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Free Online 1040ez

Free online 1040ez 2. Free online 1040ez   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Free online 1040ez Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Free online 1040ez S. Free online 1040ez or foreign source income. Free online 1040ez This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Free online 1040ez S. Free online 1040ez Virgin Islands (USVI). Free online 1040ez Generally, the same rules that apply for determining U. Free online 1040ez S. Free online 1040ez source income also apply for determining possession source income. Free online 1040ez However, there are some important exceptions to these rules. Free online 1040ez Both the general rules and the exceptions are discussed in this chapter. Free online 1040ez U. Free online 1040ez S. Free online 1040ez income rule. Free online 1040ez   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Free online 1040ez Table 2-1 shows the general rules for determining whether income is from sources within the United States. Free online 1040ez Table 2-1. Free online 1040ez General Rules for Determining U. Free online 1040ez S. Free online 1040ez Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Free online 1040ez Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Free online 1040ez For more information, see Regulations section 1. Free online 1040ez 863-1(b). Free online 1040ez Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Free online 1040ez Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Free online 1040ez Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Free online 1040ez It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Free online 1040ez Services performed wholly within a relevant possession. Free online 1040ez   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Free online 1040ez However, there is an exception for income earned as a member of the U. Free online 1040ez S. Free online 1040ez Armed Forces or a civilian spouse. Free online 1040ez U. Free online 1040ez S. Free online 1040ez Armed Forces. Free online 1040ez   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Free online 1040ez However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Free online 1040ez Civilian spouse of active duty member of the U. Free online 1040ez S. Free online 1040ez Armed Forces. Free online 1040ez   If you are a bona fide resident of a U. Free online 1040ez S. Free online 1040ez possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Free online 1040ez Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Free online 1040ez S. Free online 1040ez possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Free online 1040ez Services performed partly inside and partly outside a relevant possession. Free online 1040ez   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Free online 1040ez Compensation (other than certain fringe benefits) is sourced on a time basis. Free online 1040ez Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Free online 1040ez   Or, you may be permitted to use an alternative basis to determine the source of compensation. Free online 1040ez See Alternative basis , later. Free online 1040ez   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Free online 1040ez In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Free online 1040ez Time basis. Free online 1040ez   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Free online 1040ez Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Free online 1040ez The time period for which the income is made does not have to be a year. Free online 1040ez Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Free online 1040ez Example. Free online 1040ez In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Free online 1040ez Your Puerto Rico source income is $60,000, figured as follows. Free online 1040ez       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Free online 1040ez   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Free online 1040ez Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Free online 1040ez You determine the period to which the income is attributable based on the facts and circumstances of your case. Free online 1040ez For more information on multi-year compensation, see Treasury Decision (T. Free online 1040ez D. Free online 1040ez ) 9212 and Regulations section 1. Free online 1040ez 861-4, 2005-35 I. Free online 1040ez R. Free online 1040ez B. Free online 1040ez 429, available at www. Free online 1040ez irs. Free online 1040ez gov/irb/2005-35_IRB/ar14. Free online 1040ez html. Free online 1040ez Certain fringe benefits sourced on a geographical basis. Free online 1040ez   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Free online 1040ez Housing. Free online 1040ez Education. Free online 1040ez Local transportation. Free online 1040ez Tax reimbursement. Free online 1040ez Hazardous or hardship duty pay. Free online 1040ez Moving expense reimbursement. Free online 1040ez For information on determining the source of the fringe benefits listed above, see Regulations section 1. Free online 1040ez 861-4. Free online 1040ez Alternative basis. Free online 1040ez   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Free online 1040ez If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Free