e file irs. Free irs e file gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free irs e file Mail. Free irs e file You can send your order for forms, instructions, and publications to the address below. Free irs e file You should receive a response within 10 days after your request is received. Free irs e file Internal Revenue Service1201 N. Free irs e file Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Free irs e file You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Free irs e file Prior-year forms, instructions, and publications. Free irs e file Tax Map: an electronic research tool and finding aid. Free irs e file Tax law frequently asked questions. Free irs e file Tax Topics from the IRS telephone response system. Free irs e file Internal Revenue Code—Title 26 of the U. Free irs e file S. Free irs e file Code. Free irs e file Fill-in, print, and save features for most tax forms. Free irs e file Internal Revenue Bulletins. Free irs e file Toll-free and email technical support. Free irs e file Two releases during the year. Free irs e file – The first release will ship the beginning of January. Free irs e file – The final release will ship the beginning of March. Free irs e file Purchase the DVD from National Technical Information Service (NTIS) at www. Free irs e file irs. Free irs e file gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Free irs e file Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Free irs e file The SBA also has publications and videos on a variety of business topics. Free irs e file The following briefly describes assistance provided by the SBA. Free irs e file Small Business Development Centers (SBDCs). Free irs e file   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Free irs e file Help is available when beginning, improving, or expanding a small business. Free irs e file Business Information Centers (BICs). Free irs e file   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Free irs e file BICs also offer one-on-one assistance. Free irs e file Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Free irs e file Service Corps of Retired Executives (SCORE). Free irs e file   SCORE provides small business counseling and training to current and prospective small business owners. Free irs e file SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Free irs e file SCORE also offers a variety of small business workshops. Free irs e file    Internet. Free irs e file You can visit the SBA website at www. Free irs e file sba. Free irs e file gov. Free irs e file While visiting the SBA website, you can find a variety of information of interest to small business owners. Free irs e file    Phone. Free irs e file Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Free irs e file    Walk-in. Free irs e file You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Free irs e file To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Free irs e file Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Free irs e file Most of these are available from the Superintendent of Documents at the Government Printing Office. Free irs e file You can get information and order these publications and pamphlets in several ways. Free irs e file Internet. Free irs e file You can visit the GPO website at www. Free irs e file access. Free irs e file gpo. Free irs e file gov. Free irs e file Mail. Free irs e file Write to the GPO at the following address. Free irs e file Superintendent of DocumentsU. Free irs e file S. Free irs e file Government Printing OfficeP. Free irs e file O. Free irs e file Box 979050St. Free irs e file Louis, MO 63917-9000 Phone. Free irs e file Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Free irs e file Prev  Up  Next   Home   More Online Publications
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The Free Irs E File

Free irs e file Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Free irs e file Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Free irs e file Method 2. Free irs e file How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Free irs e file In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Free irs e file You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Free irs e file Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Free irs e file If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Free irs e file These wages must be included on line 7 of Form 1040. Free irs e file See Form 8919 for more information. Free irs e file Childcare providers. Free irs e file   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Free irs e file If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Free irs e file You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Free irs e file Babysitting. Free irs e file   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Free irs e file Bankruptcy. Free irs e file   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Free irs e file Your W-2 will show your total wages and withheld income tax for the year. Free irs e file On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Free irs e file Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Free irs e file If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Free irs e file   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Free irs e file For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Free irs e file   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Free irs e file The statement must show the allocation and describe the method used to make the allocation. Free irs e file For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Free irs e file R. Free irs e file B. Free irs e file 596, available at www. Free irs e file irs. Free irs e file gov/irb/2006-40_IRB/ar12. Free irs e file html. Free irs e file Miscellaneous Compensation This section discusses many types of employee compensation. Free irs e file The subjects are arranged in alphabetical order. Free irs e file Advance commissions and other earnings. Free irs e file   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Free irs e file    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Free irs e file If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Free irs e file See Repayments , later. Free irs e file Allowances and reimbursements. Free irs e file    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free irs e file If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Free irs e file Back pay awards. Free irs e file   Include in income amounts you are awarded in a settlement or judgment for back pay. Free irs e file These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Free irs e file They should be reported to you by your employer on Form W-2. Free irs e file Bonuses and awards. Free irs e file    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Free irs e file These include prizes such as vacation trips for meeting sales goals. Free irs e file If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Free irs e file However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Free irs e file Employee achievement award. Free irs e file   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Free irs e file However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Free irs e file Your employer can tell you whether your award is a qualified plan award. Free irs e file Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Free irs e file   However, the exclusion does not apply to the