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Free tax software 4. Free tax software   Retirement Savings Contributions Credit (Saver's Credit) Table of Contents What's New Introduction Full-time student. Free tax software Adjusted gross income. Free tax software Distributions received by spouse. Free tax software Testing period. Free tax software What's New Modified AGI limit for retirement savings contributions credit increased. Free tax software  For 2013, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than: $59,000 if your filing status is married filing jointly, $44,250 if your filing status is head of household, or $29,500 if your filing status is single, married filing separately, or qualifying widow(er). Free tax software Introduction You may be able to take a tax credit if you make eligible contributions (defined later) to a qualified retirement plan, an eligible deferred compensation plan, or an individual retirement arrangement (IRA). Free tax software You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). Free tax software This credit could reduce the federal income tax you pay dollar for dollar. Free tax software    Can you claim the credit?   If you make eligible contributions to a qualified retirement plan, an eligible deferred compensation plan, or an IRA, you can claim the credit if all of the following apply. Free tax software You were born before January 2, 1996. Free tax software You are not a full-time student (explained next). Free tax software No one else, such as your parent(s), claims an exemption for you on their tax return. Free tax software Your adjusted gross income (defined below) is not more than: $59,000 if your filing status is married filing jointly, $44,250 if your filing status is head of household, or $29,500 if your filing status is single, married filing separately, or qualifying widow(er). Free tax software Full-time student. Free tax software   You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government. Free tax software You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full time. Free tax software Adjusted gross income. Free tax software   This is generally the amount on line 38 of your 2013 Form 1040; line 22 of your 2013 Form 1040A; or line 37 of your 2013 Form 1040NR. Free tax software However, you must add to that amount any exclusion or deduction claimed for the year for: Foreign earned income, Foreign housing costs, Income for bona fide residents of American Samoa, and Income from Puerto Rico. Free tax software Eligible contributions. Free tax software   These include: Contributions to a traditional or Roth IRA, Salary reduction contributions (elective deferrals, including amounts designated as after-tax Roth contributions) to: A 401(k) plan (including a SIMPLE 401(k)), A section 403(b) annuity, An eligible deferred compensation plan of a state or local government (a governmental 457 plan), A SIMPLE IRA plan, or A salary reduction SEP, and Contributions to a section 501(c)(18) plan. Free tax software They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or section 403(b) annuity. Free tax software For purposes of the credit, an employee contribution will be voluntary as long as it is not required as a condition of employment. Free tax software Reducing eligible contributions. Free tax software   Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included above under Eligible contributions. Free tax software Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable. Free tax software   Do not reduce your eligible contributions by any of the following. Free tax software The portion of any distribution which is not includible in income because it is a trustee-to-trustee transfer or a rollover distribution. Free tax software Distributions that are taxable as the result of an in-plan rollover to your designated Roth account. Free tax software Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim the credit if: The distribution is made before the due date (including extensions) of your tax return for that year, You do not take a deduction for the contribution, and The distribution includes any income attributable to the contribution. Free tax software Loans from a qualified employer plan treated as a distribution. Free tax software Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals). Free tax software Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k). Free tax software Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA. Free tax software Distributions from a military retirement plan. Free tax software Distributions from an inherited IRA by a nonspousal beneficiary. Free tax software Distributions received by spouse. Free tax software   Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit. Free tax software Testing period. Free tax software   The testing period consists of the year for which you claim the credit, the period after the end of that year and before the due date (including extensions) for filing your return for