online 1040ez De minimis exception. Free online 1040ez   There is an exception to the rule for determining the source of income earned in a possession. Free online 1040ez Generally, you will not have income from a possession if during a tax year you: Are a U. Free online 1040ez S. Free online 1040ez citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Free online 1040ez This exception began with income earned during your 2008 tax year. Free online 1040ez Pensions. Free online 1040ez   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Free online 1040ez The contribution portion is sourced according to where services were performed that earned the pension. Free online 1040ez The investment earnings portion is sourced according to the location of the pension trust. Free online 1040ez Example. Free online 1040ez You are a U. Free online 1040ez S. Free online 1040ez citizen who worked in Puerto Rico for a U. Free online 1040ez S. Free online 1040ez company. Free online 1040ez All services were performed in Puerto Rico. Free online 1040ez Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Free online 1040ez S. Free online 1040ez pension trust of your employer. Free online 1040ez Distributions from the U. Free online 1040ez S. Free online 1040ez pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Free online 1040ez S. Free online 1040ez source income. Free online 1040ez Investment Income This category includes such income as interest, dividends, rents, and royalties. Free online 1040ez Interest income. Free online 1040ez   The source of interest income is generally determined by the residence of the payer. Free online 1040ez Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Free online 1040ez   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Free online 1040ez See Regulations section 1. Free online 1040ez 937-2(i) for more information. Free online 1040ez Dividends. Free online 1040ez   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Free online 1040ez There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Free online 1040ez For more information, see Regulations section 1. Free online 1040ez 937-2(g). Free online 1040ez Rental income. Free online 1040ez   Rents from property located in a relevant possession are treated as income from sources within that possession. Free online 1040ez Royalties. Free online 1040ez   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Free online 1040ez   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Free online 1040ez Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Free online 1040ez The most common situations are discussed below. Free online 1040ez Real property. Free online 1040ez   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Free online 1040ez The location of the property generally determines the source of income from the sale. Free online 1040ez For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Free online 1040ez If, however, the home you sold was located in the United States, the gain is U. Free online 1040ez S. Free online 1040ez source income. Free online 1040ez Personal property. Free online 1040ez   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Free online 1040ez Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Free online 1040ez If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Free online 1040ez   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Free online 1040ez The rules applying to sales of inventory are discussed below. Free online 1040ez For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Free online 1040ez Inventory. Free online 1040ez   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Free online 1040ez The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Free online 1040ez Purchased. Free online 1040ez   Income from the sale of inventory that you purchased is sourced where you sell the property. Free online 1040ez Generally, this is where title to the property passes to the buyer. Free online 1040ez Produced. Free online 1040ez   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Free online 1040ez For information on making the allocation, see Regulations section 1. Free online 1040ez 863-3(f). Free online 1040ez Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Free online 1040ez S. Free online 1040ez citizen or resident alien prior to becoming a bona fide resident of a possession. Free online 1040ez You are subject to these special rules if you meet both of the following conditions. Free online 1040ez For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Free online 1040ez For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Free online 1040ez If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Free online 1040ez Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Free online 1040ez S. Free online 1040ez tax return. Free online 1040ez (See chapter 3 for additional filing information. Free online 1040ez ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Free online 1040ez These rules apply to dispositions after April 11, 2005. Free online 1040ez For details, see Regulations section 1. Free online 1040ez 937-2(f)(1) and Examples 1 and 2 of section 1. Free online 1040ez 937-2(k). Free online 1040ez Example 1. Free online 1040ez In 2007, Cheryl Jones, a U. Free online 1040ez S. Free online 1040ez citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Free online 1040ez S. Free online 1040ez corporation listed on the New York Stock Exchange. Free online 1040ez On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Free online 1040ez Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Free online 1040ez On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Free online 1040ez On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Free online 1040ez Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Free online 1040ez The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Free online 1040ez This existing special rule applies if you are a U. Free online 1040ez S. Free online 1040ez citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Free online 1040ez S. Free online 1040ez assets during the 10-year period beginning when you became a bona fide resident. Free online 1040ez The gain is U. Free online 1040ez S. Free online 1040ez source income that generally is subject to U. Free online 1040ez S. Free online 1040ez tax if the property is either (1) located in the United States; (2) stock issued by a U. Free online 1040ez S. Free online 1040ez corporation or a debt obligation of a U. Free online 1040ez S. Free online 1040ez person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Free online 1040ez See chapter 3 for filing information. Free online 1040ez Special election. Free online 1040ez   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Free online 1040ez Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Free online 1040ez This election overrides both of the special rules discussed earlier. Free online 1040ez   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Free online 1040ez Marketable securities. Free online 1040ez   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Free online 1040ez Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Free online 1040ez S. Free online 1040ez holding periods. Free online 1040ez   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Free online 1040ez The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Free online 1040ez This is your gain (or loss) that is treated as being from sources within the relevant possession. Free online 1040ez If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Free online 1040ez Example 2. Free online 1040ez Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Free online 1040ez S. Free online 1040ez and possession holding periods. Free online 1040ez Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Free online 1040ez Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Free online 1040ez By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free online 1040ez Other personal property. Free online 1040ez   For personal property other than marketable securities, use a time-based allocation. Free online 1040ez Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Free online 1040ez      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Free online 1040ez Example 3. Free online 1040ez In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Free online 1040ez On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Free online 1040ez On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Free online 1040ez She had owned the interest for a total of 1,720 days. Free online 1040ez Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Free online 1040ez The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Free online 1040ez By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free online 1040ez Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Free online 1040ez Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Free online 1040ez These rules do not apply to amounts paid as salary or other compensation for services. Free online 1040ez See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Free online 1040ez Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Free online 1040ez These circumstances are listed below. Free online 1040ez You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Free online 1040ez That office or place of business is a material factor in producing the income. Free online 1040ez The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Free online 1040ez An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Free online 1040ez The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Free online 1040ez Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Free online 1040ez Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Free online 1040ez Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Free online 1040ez Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Free online 1040ez Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Free online 1040ez Example. Free online 1040ez Marcy Jackson is a bona fide resident of American Samoa. Free online 1040ez Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Free online 1040ez A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Free online 1040ez Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Free online 1040ez The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Free online 1040ez However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Free online 1040ez Prev  Up  Next   Home   More Online Publications
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Understanding your CP53 Notice

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Your refund should arrive 3-4 weeks from the date of your notice. Please call the number listed on your notice if you haven't received your refund check after 4 weeks.


Answers to Common Questions

Why can’t the IRS send me a direct deposit refund for my return from two years ago?
Direct Deposit is only available for current year returns. All other refunds are paid by check.

I just moved. Can you recall the check and send a new one to my new address?
Refund checks are mailed only to the address of record, which is the address provided on the tax return or the result of a permanent address change request submitted after the return is filed. You may request a change of address by calling the number shown on your notice, or by filing Form 8822, Change of Address.

What do I need to do to get my refund through direct deposit next year?
When filing your tax return, complete the requested banking information in the "Refund" section of your tax form if you want to direct deposit the entire amount into one account. If you want to deposit into more than one account, you must file Form 8888, Direct Deposit of Refund to More Than One Account, with your return.


Tips for next year

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

Page Last Reviewed or Updated: 04-Mar-2014

The Free Online 1040ez

Free online 1040ez 14. Free online 1040ez   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Fuels Used in FarmingBuyer of fuel, including undyed diesel fuel or undyed kerosene. Free online 1040ez Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). Free online 1040ez Custom application of fertilizer and pesticide. Free online 1040ez Fuel not used for farming. Free online 1040ez Dyed Diesel Fuel and Dyed Kerosene Fuels Used in Off-Highway Business Use Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines How To Claim a Credit or RefundCredit only. Free online 1040ez Claiming a Credit Claiming a Refund Including the Credit or Refund in Income Introduction You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. Free online 1040ez You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return. Free online 1040ez Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. Free online 1040ez The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following. Free online 1040ez Use on a farm for farming purposes. Free online 1040ez Off-highway business use. Free online 1040ez Uses other than as a fuel in a propulsion engine, such as home use. Free online 1040ez Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. Free online 1040ez See Publication 510, Excise Taxes, for more information. Free online 1040ez Topics - This chapter discusses: Fuels used in farming Dyed diesel fuel and dyed kerosene Fuels used in off-highway business use Fuels used for household purposes How to claim a credit or refund Including the credit or refund in income Useful Items - You may want to see: Publication 510 Excise Taxes Form (and Instructions) 720 Quarterly Federal Excise Tax Return 4136 Credit for Federal Tax Paid on Fuels 8849 Claim for Refund of Excise Taxes See chapter 16 for information about getting publications and forms. Free online 1040ez Fuels Used in Farming Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. Free online 1040ez See Table 14-1 for a list of available fuel tax credits and refunds. Free online 1040ez Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. Free online 1040ez Farm. Free online 1040ez   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. Free online 1040ez It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. Free online 1040ez A fish farm is an area where fish are grown or raised and not merely caught or harvested. Free online 1040ez Table 14-1. Free online 1040ez Fuel Tax Credits and Refunds at a Glance Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed. Free online 1040ez Fuel Used On a Farm for Farming Purposes Off-Highway Business Use Household Use or Use Other Than as a Fuel1 Gasoline Credit only Credit or refund None Aviation gasoline Credit only None None Undyed diesel fuel and undyed kerosene Credit or refund Credit or refund2 Credit or refund2 Kerosene for use in aviation Credit or refund None None Dyed diesel fuel and dyed kerosene None None None Other Fuels (including alternative fuels)3 Credit or refund Credit or refund None 1For a use other than as fuel in a propulsion engine. Free online 1040ez 2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. Free online 1040ez See Reg. Free online 1040ez 48. Free online 1040ez 6427-10 (b)(1) for the definition of a blocked pump. Free online 1040ez 3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. Free online 1040ez It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass. Free online 1040ez Farming purposes. Free online 1040ez   As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways. Free online 1040ez To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. Free online 1040ez To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. Free online 1040ez To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. Free online 1040ez To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. Free online 1040ez For this use to qualify, you must have produced more than half the commodity so treated during the tax year. Free online 1040ez The more-than-one-half test applies separately to each commodity. Free online 1040ez Commodity means a single raw product. Free online 1040ez For example, apples and peaches are two separate commodities. Free online 1040ez To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. Free online 1040ez Your tree operations are incidental only if they are minor in nature when compared to the total farming operations. Free online 1040ez   If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list items (1) or (2), above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. Free online 1040ez Therefore, you can still claim the credit or refund for the fuel so used. Free online 1040ez However, see Custom application of fertilizer and pesticide, later. Free online 1040ez If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services. Free online 1040ez Buyer of fuel, including undyed diesel fuel or undyed kerosene. Free online 1040ez   If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. Free online 1040ez