following awards. Free irs e file A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Free irs e file A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Free irs e file Example. Free irs e file Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Free irs e file Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Free irs e file However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Free irs e file Differential wage payments. Free irs e file   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Free irs e file These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Free irs e file The payments are reported as wages on Form W-2. Free irs e file Government cost-of-living allowances. Free irs e file   Most payments received by U. Free irs e file S. Free irs e file Government civilian employees for working abroad are taxable. Free irs e file However, certain cost-of-living allowances are tax free. Free irs e file Publication 516, U. Free irs e file S. Free irs e file Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Free irs e file Nonqualified deferred compensation plans. Free irs e file   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Free irs e file This amount is shown on Form W-2, box 12, using code Y. Free irs e file This amount is not included in your income. Free irs e file   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Free irs e file This amount is included in your wages shown on Form W-2, box 1. Free irs e file It is also shown on Form W-2, box 12, using code Z. Free irs e file Nonqualified deferred compensation plans of nonqualified entities. Free irs e file   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Free irs e file For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Free irs e file A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Free irs e file Note received for services. Free irs e file   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Free irs e file When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Free irs e file Do not include that part again in your income. Free irs e file Include the rest of the payment in your income in the year of payment. Free irs e file   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Free irs e file Severance pay. Free irs e file   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Free irs e file Accrued leave payment. Free irs e file   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Free irs e file   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Free irs e file You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Free irs e file Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Free irs e file Outplacement services. Free irs e file   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Free irs e file    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Free irs e file Sick pay. Free irs e file   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Free irs e file In addition, you must include in your income sick pay benefits received from any of the following payers. Free irs e file A welfare fund. Free irs e file A state sickness or disability fund. Free irs e file An association of employers or employees. Free irs e file An insurance company, if your employer paid for the plan. Free irs e file However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Free irs e file For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Free irs e file Social security and Medicare taxes paid by employer. Free irs e file   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Free irs e file The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Free irs e file However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Free irs e file Stock appreciation rights. Free irs e file   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Free irs e file When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Free irs e file You include the cash payment in income in the year you use the right. Free irs e file Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Free irs e file Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Free irs e file See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Free irs e file Recipient of fringe benefit. Free irs e file   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Free irs e file You are considered to be the recipient even if it is given to another person, such as a member of your family. Free irs e file An example is a car your employer gives to your spouse for services you perform. Free irs e file The car is considered to have been provided to you and not to your spouse. Free irs e file   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Free irs e file If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Free irs e file Provider of benefit. Free irs e file   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Free irs e file The provider can be a client or customer of an independent contractor. Free irs e file Accounting period. Free irs e file   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Free irs e file Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Free irs e file The general rule: benefits are reported for a full calendar year (January 1–December 31). Free irs e file The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Free irs e file For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Free irs e file Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Free irs e file   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Free irs e file Form W-2. Free irs e file   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Free irs e file Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Free irs e file However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Free irs e file Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Free irs e file Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Free irs e file For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Free irs e file Long-term care coverage. Free irs e file   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Free irs e file However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Free irs e file This amount will be reported as wages in box 1 of your Form W-2. Free irs e file Archer MSA contributions. Free irs e file    Contributions by your employer to your Archer MSA generally are not included in your income. Free irs e file Their total will be reported in box 12 of Form W-2, with code R. Free irs e file You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Free irs e file File the form with your return. Free irs e file Health flexible spending arrangement (health FSA). Free irs e file   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Free irs e file   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Free irs e file The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Free irs e file For more information, see Notice 2012-40, 2012-26 I. Free irs e file R. Free irs e file B. Free irs e file 1046, available at www. Free irs e file irs. Free irs e file gov/irb/2012-26 IRB/ar09. Free irs e file html. Free irs e file Health reimbursement arrangement (HRA). Free irs e file   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Free irs e file Health savings accounts (HSA). Free irs e file   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Free irs e file Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Free irs e file Contributions made by your employer are not included in your