that year, and the 2 tax years before that year. Free tax software Example. Free tax software You and your spouse filed joint returns in 2011 and 2012, and plan to do so in 2013 and 2014. Free tax software You received a taxable distribution from a qualified plan in 2011 and a taxable distribution from an eligible deferred compensation plan in 2012. Free tax software Your spouse received taxable distributions from a Roth IRA in 2013 and tax-free distributions from a Roth IRA in 2014 before April 15. Free tax software You made eligible contributions to an IRA in 2013 and you otherwise qualify for this credit. Free tax software You must reduce the amount of your qualifying contributions in 2013 by the total of the distributions you received in 2011, 2012, 2013, and 2014. Free tax software Maximum eligible contributions. Free tax software   After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person. Free tax software Effect on other credits. Free tax software   The amount of this credit will not change the amount of your refundable tax credits. Free tax software A refundable tax credit, such as the earned income credit or the refundable amount of your child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes. Free tax software Maximum credit. Free tax software   This is a nonrefundable credit. Free tax software The amount of the credit in any year cannot be more than the amount of tax that you would otherwise pay (not counting any refundable credits) in any year. Free tax software If your tax liability is reduced to zero because of other nonrefundable credits, such as the credit for child and dependent care expenses, then you will not be entitled to this credit. Free tax software How to figure and report the credit. Free tax software   The amount of the credit you can get is based on the contributions you make and your credit rate. Free tax software Your credit rate can be as low as 10% or as high as 50%. Free tax software Your credit rate depends on your income and your filing status. Free tax software See Form 8880 to determine your credit rate. Free tax software   The maximum contribution taken into account is $2,000 per person. Free tax software On a joint return, up to $2,000 is taken into account for each spouse. Free tax software   Figure the credit on Form 8880. Free tax software Report the credit on line 50 of your Form 1040; line 32 of your Form 1040A; or line 47 of your Form 1040NR and attach Form 8880 to your return. Free tax software Prev  Up  Next   Home   More Online Publications
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Hurricane Grant Guidelines Now Available

IR-2008-115, Oct. 10, 2008

WASHINGTON — The Internal Revenue Service today released a notice designed to help eligible homeowners who received federal reimbursement grants stemming from Hurricanes Katrina, Rita or Wilma take advantage of a new tax provision.

Notice 2008-95 provides guidelines to homeowners who received these grants, including the Louisiana Road Home Grants and the Mississippi Development Authority Hurricane Katrina Homeowner Grants.

The Housing and Economic Recovery Act, enacted this summer, included the new provision, aimed at helping grant recipients who previously claimed hurricane-related disaster-loss deductions on their main home. The new law gives affected homeowners the option of adjusting previously claimed deductions by treating their federal reimbursement grants as reimbursement for the losses they suffered on their main home from Hurricanes Katrina, Rita or Wilma.

Before this change, homeowners who claimed casualty loss deductions and received grants in a later tax year as reimbursement for the loss were required by law to pay tax on part or all of the grant to compensate for the tax benefit of the prior deduction. While individual circumstances varied, this meant that some taxpayers ended up paying more tax on the grant than they saved by claiming the deduction.

The notice explains how eligible taxpayers can amend prior-year returns to reduce the casualty loss deduction by the amount of the grant, and explains that taxpayers have one year to pay back any resulting tax due, penalty-free and interest-free. To qualify for this relief, these amended returns must be filed by July 30, 2009, and the entire resulting tax due paid by July 30, 2010, in most cases. The notice also provides special instructions for those taxpayers who have already filed an amended return.

Taxpayers should write the words, “Hurricane Grant Relief” in dark, bold letters at the top of their amended return, Form 1040X, and mail it to: Internal Revenue Service Center, Austin, TX 73301-0255. Amended returns cannot be filed electronically.

The IRS cautioned that, although filing an amended return may be a good option for many, it won’t necessarily be the right choice for everyone. The agency urges affected taxpayers and their representatives to consider carefully which option is best under their particular circumstances.

Page Last Reviewed or Updated: 24-Mar-2014

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Free tax software Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Free tax software 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 tax software Method 2. Free tax software 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 tax software In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Free tax software You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Free tax software 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 tax software 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 tax software These wages must be included on line 7 of Form 1040. Free tax software See Form 8919 for more information. Free tax software Childcare providers. Free tax software   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 tax software 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 tax software 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 tax software Babysitting. Free tax software   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 tax software Bankruptcy. Free tax software   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Free tax software Your W-2 will show your total wages and withheld income tax for the year. Free tax software On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Free tax software Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Free tax software 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 tax software   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Free tax software 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 tax software   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Free tax software The statement must show the allocation and describe the method used to make the allocation. Free tax software For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Free tax software R. Free tax software B. Free tax software 596, available at www. Free tax software irs. Free tax software gov/irb/2006-40_IRB/ar12. Free tax software html. Free tax software Miscellaneous Compensation This section discusses many types of employee compensation. Free tax software The subjects are arranged in alphabetical order. Free tax software Advance commissions and other earnings. Free tax software   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 tax software    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 tax software 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 tax software See Repayments , later. Free tax software Allowances and reimbursements. Free tax software    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 tax software If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Free tax software Back pay awards. Free tax software   Include in income amounts you are awarded in a settlement or judgment for back pay. Free tax software These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Free tax software They should be reported to you by your employer on Form W-2. Free tax software Bonuses and awards. Free tax software    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Free tax software These include prizes such as vacation trips for meeting sales goals. Free tax software 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 tax software 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 tax software Employee achievement award. Free tax software   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 tax software 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 tax software Your employer can tell you whether your award is a qualified plan award. Free tax software 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 tax software   However, the exclusion does not apply to the following awards. Free tax software 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 tax software 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 tax software Example. Free tax software 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 tax software Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Free tax software 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 tax software Differential wage payments. Free tax software   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 tax software These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Free tax software The payments are reported as wages on Form W-2. Free tax software Government cost-of-living allowances. Free tax software   Most payments received by U. Free tax software S. Free tax software Government civilian employees for working abroad are taxable. Free tax software However, certain cost-of-living allowances are tax free. Free tax software Publication 516, U. Free tax software S. Free tax software Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Free tax software Nonqualified deferred compensation plans. Free tax software   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Free tax software This amount is shown on Form W-2, box 12, using code Y. Free tax software This amount is not included in your income. Free tax software   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 tax software This amount is included in your wages shown on Form W-2, box 1. Free tax software It is also shown on Form W-2, box 12, using code Z. Free tax software Nonqualified deferred compensation plans of nonqualified entities. Free tax software   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 tax software 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 tax software 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 tax software Note received for services. Free tax software   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 tax software 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 tax software Do not include that part again in your income. Free tax software Include the rest of the payment in your income in the year of payment. Free tax software   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 tax software Severance pay. Free tax software   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Free tax software Accrued leave payment. Free tax software   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 tax software   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 tax software You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Free tax software 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 tax software Outplacement services. Free tax software   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 tax software    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 tax software Sick pay. Free tax software   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Free tax software In addition, you must include in your income sick pay benefits received from any of the following payers. Free tax software A welfare fund. Free tax software A state sickness or disability fund. Free tax software An association of employers or employees. Free tax software An insurance company, if your employer paid for the plan. Free tax software However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Free tax software For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Free tax software Social security and Medicare taxes paid by employer. Free tax software   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 tax software The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Free tax software However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Free tax software Stock appreciation rights. Free tax software   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Free tax software 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 tax software You include the cash payment in income in the year you use the right. Free tax software 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 tax software 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 tax software See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Free tax software Recipient of fringe benefit. Free tax software   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Free tax software You are considered to be the recipient even if it is given to another person, such as a member of your family. Free tax software An example is a car your employer gives to your spouse for services you perform. Free tax software The car is considered to have been provided to you and not to your spouse. Free tax software   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Free tax software If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Free tax software Provider of benefit. Free tax software   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 tax software The provider can be a client or customer of an independent contractor. Free tax software Accounting period. Free tax software   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Free tax software Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Free tax software The general rule: benefits are reported for a full calendar year (January 1–December 31). Free tax software 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 tax software 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 tax software 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 tax software   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 tax software Form W-2. Free tax software   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 tax software Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Free tax software 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 tax software 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 tax software Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Free tax software 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 tax software Long-term care coverage. Free tax software   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Free tax software However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Free tax software This amount will be reported as wages in box 1 of your Form W-2. Free tax software Archer MSA contributions. Free tax software    Contributions by your employer to your Archer MSA generally are not included in your income. Free tax software Their total will be reported in box 12 of Form W-2, with code R. Free tax software You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Free tax software File the form with your return. Free tax software Health flexible spending arrangement (health FSA). Free tax software   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 tax software   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Free tax software The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Free tax software For more information, see Notice 2012-40, 2012-26 I. Free tax software R. Free tax software B. Free tax software 1046, available at www. Free tax software irs. Free tax software gov/irb/2012-26 IRB/ar09. Free tax software html. Free tax software Health reimbursement arrangement (HRA). Free tax software   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 tax software Health savings accounts (HSA). Free tax software   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 tax software Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Free tax software Contributions made by your employer are not included in your income. Free tax software Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Free tax software Distributions not used for qualified medical expenses are included in your income. Free tax software See Publication 969 for the requirements of an HSA. Free tax software   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Free tax software The contributions are treated as a distribution of money and are not included in the partner's gross income. Free tax software 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 tax software In both situations, the partner can deduct the contribution made to the partner's HSA. Free tax software   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 tax software The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Free tax software Qualified HSA funding distribution. Free tax software   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 tax software See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Free tax software Failure to maintain eligibility. Free tax software   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 tax software 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 tax software This income is also subject to an additional 10% tax. Free tax software 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 tax software See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Free tax software Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Free tax software They also are included as social security and Medicare wages in boxes 3 and 5. Free tax software However, they are not included as wages in box 1. Free tax software To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Free tax software File the form with your return. Free tax software 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 tax software The gym must be used primarily by employees, their spouses, and their dependent children. Free tax software 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 tax software 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 tax software 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 tax software Also see Employee Discounts , later. Free tax software Holiday gifts. Free tax software   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 tax software 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 tax software 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 tax software 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 tax software 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 tax software 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 tax software 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 tax software To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Free tax software See the Instructions for Form 2441 for more information. Free tax software Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Free tax software For more information, see Publication 970. Free tax software 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 tax software 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 tax software However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Free tax software The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Free tax software 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 tax software (Ask your employer for this percentage. Free tax software ) For a discount on services, 20%. Free tax software 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 tax software 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 tax software Qualified retirement planning services paid for you by your employer may be excluded from your income. Free tax software For more information, see Retirement Planning Services , later. Free tax software 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 tax software 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 tax software For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Free tax software 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 tax software Also, it is shown separately in box 12 with code C. Free tax software Group-term life insurance. Free tax software   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 tax software Permanent benefits. Free tax software   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 tax software Your employer should be able to tell you the amount to include in your income. Free tax software Accidental death benefits. Free tax software   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 tax software Former employer. Free tax software   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 tax software Also, it is shown separately in box 12 with code C. Free tax software Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Free tax software You must pay these taxes with your income tax return. Free tax software Include them on line 60, Form 1040, and follow the instructions forline 60. Free tax software For more information, see the Instructions for Form 1040. Free tax software Two or more employers. Free tax software   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 tax software 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 tax software You must figure how much to include in your income. Free tax software 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 tax software Figuring the taxable cost. Free tax software    Use the following worksheet to figure the amount to include in your income. Free tax software   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 tax software 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 tax software Worksheet 1. Free tax software Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Free tax software Enter the total amount of your insurance coverage from your employer(s) 1. Free tax software   2. Free tax software Limit on exclusion for employer-provided group-term life insurance coverage 2. Free tax software 50,000 3. Free tax software Subtract line 2 from line 1 3. Free tax software   4. Free tax software Divide line 3 by $1,000. Free tax software Figure to the nearest tenth 4. Free tax software   5. Free tax software Go to Table 1. Free tax software 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 tax software   6. Free tax software Multiply line 4 by line 5 6. Free tax software     7. Free tax software Enter the number of full months of coverage at this cost 7. Free tax software   8. Free tax software Multiply line 6 by line 7 8. Free tax software   9. Free tax software Enter the premiums you paid per month 9. Free tax software       10. Free tax software Enter the number of months you paid the  premiums 10. Free tax software       11. Free tax software Multiply line 9 by line 10. Free tax software 11. Free tax software   12. Free tax software Subtract line 11 from line 8. Free tax software Include this amount in your income as wages 12. Free tax software   Table 1. Free tax software Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Free tax software 05     25 through 29 . Free tax software 06     30 through 34 . Free tax software 08     35 through 39 . Free tax software 09     40 through 44 . Free tax software 10     45 through 49 . Free tax software 15     50 through 54 . Free tax software 23     55 through 59 . Free tax software 43     60 through 64 . Free tax software 66     65 through 69 1. Free tax software 27     70 and older 2. Free tax software 06   Example. Free tax software You are 51 years old and work for employers A and B. Free tax software Both employers provide group-term life insurance coverage for you for the entire year. Free tax software Your coverage is $35,000 with employer A and $45,000 with employer B. Free tax software You pay premiums of $4. Free tax software 15 a month under the employer B group plan. Free tax software You figure the amount to include in your income as follows. Free tax software   Worksheet 1. Free tax software Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Free tax software Enter the total amount of your insurance coverage from your employer(s) 1. Free tax software 80,000 2. Free tax software Limit on exclusion for employer-provided group-term life insurance coverage 2. Free tax software 50,000 3. Free tax software Subtract line 2 from line 1 3. Free tax software 30,000 4. Free tax software Divide line 3 by $1,000. Free tax software Figure to the nearest tenth 4. Free tax software 30. Free tax software 0 5. Free tax software Go to Table 1. Free tax software 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 tax software . Free tax software 23 6. Free tax software Multiply line 4 by line 5 6. Free tax software 6. Free tax software 90 7. Free tax software Enter the number of full months of coverage at this cost. Free tax software 7. Free tax software 12 8. Free tax software Multiply line 6 by line 7 8. Free tax software 82. Free tax software 80 9. Free tax software Enter the premiums you paid per month 9. Free tax software 4. Free tax software 15     10. Free tax software Enter the number of months you paid the premiums 10. Free tax software 12     11. Free tax software Multiply line 9 by line 10. Free tax software 11. Free tax software 49. Free tax software 80 12. Free tax software Subtract line 11 from line 8. Free tax software Include this amount in your income as wages 12. Free tax software 33. Free tax software 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Free tax software 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 tax software You must add it to the wages shown on your Forms W-2 and include the total on your return. Free tax software Entire cost excluded. Free tax software   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Free tax software You are permanently and totally disabled and have ended your employment. Free tax software Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Free tax software 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 tax software (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Free tax software ) 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 tax software Entire cost taxed. Free tax software   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Free tax software The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Free tax software You are a key employee and your employer's plan discriminates in favor of key employees. Free tax software 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 tax software The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Free tax software 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 tax software (You must accept it in order to be able to properly perform your duties. Free tax software ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Free tax software See De Minimis (Minimal) Benefits , earlier. Free tax software Faculty lodging. Free tax software   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 tax software However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Free tax software Academic health center. Free tax software   This is an organization that meets the following conditions. Free tax software Its principal purpose or function is to provide medical or hospital care or medical education or research. Free tax software It receives payments for graduate medical education under the Social Security Act. Free tax software One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Free tax software Qualified campus lodging. Free tax software   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 tax software The lodging must be located on or near a campus of the educational institution or academic health center. Free tax software Adequate rent. Free tax software   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 tax software If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Free tax software   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Free tax software Example. Free tax software Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Free tax software The house is appraised at $200,000. Free tax software The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Free tax software Carl pays an annual rent of $11,000. Free tax software 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 tax software If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Free tax software 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 tax software See Publication 521 for more information. Free tax software 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 tax software In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Free tax software Example. Free tax software You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Free tax software 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 tax software The value of the personal flight is not included in your income. Free tax software However, the value of the hotel room is included in your income because you do not work in the hotel business. Free tax software 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 tax software 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 tax software You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Free tax software Also, see Financial Counseling Fees , earlier. Free tax software Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Free tax software 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 tax software Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Free tax software 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 tax software Exclusion limit. Free tax software   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Free tax software   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Free tax software   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Free tax software   If the benefits have a value that is more than these limits, the excess must be included in your income. Free tax software You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Free tax software Commuter highway vehicle. Free tax software   This is a highway vehicle that seats at least six adults (not including the driver). Free tax software 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 tax software Transit pass. Free tax software   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 tax software Qualified parking. Free tax software   This is parking provided to an employee at or near the employer's place of business. Free tax software 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 tax software It does not include parking at or near the employee's home. Free tax software Qualified bicycle commuting. Free tax software   This is reimbursement based on the number of qualified bicycle commuting months for the year. Free tax software 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 tax software The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Free tax software Tuition Reduction You can exclude a qualified tuition reduction from your income. Free tax software 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 tax software 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 tax software 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 tax software For more information, see Publication 970. Free tax software 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 tax software Example. Free tax software You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Free tax software 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 tax software 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 tax software For an exception, see Group-Term Life Insurance , earlier. Free tax software General valuation rule. Free tax software   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 tax software If you pay fair market value for a fringe benefit, no amount is included in your income. Free tax software Fair market value. Free tax software   The fair market value of a fringe benefit is determined by all the facts and circumstances. Free tax software It is the amount you would have to pay a third party to buy or lease the benefit. Free tax software This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Free tax software Employer-provided vehicles. Free tax software   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 tax software   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 tax software 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 tax software 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 tax software Flights on employer-provided aircraft. Free tax software   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 tax software   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Free tax software The division must be based on all the facts, including which employee or employees control the use of the aircraft. Free tax software Special valuation rules. Free tax software   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Free tax software If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Free tax software You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Free tax software   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 tax software The special valuation rules are the following. Free tax software The automobile lease rule. Free tax software The vehicle cents-per-mile rule. Free tax software The commuting rule. Free tax software The unsafe conditions commuting rule. Free tax software The employer-operated eating-facility rule. Free tax software   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Free tax software    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Free tax software 61-21(g) and 1. Free tax software 61-21(h) of the regulations. Free tax software Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Free tax software (Your employer can tell you whether your retirement plan is qualified. Free tax software ) However, the cost of life insurance coverage included in the plan may have to be included. Free tax software See Group-Term Life Insurance , earlier, under Fringe Benefits. Free tax software 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 tax software 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 tax software For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Free tax software S. Free tax software Civil Service Retirement Benefits, if you are a federal employee or retiree). Free tax software 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 tax software The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Free tax software 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 tax software However, it is included in wages subject to social security and Medicare taxes. Free tax software Elective deferrals include elective contributions to the following retirement plans. Free tax software Cash or deferred arrangements (section 401(k) plans). Free tax software The Thrift Savings Plan for federal employees. Free tax software Salary reduction simplified employee pension plans (SARSEP). Free tax software Savings incentive match plans for employees (SIMPLE plans). Free tax software Tax-sheltered annuity plans (403(b) plans). Free tax software Section 501(c)(18)(D) plans. Free tax software (But see Reporting by employer , later. Free tax software ) Section 457 plans. Free tax software Qualified automatic contribution arrangements. Free tax software   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 tax software You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Free tax software 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 tax software   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 tax software Overall limit on deferrals. Free tax software   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 tax software The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Free tax software Amounts deferred under specific plan limits are part of the overall limit on deferrals. Free tax software   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Free tax software However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Free tax software Catch-up contributions. Free tax software   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 tax software For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Free tax software   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 tax software SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Free tax software Section 457 plans, see Limit for deferrals under section 457 plans , later. Free tax software Limit for deferrals under SIMPLE plans. Free tax software   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Free tax software 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 tax software Limit for tax-sheltered annuities. Free tax software   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 tax software 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 tax software $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 tax software   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Free tax software   For more information, see Publication 571. Free tax software Limit for deferral under section 501(c)(18) plans. Free tax software   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 tax software 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 tax software Limit for deferrals under section 457 plans. Free tax software   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 tax software However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Free tax software See Increased limit , later. Free tax software Includible compensation. Free tax software   This is the pay you received for the year from the employer who maintained the section 457 plan. Free tax software In most cases, it includes all the following payments. Free tax software Wages and salaries. Free tax software Fees for professional services. Free tax software The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Free tax software Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Free tax software Commissions and tips. Free tax software Fringe benefits. Free tax software Bonuses. Free tax software Employer contributions (elective deferrals) to: The section 457 plan. Free tax software Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Free tax software A salary reduction simplified employee pension (SARSEP). Free tax software A tax-sheltered annuity (section 403(b) plan). Free tax software A savings incentive match plan for employees (SIMPLE plan). Free tax software A section 125 cafeteria plan. Free tax software   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Free tax software Your wages as defined for income tax withholding purposes. Free tax software Your wages as reported in box 1 of Form W-2. Free tax software Your wages that are subject to social security withholding (including elective deferrals). Free tax software Increased limit. Free tax software   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 tax software Catch-up contributions. Free tax software   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 tax software If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Free tax software 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 tax software Designated Roth contributions. Free tax software   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 tax software Designated Roth contributions are treated as elective deferrals, except that they are included in income. Free tax software Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Free tax software   Qualified distributions from a Roth plan are not included in income. Free tax software 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 tax software Reporting by employer. Free tax software   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Free tax software Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Free tax software Section 501(c)(18)(D) contributions. Free tax software   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 tax software The amount you contributed should be identified with code “H” in box 12. Free tax software You may deduct the amount deferred subject to the limits that apply. Free tax software Include your deduction in the total on Form 1040, line 36. Free tax software Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Free tax software Designated Roth contributions. Free tax software    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Free tax software 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 tax software Excess deferrals. Free tax software   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Free tax software If the plan permits, the excess amount will be distributed to you. Free tax software 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 tax software You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Free tax software 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 tax software   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 tax software File Form 1040 to add the excess deferral amount to your wages on line 7. Free tax software Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Free tax software Excess not distributed. Free tax software   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 tax software 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 tax software Excess distributed to you. Free tax software   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 tax software 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 tax software Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Free tax software 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 tax software    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Free tax software Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Free tax software If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Free tax software Add the excess deferral amount to your wages on your 2013 tax return. Free tax software 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 tax software Do not add this amount to your wages on your 2013 return. Free tax software If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Free tax software 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 tax software S. Free tax software Individual Income Tax Return. Free tax software 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 tax software 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 tax software Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Free tax software 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 tax software Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Free tax software ”    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 tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax software 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 tax software 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 tax software You must include the excess contributions in your income as wages on Form 1040, line 7. Free tax software You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Free tax software 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 tax software 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 tax software You should receive a Form 1099-R for the year the excess contributions are distributed to you. Free tax software Add the distribution to your wages for that year. Free tax software 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 tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax software 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 tax software 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 tax software 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 tax software A corrective payment consisting of your after-tax contributions is not taxable. Free tax software 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 tax software 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 tax software 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 tax software 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 tax software It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free tax software 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 tax software The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Free tax software Your employer can tell you which kind of option you hold. Free tax software Nonstatutory Stock Options Grant of option. Free tax software   If you are granted a nonstatutory stock option, you may have income when you receive the option. Free tax software 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 tax software The fair market value of an option can be readily determined if it is actively traded on an established market. Free tax software    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 tax software You can transfer the option. Free tax software You can exercise the option immediately in full. Free tax software 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 tax software The fair market value of the option privilege can be readily determined. Free tax software 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 tax software 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 tax software 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 tax software 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 tax software For more information on the excise tax, see Internal Revenue Code section 4985. Free tax software Option with readily determinable value. Free tax software   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 tax software See Restricted Property , later, for rules on how much income to include and when to include it. Free tax software 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 tax software Option without readily determinable value. Free tax software   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 tax software    Exercise or transfer of option. Free tax software   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 tax software Option with readily determinable value. Free tax software   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 tax software Option without readily determinable value. Free tax software   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