For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used. Free online 1040ez Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). Free online 1040ez   Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. Free online 1040ez However, see Custom application of fertilizer and pesticide, next. Free online 1040ez Also see Dyed Diesel Fuel and Dyed Kerosene, later. Free online 1040ez Example. Free online 1040ez Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. Free online 1040ez Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. Free online 1040ez In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. Free online 1040ez Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. Free online 1040ez Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. Free online 1040ez No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above. Free online 1040ez In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks. Free online 1040ez Custom application of fertilizer and pesticide. Free online 1040ez   Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. Free online 1040ez Generally, the applicator is treated as having used the fuel on a farm for farming purposes. Free online 1040ez For applicators using highway vehicles, only the fuel used on the farm is exempt. Free online 1040ez Fuel used traveling on the highway to and from the farm is taxable. Free online 1040ez Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. Free online 1040ez For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. Free online 1040ez For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. Free online 1040ez A sample waiver is included as Model Waiver L in the appendix of Publication 510. Free online 1040ez A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. Free online 1040ez To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. Free online 1040ez However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes. Free online 1040ez Fuel not used for farming. Free online 1040ez   You do not use fuel on a farm for farming purposes when you use it in any of the following ways. Free online 1040ez Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment. Free online 1040ez For personal use, such as lawn mowing. Free online 1040ez In processing, packaging, freezing, or canning operations. Free online 1040ez In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. Free online 1040ez All-terrain vehicles (ATVs). Free online 1040ez   Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. Free online 1040ez Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. Free online 1040ez If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund. Free online 1040ez Dyed Diesel Fuel and Dyed Kerosene If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. Free online 1040ez For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. Free online 1040ez Excise tax applies to the fuel used by the truck on the highways. Free online 1040ez In this situation, undyed (taxed) fuel should be purchased for the truck. Free online 1040ez You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. Free online 1040ez You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes. Free online 1040ez Penalty. Free online 1040ez   A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. Free online 1040ez The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. Free online 1040ez After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. Free online 1040ez For more information on this penalty, see Publication 510. Free online 1040ez Fuels Used in Off-Highway Business Use You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use. Free online 1040ez Off-highway business use. Free online 1040ez   This is any use of fuel in a trade or business or in an income-producing activity. Free online 1040ez The use must not be in a highway vehicle registered or required to be registered for use on public highways. Free online 1040ez Off-highway business use generally does not include any use in a recreational motorboat. Free online 1040ez Examples. Free online 1040ez   Off-highway business use includes the use of fuels in a trade or business in any of the following ways. Free online 1040ez In stationary machines such as generators, compressors, power saws, and similar equipment; For cleaning ; and In forklift trucks, bulldozers, and earthmovers. Free online 1040ez   Off-highway nonbusiness (taxable) use of fuel includes: use in minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. Free online 1040ez For more information, see Publication 510. Free online 1040ez Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. Free online 1040ez This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. Free online 1040ez Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use. Free online 1040ez How To Claim a Credit or Refund You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. Free online 1040ez The basic rules for claiming credits and refunds are listed in Table 14-2 . Free online 1040ez Table 14-2. Free online 1040ez Claiming a Credit or Refund of Excise Taxes This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use. Free online 1040ez   Credit Refund Which form to use Form 4136, Credit for Federal Tax Paid on Fuels Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels Type of form Annual Quarterly When to file With your income tax return By the last day of the quarter following the last quarter included in the claim Amount of tax Any amount $750 or more1 1You may carry over an amount less than $750 to the next quarter. Free online 1040ez Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. Free online 1040ez You do not have to use any special form, but the records should establish the following information. Free online 1040ez The total number of gallons bought and used during the period covered by your claim. Free online 1040ez The dates of the purchases. Free online 1040ez The names and addresses of suppliers and amounts bought from each during the period covered by your claim. Free online 1040ez The nontaxable use for which you used the fuel. Free online 1040ez The number of gallons used for each nontaxable use. Free online 1040ez It is important that your records separately show the number of gallons used for each nontaxable use that qualifies as a claim. Free online 1040ez For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records. Free online 1040ez Credit or refund. Free online 1040ez   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. Free online 1040ez If you meet certain requirements, you may claim a refund during the year instead of waiting until you file your income tax return. Free online 1040ez Credit only. Free online 1040ez   You can claim the following taxes only as a credit on your income tax return. Free online 1040ez Tax on gasoline and aviation gasoline you used on a farm for farming purposes. Free online 1040ez Tax on fuels (including undyed diesel fuel or undyed kerosene) you used for nontaxable uses if the total for the tax year is less than $750. Free online 1040ez Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year. Free online 1040ez Claiming a Credit You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. Free online 1040ez Do not claim a credit for any excise tax for which you have filed a refund claim. Free online 1040ez How to claim a credit. Free online 1040ez   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, trust, or farmers' cooperative association. Free online 1040ez Individuals. Free online 1040ez   You claim the credit on the “Credit for federal tax on fuels” line of your Form 1040. Free online 1040ez If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. Free online 1040ez Partnership. Free online 1040ez   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Free online 1040ez , showing each partner's share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. Free online 1040ez Each partner claims the credit on his or her income tax return for the partner's share of the fuel used by the partnership. Free online 1040ez An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U. Free online 1040ez S. Free online 1040ez Return of Income for Electing Large Partnerships. Free online 1040ez Other entities. Free online 1040ez   Corporations, S corporations, farmers' cooperative associations, and trusts make the claim on the appropriate line of their income tax return. Free online 1040ez When to claim a credit. Free online 1040ez   You can claim a fuel tax credit on your income tax return for the year you used the fuel. Free online 1040ez You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. Free online 1040ez A claim for credit or refund of an overpayment must generally be filed within the later of: Three years from the date the original return was filed, or Two years from the date the tax was paid. Free online 1040ez Claiming a Refund Generally, you may claim a refund of excise taxes on Form 8849. Free online 1040ez Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). Free online 1040ez The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. Free online 1040ez If you file Form 720, you can use its Schedule C for your refund claims for the quarter. Free online 1040ez See the Instructions for Form 720. Free online 1040ez Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136. Free online 1040ez You may file a claim for refund for any quarter of your tax year for which you can claim $750 or more. Free online 1040ez This amount is the excise tax on all fuels used for a nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year. Free online 1040ez If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. Free online 1040ez If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return using Form 4136. Free online 1040ez Only one claim can be filed for a quarter. Free online 1040ez You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. Free online 1040ez You must claim a credit on your income tax return for the tax. Free online 1040ez How to file a quarterly claim. Free online 1040ez   File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. Free online 1040ez Send it to the address shown in the instructions. Free online 1040ez If you file Form 720, you can use its Schedule C for your refund claims. Free online 1040ez See the Instructions for Form 720. Free online 1040ez When to file a quarterly claim. Free online 1040ez   You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. Free online 1040ez If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier. Free online 1040ez    In most situations, the amount claimed as a credit or refund will be less than the amount deducted as fuel tax expense because the Leaking Underground Storage Tank (LUST) tax of $0. Free online 1040ez 001 per gallon is generally not subject to credit or refund. Free online 1040ez Including the Credit or Refund in Income Include any credit or refund of excise taxes on fuels in your gross income if you claimed the total cost of the fuel (including the excise taxes) as an expense deduction that reduced your income tax liability. Free online 1040ez Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting. Free online 1040ez Cash method. Free online 1040ez   If you use the cash method and file a claim for refund, include the refund amount in gross income for the tax year in which you receive the refund. Free online 1040ez If you claim a credit on your income tax return, include the credit amount in gross income for the tax year in which you file Form 4136. Free online 1040ez If you file an amended return and claim a credit, include the credit amount in gross income for the tax year in which you receive the credit. Free online 1040ez Example. Free online 1040ez Sharon Brown, a farmer who uses the cash method, filed her 2012 Form 1040 on March 3, 2013. Free online 1040ez On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. Free online 1040ez Then, on Form 4136, she claimed the $110 as a credit. Free online 1040ez Sharon reports the $110 as other income on line 8b of her 2013 Schedule F. Free online 1040ez Accrual method. Free online 1040ez   If you use an accrual method, include the amount of credit or refund in gross income for the tax year in which you used the fuels. Free online 1040ez It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit. Free online 1040ez Example. Free online 1040ez Patty Green, a farmer who uses the accrual method, files her 2012 Form 1040 on April 15, 2013. Free online 1040ez On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2012. Free online 1040ez On Form 4136, Patty claims the $155 as a credit. Free online 1040ez She reports the $155 as other income on line 8b of her 2012 Schedule F. Free online 1040ez Prev  Up  Next   Home   More Online Publications