income. Free irs e file Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Free irs e file Distributions not used for qualified medical expenses are included in your income. Free irs e file See Publication 969 for the requirements of an HSA. Free irs e file   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Free irs e file The contributions are treated as a distribution of money and are not included in the partner's gross income. Free irs e file Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Free irs e file In both situations, the partner can deduct the contribution made to the partner's HSA. Free irs e file   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Free irs e file The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Free irs e file Qualified HSA funding distribution. Free irs e file   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Free irs e file See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Free irs e file Failure to maintain eligibility. Free irs e file   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Free irs e file If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Free irs e file This income is also subject to an additional 10% tax. Free irs e file Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Free irs e file See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Free irs e file Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Free irs e file They also are included as social security and Medicare wages in boxes 3 and 5. Free irs e file However, they are not included as wages in box 1. Free irs e file To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Free irs e file File the form with your return. Free irs e file Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Free irs e file The gym must be used primarily by employees, their spouses, and their dependent children. Free irs e file If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Free irs e file De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Free irs e file In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Free irs e file Also see Employee Discounts , later. Free irs e file Holiday gifts. Free irs e file   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Free irs e file However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Free irs e file Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Free irs e file Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Free irs e file The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Free irs e file Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Free irs e file Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Free irs e file To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Free irs e file See the Instructions for Form 2441 for more information. Free irs e file Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Free irs e file For more information, see Publication 970. Free irs e file Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Free irs e file The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Free irs e file However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Free irs e file The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Free irs e file For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Free irs e file (Ask your employer for this percentage. Free irs e file ) For a discount on services, 20%. Free irs e file Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Free irs e file If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Free irs e file Qualified retirement planning services paid for you by your employer may be excluded from your income. Free irs e file For more information, see Retirement Planning Services , later. Free irs e file Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Free irs e file However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Free irs e file For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Free irs e file If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Free irs e file Also, it is shown separately in box 12 with code C. Free irs e file Group-term life insurance. Free irs e file   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Free irs e file Permanent benefits. Free irs e file   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Free irs e file Your employer should be able to tell you the amount to include in your income. Free irs e file Accidental death benefits. Free irs e file   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Free irs e file Former employer. Free irs e file   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Free irs e file Also, it is shown separately in box 12 with code C. Free irs e file Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Free irs e file You must pay these taxes with your income tax return. Free irs e file Include them on line 60, Form 1040, and follow the instructions forline 60. Free irs e file For more information, see the Instructions for Form 1040. Free irs e file Two or more employers. Free irs e file   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Free irs e file If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Free irs e file You must figure how much to include in your income. Free irs e file Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Free irs e file Figuring the taxable cost. Free irs e file    Use the following worksheet to figure the amount to include in your income. Free irs e file   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Free irs e file However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Free irs e file Worksheet 1. Free irs e file Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Free irs e file Enter the total amount of your insurance coverage from your employer(s) 1. Free irs e file   2. Free irs e file Limit on exclusion for employer-provided group-term life insurance coverage 2. Free irs e file 50,000 3. Free irs e file Subtract line 2 from line 1 3. Free irs e file   4. Free irs e file Divide line 3 by $1,000. Free irs e file Figure to the nearest tenth 4. Free irs e file   5. Free irs e file Go to Table 1. Free irs e file Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Free irs e file   6. Free irs e file Multiply line 4 by line 5 6. Free irs e file     7. Free irs e file Enter the number of full months of coverage at this cost 7. Free irs e file   8. Free irs e file Multiply line 6 by line 7 8. Free irs e file   9. Free irs e file Enter the premiums you paid per month 9. Free irs e file       10. Free irs e file Enter the number of months you paid the  premiums 10. Free irs e file       11. Free irs e file Multiply line 9 by line 10. Free irs e file 11. Free irs e file   12. Free irs e file Subtract line 11 from line 8. Free irs e file Include this amount in your income as wages 12. Free irs e file   Table 1. Free irs e file Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Free irs e file 05     25 through 29 . Free irs e file 06     30 through 34 . Free irs e file 08     35 through 39 . Free irs e file 09     40 through 44 . Free irs e file 10     45 through 49 . Free irs e file 15     50 through 54 . Free irs e file 23     55 through 59 . Free irs e file 43     60 through 64 . Free irs e file 66     65 through 69 1. Free irs e file 27     70 and older 2. Free irs e file 06   Example. Free irs e file You are 51 years old and work for employers A and B. Free irs e file Both employers provide group-term life insurance coverage for you for the entire year. Free irs e file Your coverage is $35,000 with employer A and $45,000 with employer B. Free irs e file You pay premiums of $4. Free irs e file 15 a month under the employer B group plan. Free irs e file You figure the amount to include in your income as follows. Free irs e file   Worksheet 1. Free irs e file Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Free irs e file Enter the total amount of your insurance coverage from your employer(s) 1. Free irs e file 80,000 2. Free irs e file Limit on exclusion for employer-provided group-term life insurance coverage 2. Free irs e file 50,000 3. Free irs e file Subtract line 2 from line 1 3. Free irs e file 30,000 4. Free irs e file Divide line 3 by $1,000. Free irs e file Figure to the nearest tenth 4. Free irs e file 30. Free irs e file 0 5. Free irs e file Go to Table 1. Free irs e file Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Free irs e file . Free irs e file 23 6. Free irs e file Multiply line 4 by line 5 6. Free irs e file 6. Free irs e file 90 7. Free irs e file Enter the number of full months of coverage at this cost. Free irs e file 7. Free irs e file 12 8. Free irs e file Multiply line 6 by line 7 8. Free irs e file 82. Free irs e file 80 9. Free irs e file Enter the premiums you paid per month 9. Free irs e file 4. Free irs e file 15     10. Free irs e file Enter the number of months you paid the premiums 10. Free irs e file 12     11. Free irs e file Multiply line 9 by line 10. Free irs e file 11. Free irs e file 49. Free irs e file 80 12. Free irs e file Subtract line 11 from line 8. Free irs e file Include this amount in your income as wages 12. Free irs e file 33. Free irs e file 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Free irs e file Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Free irs e file You must add it to the wages shown on your Forms W-2 and include the total on your return. Free irs e file Entire cost excluded. Free irs e file   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Free irs e file You are permanently and totally disabled and have ended your employment. Free irs e file Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Free irs e file A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Free irs e file (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Free irs e file ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Free irs e file Entire cost taxed. Free irs e file   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Free irs e file The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Free irs e file You are a key employee and your employer's plan discriminates in favor of key employees. Free irs e file Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Free irs e file The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Free irs e file The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Free irs e file (You must accept it in order to be able to properly perform your duties. Free irs e file ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Free irs e file See De Minimis (Minimal) Benefits , earlier. Free irs e file Faculty lodging. Free irs e file   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Free irs e file However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Free irs e file Academic health center. Free irs e file   This is an organization that meets the following conditions. Free irs e file Its principal purpose or function is to provide medical or hospital care or medical education or research. Free irs e file It receives payments for graduate medical education under the Social Security Act. Free irs e file One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Free irs e file Qualified campus lodging. Free irs e file   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Free irs e file The lodging must be located on or near a campus of the educational institution or academic health center. Free irs e file Adequate rent. Free irs e file   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Free irs e file If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Free irs e file   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Free irs e file Example. Free irs e file Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Free irs e file The house is appraised at $200,000. Free irs e file The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Free irs e file Carl pays an annual rent of $11,000. Free irs e file Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Free irs e file If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Free irs e file Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Free irs e file See Publication 521 for more information. Free irs e file No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Free irs e file In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Free irs e file Example. Free irs e file You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Free irs e file Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Free irs e file The value of the personal flight is not included in your income. Free irs e file However, the value of the hotel room is included in your income because you do not work in the hotel business. Free irs e file Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Free irs e file Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Free irs e file You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Free irs e file Also, see Financial Counseling Fees , earlier. Free irs e file Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Free irs e file A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Free irs e file Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Free irs e file However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Free irs e file Exclusion limit. Free irs e file   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Free irs e file   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Free irs e file   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Free irs e file   If the benefits have a value that is more than these limits, the excess must be included in your income. Free irs e file You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Free irs e file Commuter highway vehicle. Free irs e file   This is a highway vehicle that seats at least six adults (not including the driver). Free irs e file At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Free irs e file Transit pass. Free irs e file   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Free irs e file Qualified parking. Free irs e file   This is parking provided to an employee at or near the employer's place of business. Free irs e file It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Free irs e file It does not include parking at or near the employee's home. Free irs e file Qualified bicycle commuting. Free irs e file   This is reimbursement based on the number of qualified bicycle commuting months for the year. Free irs e file A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Free irs e file The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Free irs e file Tuition Reduction You can exclude a qualified tuition reduction from your income. Free irs e file This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Free irs e file For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Free irs e file Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. Free irs e file For more information, see Publication 970. Free irs e file Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Free irs e file Example. Free irs e file You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Free irs e file The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Free irs e file Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Free irs e file For an exception, see Group-Term Life Insurance , earlier. Free irs e file General valuation rule. Free irs e file   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Free irs e file If you pay fair market value for a fringe benefit, no amount is included in your income. Free irs e file Fair market value. Free irs e file   The fair market value of a fringe benefit is determined by all the facts and circumstances. Free irs e file It is the amount you would have to pay a third party to buy or lease the benefit. Free irs e file This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Free irs e file Employer-provided vehicles. Free irs e file   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Free irs e file   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Free irs e file An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Free irs e file The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Free irs e file Flights on employer-provided aircraft. Free irs e file   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Free irs e file   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Free irs e file The division must be based on all the facts, including which employee or employees control the use of the aircraft. Free irs e file Special valuation rules. Free irs e file   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Free irs e file If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Free irs e file You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Free irs e file   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Free irs e file The special valuation rules are the following. Free irs e file The automobile lease rule. Free irs e file The vehicle cents-per-mile rule. Free irs e file The commuting rule. Free irs e file The unsafe conditions commuting rule. Free irs e file The employer-operated eating-facility rule. Free irs e file   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free irs e file    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Free irs e file 61-21(g) and 1. Free irs e file 61-21(h) of the regulations. Free irs e file Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Free irs e file (Your employer can tell you whether your retirement plan is qualified. Free irs e file ) However, the cost of life insurance coverage included in the plan may have to be included. Free irs e file See Group-Term Life Insurance , earlier, under Fringe Benefits. Free irs e file If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Free irs e file However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Free irs e file For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Free irs e file S. Free irs e file Civil Service Retirement Benefits, if you are a federal employee or retiree). Free irs e file Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Free irs e file The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Free irs e file An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Free irs e file However, it is included in wages subject to social security and Medicare taxes. Free irs e file Elective deferrals include elective contributions to the following retirement plans. Free irs e file Cash or deferred arrangements (section 401(k) plans). Free irs e file The Thrift Savings Plan for federal employees. Free irs e file Salary reduction simplified employee pension plans (SARSEP). Free irs e file Savings incentive match plans for employees (SIMPLE plans). Free irs e file Tax-sheltered annuity plans (403(b) plans). Free irs e file Section 501(c)(18)(D) plans. Free irs e file (But see Reporting by employer , later. Free irs e file ) Section 457 plans. Free irs e file Qualified automatic contribution arrangements. Free irs e file   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Free irs e file You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Free irs e file The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Free irs e file   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Free irs e file Overall limit on deferrals. Free irs e file   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Free irs e file The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Free irs e file Amounts deferred under specific plan limits are part of the overall limit on deferrals. Free irs e file   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Free irs e file However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Free irs e file Catch-up contributions. Free irs e file   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Free irs e file For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Free irs e file   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Free irs e file SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Free irs e file Section 457 plans, see Limit for deferrals under section 457 plans , later. Free irs e file Limit for deferrals under SIMPLE plans. Free irs e file   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Free irs e file Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Free irs e file Limit for tax-sheltered annuities. Free irs e file   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Free irs e file However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Free irs e file $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Free irs e file   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Free irs e file   For more information, see Publication 571. Free irs e file Limit for deferral under section 501(c)(18) plans. Free irs e file   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Free irs e file Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Free irs e file Limit for deferrals under section 457 plans. Free irs e file   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Free irs e file However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Free irs e file See Increased limit , later. Free irs e file Includible compensation. Free irs e file   This is the pay you received for the year from the employer who maintained the section 457 plan. Free irs e file In most cases, it includes all the following payments. Free irs e file Wages and salaries. Free irs e file Fees for professional services. Free irs e file The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Free irs e file Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Free irs e file Commissions and tips. Free irs e file Fringe benefits. Free irs e file Bonuses. Free irs e file Employer contributions (elective deferrals) to: The section 457 plan. Free irs e file Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Free irs e file A salary reduction simplified employee pension (SARSEP). Free irs e file A tax-sheltered annuity (section 403(b) plan). Free irs e file A savings incentive match plan for employees (SIMPLE plan). Free irs e file A section 125 cafeteria plan. Free irs e file   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Free irs e file Your wages as defined for income tax withholding purposes. Free irs e file Your wages as reported in box 1 of Form W-2. Free irs e file Your wages that are subject to social security withholding (including elective deferrals). Free irs e file Increased limit. Free irs e file   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Free irs e file Catch-up contributions. Free irs e file   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Free irs e file If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Free irs e file However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Free irs e file Designated Roth contributions. Free irs e file   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Free irs e file Designated Roth contributions are treated as elective deferrals, except that they are included in income. Free irs e file Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Free irs e file   Qualified distributions from a Roth plan are not included in income. Free irs e file In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Free irs e file Reporting by employer. Free irs e file   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Free irs e file Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Free irs e file Section 501(c)(18)(D) contributions. Free irs e file   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Free irs e file The amount you contributed should be identified with code “H” in box 12. Free irs e file You may deduct the amount deferred subject to the limits that apply. Free irs e file Include your deduction in the total on Form 1040, line 36. Free irs e file Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Free irs e file Designated Roth contributions. Free irs e file    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Free irs e file Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Free irs e file Excess deferrals. Free irs e file   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Free irs e file If the plan permits, the excess amount will be distributed to you. Free irs e file If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Free irs e file You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Free irs e file The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Free irs e file   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Free irs e file File Form 1040 to add the excess deferral amount to your wages on line 7. Free irs e file Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Free irs e file Excess not distributed. Free irs e file   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Free irs e file Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Free irs e file Excess distributed to you. Free irs e file   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Free irs e file If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Free irs e file Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Free irs e file If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Free irs e file    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Free irs e file Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Free irs e file If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Free irs e file Add the excess deferral amount to your wages on your 2013 tax return. Free irs e file If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Free irs e file Do not add this amount to your wages on your 2013 return. Free irs e file If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Free irs e file If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Free irs e file S. Free irs e file Individual Income Tax Return. Free irs e file If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Free irs e file If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Free irs e file Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Free irs e file Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Free irs e file Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Free irs e file ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free irs e file It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free irs e file Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Free irs e file If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Free irs e file You must include the excess contributions in your income as wages on Form 1040, line 7. Free irs e file You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Free irs e file If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Free irs e file The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Free irs e file You should receive a Form 1099-R for the year the excess contributions are distributed to you. Free irs e file Add the distribution to your wages for that year. Free irs e file Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free irs e file It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free irs e file Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Free irs e file Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Free irs e file A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Free irs e file A corrective payment consisting of your after-tax contributions is not taxable. Free irs e file If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Free irs e file Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Free irs e file Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Free irs e file Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Free irs e file It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free irs e file Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Free irs e file The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Free irs e file Your employer can tell you which kind of option you hold. Free irs e file Nonstatutory Stock Options Grant of option. Free irs e file   If you are granted a nonstatutory stock option, you may have income when you receive the option. Free irs e file The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Free irs e file The fair market value of an option can be readily determined if it is actively traded on an established market. Free irs e file    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Free irs e file You can transfer the option. Free irs e file You can exercise the option immediately in full. Free irs e file The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Free irs e file The fair market value of the option privilege can be readily determined. Free irs e file The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Free irs e file For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Free irs e file The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Free irs e file If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Free irs e file For more information on the excise tax, see Internal Revenue Code section 4985. Free irs e file Option with readily determinable value. Free irs e file   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Free irs e file See Restricted Property , later, for rules on how much income to include and when to include it. Free irs e file However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Free irs e file Option without readily determinable value. Free irs e file   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Free irs e file    Exercise or transfer of option. Free irs e file   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Free irs e file Option with readily determinable value. Free irs e file   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Free irs e file Option without readily determinable value. Free irs e file   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope