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Help amending tax return 5. Help amending tax return   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Help amending tax return Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Help amending tax return   If you are a U. Help amending tax return S. Help amending tax return citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Help amending tax return S. Help amending tax return law. Help amending tax return This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Help amending tax return This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Help amending tax return If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Help amending tax return For details, see Publication 54, Tax Guide for U. Help amending tax return S. Help amending tax return Citizens and Resident Aliens Abroad. Help amending tax return Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Help amending tax return The following topics are included. Help amending tax return Bonuses and awards. Help amending tax return Special rules for certain employees. Help amending tax return Sickness and injury benefits. Help amending tax return The chapter explains what income is included in the employee's gross income and what is not included. Help amending tax return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Help amending tax return Form W-2. Help amending tax return    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Help amending tax return Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Help amending tax return   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. Help amending tax return These wages must be included on line 7 of Form 1040. Help amending tax return See Form 8919 for more information. Help amending tax return Childcare providers. Help amending tax return    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. Help amending tax return 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. Help amending tax return 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. Help amending tax return Babysitting. Help amending tax return   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Help amending tax return Miscellaneous Compensation This section discusses different types of employee compensation. Help amending tax return Advance commissions and other earnings. Help amending tax return   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. Help amending tax return    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. Help amending tax return If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Help amending tax return See Repayments in chapter 12. Help amending tax return Allowances and reimbursements. Help amending tax return    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Help amending tax return If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Help amending tax return Back pay awards. Help amending tax return    Include in income amounts you are awarded in a settlement or judgment for back pay. Help amending tax return These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Help amending tax return They should be reported to you by your employer on Form W-2. Help amending tax return Bonuses and awards. Help amending tax return   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Help amending tax return These include prizes such as vacation trips for meeting sales goals. Help amending tax return 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. Help amending tax return 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. Help amending tax return Employee achievement award. Help amending tax return   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. Help amending tax return 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. Help amending tax return Your employer can tell you whether your award is a qualified plan award. Help amending tax return 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. Help amending tax return   However, the exclusion does not apply to the following awards: 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. Help amending tax return 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. Help amending tax return Example. Help amending tax return 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. Help amending tax return Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Help amending tax return 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. Help amending tax return Differential wage payments. Help amending tax return   This is any payment made to you by an employer for any period during which you are, 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 you would have received from the employer during that period. Help amending tax return These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Help amending tax return The payments are reported as wages on Form W-2. Help amending tax return Government cost-of-living allowances. Help amending tax return   Most payments received by U. Help amending tax return S. Help amending tax return Government civilian employees for working abroad are taxable. Help amending tax return However, certain cost-of-living allowances are tax free. Help amending tax return Publication 516, U. Help amending tax return S. Help amending tax return Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Help amending tax return Nonqualified deferred compensation plans. Help amending tax return   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Help amending tax return This amount is shown on Form W-2, box 12, using code Y. Help amending tax return This amount is not included in your income. Help amending tax return   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. Help amending tax return This amount is included in your wages shown on Form W-2, box 1. Help amending tax return It is also shown on Form W-2, box 12, using code Z. Help amending tax return Note received for services. Help amending tax return    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. Help amending tax return 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. Help amending tax return Do not include that part again in your income. Help amending tax return Include the rest of the payment in your income in the year of payment. Help amending tax return   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. Help amending tax return Severance pay. Help amending tax return   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Help amending tax return Accrued leave payment. Help amending tax return    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. Help amending tax return   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. Help amending tax return You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Help amending tax return 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 the return and the wages on your Forms W-2. Help amending tax return Outplacement services. Help amending tax return   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. Help amending tax return    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). Help amending tax return Sick pay. Help amending tax return   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Help amending tax return In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Help amending tax return A state sickness or disability fund. Help amending tax return An association of employers or employees. Help amending tax return An insurance company, if your employer paid for the plan. Help amending tax return However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Help amending tax return For more information, see Publication 525. Help amending tax return Social security and Medicare taxes paid by employer. Help amending tax return   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. Help amending tax return The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Help amending tax return However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Help amending tax return Stock appreciation rights. Help amending tax return   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Help amending tax return 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. Help amending tax return You include the cash payment in your income in the year you use the right. Help amending tax return 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. Help amending tax return 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. Help amending tax return Accounting period. Help amending tax return   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Help amending tax return Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Help amending tax return The general rule: benefits are reported for a full calendar year (January 1–December 31). Help amending tax return 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. Help amending tax return 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. Help amending tax return  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. Help amending tax return   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). Help amending tax return Form W-2. Help amending tax return   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. Help amending tax return Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Help amending tax return 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). Help amending tax return 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. Help amending tax return Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Help amending tax return 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. Help amending tax return Long-term care coverage. Help amending tax return    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Help amending tax return However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Help amending tax return This amount will be reported as wages in box 1 of your Form W-2. Help amending tax return   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Help amending tax return Archer MSA contributions. Help amending tax return    Contributions by your employer to your Archer MSA generally are not included in your income. Help amending tax return Their total will be reported in box 12 of Form W-2 with code R. Help amending tax return You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Help amending tax return File the form with your return. Help amending tax return Health flexible spending arrangement (health FSA). Help amending tax return   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. Help amending tax return Note. Help amending tax return Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Help amending tax return The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Help amending tax return For more information, see Notice 2012-40, 2012-26 I. Help amending tax return R. Help amending tax return B. Help amending tax return 1046, available at www. Help amending tax return irs. Help amending tax return gov/irb/2012-26 IRB/ar09. Help amending tax return html. Help amending tax return Health reimbursement arrangement (HRA). Help amending tax return   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. Help amending tax return Health savings accounts (HSA). Help amending tax return   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Help amending tax return Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Help amending tax return Contributions made by your employer are not included in your income. Help amending tax return Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Help amending tax return Distributions not used for qualified medical expenses are included in your income. Help amending tax return See Publication 969 for the requirements of an HSA. Help amending tax return   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Help amending tax return The contributions are treated as a distribution of money and are not included in the partner's gross income. Help amending tax return 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. Help amending tax return In both situations, the partner can deduct the contribution made to the partner's HSA. Help amending tax return   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. Help amending tax return The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Help amending tax return Qualified HSA funding distribution. Help amending tax return   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. Help amending tax return See Publication 590 for the requirements for these qualified HSA funding distributions. Help amending tax return Failure to maintain eligibility. Help amending tax return   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. Help amending tax return 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. Help amending tax return This income is also subject to an additional 10% tax. Help amending tax return 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. Help amending tax return See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Help amending tax return Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Help amending tax return They also are included as social security and Medicare wages in boxes 3 and 5. Help amending tax return However, they are not included as wages in box 1. Help amending tax return To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Help amending tax return File the form with your return. Help amending tax return 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. Help amending tax return 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. Help amending tax return Holiday gifts. Help amending tax return   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. Help amending tax return 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. Help amending tax return Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Help amending tax return For more information, see Publication 970, Tax Benefits for Education. Help amending tax return 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. Help amending tax return 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. Help amending tax return For exceptions, see Entire cost excluded , and Entire cost taxed , later. Help amending tax return 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. Help amending tax return Also, it is shown separately in box 12 with code C. Help amending tax return Group-term life insurance. Help amending tax return   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. Help amending tax return Permanent benefits. Help amending tax return   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. Help amending tax return Your employer should be able to tell you the amount to include in your income. Help amending tax return Accidental death benefits. Help amending tax return   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. Help amending tax return Former employer. Help amending tax return   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. Help amending tax return Also, it is shown separately in box 12 with code C. Help amending tax return Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Help amending tax return You must pay these taxes with your income tax return. Help amending tax return Include them on line 60, Form 1040, and follow the instructions for line 60. Help amending tax return For more information, see the Instructions for Form 1040. Help amending tax return Two or more employers. Help amending tax return   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. Help amending tax return 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. Help amending tax return You must figure how much to include in your income. Help amending tax return 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. Help amending tax return Figuring the taxable cost. Help amending tax return   Use the following worksheet to figure the amount to include in your income. Help amending tax return     Worksheet 5-1. Help amending tax return Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Help amending tax return Enter the total amount of your insurance coverage from your employer(s) 1. Help amending tax return   2. Help amending tax return Limit on exclusion for employer-provided group-term life insurance coverage 2. Help amending tax return 50,000 3. Help amending tax return Subtract line 2 from line 1 3. Help amending tax return   4. Help amending tax return Divide line 3 by $1,000. Help amending tax return Figure to the nearest tenth 4. Help amending tax return   5. Help amending tax return Go to Table 5-1. Help amending tax return 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. Help amending tax return   6. Help amending tax return Multiply line 4 by line 5 6. Help amending tax return   7. Help amending tax return Enter the number of full months of coverage at this cost. Help amending tax return 7. Help amending tax return   8. Help amending tax return Multiply line 6 by line 7 8. Help amending tax return   9. Help amending tax return Enter the premiums you paid per month 9. Help amending tax return       10. Help amending tax return Enter the number of months you paid the premiums 10. Help amending tax return       11. Help amending tax return Multiply line 9 by line 10. Help amending tax return 11. Help amending tax return   12. Help amending tax return Subtract line 11 from line 8. Help amending tax return Include this amount in your income as wages 12. Help amending tax return      Table 5-1. Help amending tax return Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Help amending tax return 05 25 through 29 . Help amending tax return 06 30 through 34 . Help amending tax return 08 35 through 39 . Help amending tax return 09 40 through 44 . Help amending tax return 10 45 through 49 . Help amending tax return 15 50 through 54 . Help amending tax return 23 55 through 59 . Help amending tax return 43 60 through 64 . Help amending tax return 66 65 through 69 1. Help amending tax return 27 70 and older 2. Help amending tax return 06 Example. Help amending tax return You are 51 years old and work for employers A and B. Help amending tax return Both employers provide group-term life insurance coverage for you for the entire year. Help amending tax return Your coverage is $35,000 with employer A and $45,000 with employer B. Help amending tax return You pay premiums of $4. Help amending tax return 15 a month under the employer B group plan. Help amending tax return You figure the amount to include in your income as shown in Worksheet 5-1. Help amending tax return Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Help amending tax return Worksheet 5-1. Help amending tax return Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Help amending tax return Enter the total amount of your insurance coverage from your employer(s) 1. Help amending tax return 80,000 2. Help amending tax return Limit on exclusion for employer-provided group-term life insurance coverage 2. Help amending tax return 50,000 3. Help amending tax return Subtract line 2 from line 1 3. Help amending tax return 30,000 4. Help amending tax return Divide line 3 by $1,000. Help amending tax return Figure to the nearest tenth 4. Help amending tax return 30. Help amending tax return 0 5. Help amending tax return Go to Table 5-1. Help amending tax return 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. Help amending tax return . Help amending tax return 23 6. Help amending tax return Multiply line 4 by line 5 6. Help amending tax return 6. Help amending tax return 90 7. Help amending tax return Enter the number of full months of coverage at this cost. Help amending tax return 7. Help amending tax return 12 8. Help amending tax return Multiply line 6 by line 7 8. Help amending tax return 82. Help amending tax return 80 9. Help amending tax return Enter the premiums you paid per month 9. Help amending tax return 4. Help amending tax return 15     10. Help amending tax return Enter the number of months you paid the premiums 10. Help amending tax return 12     11. Help amending tax return Multiply line 9 by line 10. Help amending tax return 11. Help amending tax return 49. Help amending tax return 80 12. Help amending tax return Subtract line 11 from line 8. Help amending tax return Include this amount in your income as wages 12. Help amending tax return 33. Help amending tax return 00 Entire cost excluded. Help amending tax return   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Help amending tax return You are permanently and totally disabled and have ended your employment. Help amending tax return Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Help amending tax return A charitable organization (defined in chapter 24) 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. Help amending tax return (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Help amending tax return ) 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. Help amending tax return Entire cost taxed. Help amending tax return   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Help amending tax return You are a key employee and your employer's plan discriminates in favor of key employees. Help amending tax return 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. Help amending tax return 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. Help amending tax return You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Help amending tax return Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Help amending tax return 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. Help amending tax return Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Help amending tax return 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. Help amending tax return Exclusion limit. Help amending tax return   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Help amending tax return   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Help amending tax return   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Help amending tax return   If the benefits have a value that is more than these limits, the excess must be included in your income. Help amending tax return You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Help amending tax return Commuter highway vehicle. Help amending tax return   This is a highway vehicle that seats at least six adults (not including the driver). Help amending tax return 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). Help amending tax return Transit pass. Help amending tax return   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. Help amending tax return Qualified parking. Help amending tax return   This is parking provided to an employee at or near the employer's place of business. Help amending tax return 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. Help amending tax return It does not include parking at or near the employee's home. Help amending tax return Qualified bicycle commuting. Help amending tax return   This is reimbursement based on the number of qualified bicycle commuting months for the year. Help amending tax return 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. Help amending tax return The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Help amending tax return Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Help amending tax return (Your employer can tell you whether your retirement plan is qualified. Help amending tax return ) However, the cost of life insurance coverage included in the plan may have to be included. Help amending tax return See Group-Term Life Insurance , earlier, under Fringe Benefits. Help amending tax return 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. Help amending tax return 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. Help amending tax return For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Help amending tax return S. Help amending tax return Civil Service Retirement Benefits, if you are a federal employee or retiree). Help amending tax return Elective deferrals. Help amending tax return   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. Help amending tax return The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Help amending tax return An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Help amending tax return However, it is included in wages subject to social security and Medicare taxes. Help amending tax return   Elective deferrals include elective contributions to the following retirement plans. Help amending tax return Cash or deferred arrangements (section 401(k) plans). Help amending tax return The Thrift Savings Plan for federal employees. Help amending tax return Salary reduction simplified employee pension plans (SARSEP). Help amending tax return Savings incentive match plans for employees (SIMPLE plans). Help amending tax return Tax-sheltered annuity plans (403(b) plans). Help amending tax return Section 501(c)(18)(D) plans. Help amending tax return Section 457 plans. Help amending tax return Qualified automatic contribution arrangements. Help amending tax return   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. Help amending tax return You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Help amending tax return 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. Help amending tax return   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. Help amending tax return Overall limit on deferrals. Help amending tax return   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) and (5) above. Help amending tax return The limit for SIMPLE plans is $12,000. Help amending tax return The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Help amending tax return The limit for section 457 plans is the lesser of your includible compensation or $17,500. Help amending tax return Amounts deferred under specific plan limits are part of the overall limit on deferrals. Help amending tax return Designated Roth contributions. Help amending tax return   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. Help amending tax return Designated Roth contributions are treated as elective deferrals, except that they are included in income. Help amending tax return Excess deferrals. Help amending tax return   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Help amending tax return However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Help amending tax return   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Help amending tax return See Publication 525 for a discussion of the tax treatment of excess deferrals. Help amending tax return Catch-up contributions. Help amending tax return   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Help amending tax return Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, 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. Help amending tax return However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Help amending tax return Your employer can tell you which kind of option you hold. Help amending tax return For more information, see Publication 525. Help amending tax return Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Help amending tax return However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Help amending tax return (You can choose to include the value of the property in your income in the year it is transferred to you. Help amending tax return ) For more information, see Restricted Property in Publication 525. Help amending tax return Dividends received on restricted stock. Help amending tax return   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Help amending tax return Your employer should include these payments on your Form W-2. Help amending tax return Stock you chose to include in income. Help amending tax return   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Help amending tax return Report them on your return as dividends. Help amending tax return For a discussion of dividends, see chapter 8. Help amending tax return    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Help amending tax return Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Help amending tax return Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Help amending tax return , in addition to your salary. Help amending tax return If the offering is made to the religious institution, it is not taxable to you. Help amending tax return If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Help amending tax return However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Help amending tax return See chapter 24. Help amending tax return Pension. Help amending tax return    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Help amending tax return It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Help amending tax return Housing. Help amending tax return    Special rules for housing apply to members of the clergy. Help amending tax return Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Help amending tax return However, the exclusion cannot be more than the reasonable pay for your service. Help amending tax return If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Help amending tax return The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Help amending tax return However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Help amending tax return For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Help amending tax return Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Help amending tax return Services performed for the order. Help amending tax return   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Help amending tax return   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Help amending tax return Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Help amending tax return Example. Help amending tax return You are a member of a church order and have taken a vow of poverty. Help amending tax return You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Help amending tax return You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Help amending tax return However, you remain under the general direction and control of the order. Help amending tax return You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Help amending tax return Services performed outside the order. Help amending tax return   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Help amending tax return They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Help amending tax return If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Help amending tax return Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Help amending tax return Example. Help amending tax return Mark Brown is a member of a religious order and has taken a vow of poverty. Help amending tax return He renounces all claims to his earnings and turns over his earnings to the order. Help amending tax return Mark is a schoolteacher. Help amending tax return He was instructed by the superiors of the order to get a job with a private tax-exempt school. Help amending tax return Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Help amending tax return Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Help amending tax return The wages Mark earns working for the school are included in his income. Help amending tax return Foreign Employer Special rules apply if you work for a foreign employer. Help amending tax return U. Help amending tax return S. Help amending tax return citizen. Help amending tax return   If you are a U. Help amending tax return S. Help amending tax return citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Help amending tax return Social security and Medicare taxes. Help amending tax return   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Help amending tax return However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Help amending tax return This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Help amending tax return Employees of international organizations or foreign governments. Help amending tax return   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Help amending tax return   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Help amending tax return You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Help amending tax return Your work is like the work done by employees of the United States in foreign countries. Help amending tax return The foreign government gives an equal exemption to employees of the United States in its country. Help amending tax return Waiver of alien status. Help amending tax return   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Help amending tax return See Foreign Employer in Publication 525. Help amending tax return Employment abroad. Help amending tax return   For information on the tax treatment of income earned abroad, see Publication 54. Help amending tax return Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Help amending tax return Allowances generally are not taxed. Help amending tax return For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Help amending tax return Differential wage payments. Help amending tax return   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Help amending tax return These wages are subject to income tax withholding and are reported on a Form W-2. Help amending tax return See the discussion under Miscellaneous Compensation , earlier. Help amending tax return Military retirement pay. Help amending tax return   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Help amending tax return Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Help amending tax return   For more detailed discussion of survivor annuities, see chapter 10. Help amending tax return Disability. Help amending tax return   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Help amending tax return Veterans' benefits. Help amending tax return   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Help amending tax return The following amounts paid to veterans or their families are not taxable. Help amending tax return Education, training, and subsistence allowances. Help amending tax return Disability compensation and pension payments for disabilities paid either to veterans or their families. Help amending tax return Grants for homes designed for wheelchair living. Help amending tax return Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Help amending tax return Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Help amending tax return Interest on insurance dividends you leave on deposit with the VA. Help amending tax return Benefits under a dependent-care assistance program. Help amending tax return The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Help amending tax return Payments made under the compensated work therapy program. Help amending tax return Any bonus payment by a state or political subdivision because of service in a combat zone. Help amending tax return Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Help amending tax return Peace Corps. Help amending tax return   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Help amending tax return Taxable allowances. Help amending tax return   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Help amending tax return Living allowances designated by the Director of the Peace Corps as basic compensation. Help amending tax return These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Help amending tax return Leave allowances. Help amending tax return Readjustment allowances or termination payments. Help amending tax return These are considered received by you when credited to your account. Help amending tax return Example. Help amending tax return Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Help amending tax return Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Help amending tax return Volunteers in Service to America (VISTA). Help amending tax return   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Help amending tax return National Senior Services Corps programs. Help amending tax return   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Help amending tax return Retired Senior Volunteer Program (RSVP). Help amending tax return Foster Grandparent Program. Help amending tax return Senior Companion Program. Help amending tax return Service Corps of Retired Executives (SCORE). Help amending tax return   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Help amending tax return Volunteer tax counseling. Help amending tax return   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Help amending tax return   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Help amending tax return See chapter 24. Help amending tax return Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Help amending tax return In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Help amending tax return If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Help amending tax return However, certain payments may not be taxable to you. Help amending tax return Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Help amending tax return In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Help amending tax return Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Help amending tax return Cost paid by you. Help amending tax return   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Help amending tax return If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Help amending tax return See Reimbursement in a later year in chapter 21. Help amending tax return Cafeteria plans. Help amending tax return   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Help amending tax return If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Help amending tax return Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Help amending tax return You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Help amending tax return Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Help amending tax return You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Help amending tax return For information on this credit and the definition of permanent and total disability, see chapter 33. Help amending tax return Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Help amending tax return Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Help amending tax return The rules for reporting pensions are explained in How To Report in chapter 10. Help amending tax return For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Help amending tax return Retirement and profit-sharing plans. Help amending tax return   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Help amending tax return The payments must be reported as a pension or annuity. Help amending tax return For more information on pensions, see chapter 10. Help amending tax return Accrued leave payment. Help amending tax return   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Help amending tax return The payment is not a disability payment. Help amending tax return Include it in your income in the tax year you receive it. Help amending tax return Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Help amending tax return Service-connected disability. Help amending tax return   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Help amending tax return The armed forces of any country. Help amending tax return The National Oceanic and Atmospheric Administration. Help amending tax return The Public Health Service. Help amending tax return The Foreign Service. Help amending tax return Conditions for exclusion. Help amending tax return   Do not include the disability payments in your income if any of the following conditions apply. Help amending tax return You were entitled to receive a disability payment before September 25, 1975. Help amending tax return You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Help amending tax return You receive the disability payments for a combat-related injury. Help amending tax return This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Help amending tax return You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Help amending tax return Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Help amending tax return Pension based on years of service. Help amending tax return   If you receive a disability pension based on years of service, in most cases you must include it in your income. Help amending tax return However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Help amending tax return You must include the rest of your pension in your income. Help amending tax return Retroactive VA determination. Help amending tax return   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Help amending tax return You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Help amending tax return You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Help amending tax return The letter must show the amount withheld and the effective date of the benefit. Help amending tax return   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Help amending tax return However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Help amending tax return Special statute of limitations. Help amending tax return   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Help amending tax return However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Help amending tax return This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Help amending tax return Example. Help amending tax return You retired in 2007 and receive a pension based on your years of service. Help amending tax return On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Help amending tax return Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Help amending tax return However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Help amending tax return You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Help amending tax return Terrorist attack or military action. Help amending tax return   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Help amending tax return Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Help amending tax return Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Help amending tax return To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Help amending tax return A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Help amending tax return The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Help amending tax return Qualified long-term care services. Help amending tax return   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Help amending tax return Chronically ill individual. Help amending tax return   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Help amending tax return Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Help amending tax return An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Help amending tax return Limit on exclusion. Help amending tax return   You generally can exclude from gross income up to $320 a day for 2013. Help amending tax return See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Help amending tax return Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Help amending tax return The exemption also applies to your survivors. Help amending tax return The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Help amending tax return If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Help amending tax return For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Help amending tax return Return to work. Help amending tax return    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Help amending tax return Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Help amending tax return Railroad sick pay. Help amending tax return    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Help amending tax return However, do not include them in your income if they are for an on-the-job injury. Help amending tax return   If you received income because of a disability, see Disability Pensions , earlier. Help amending tax return Federal Employees' Compensation Act (FECA). Help amending tax return   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Help amending tax return However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Help amending tax return Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Help amending tax return Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Help amending tax return    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Help amending tax return For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Help amending tax return    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Help amending tax return It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Help amending tax return If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Help amending tax return Do not deduct it separately. Help amending tax return Other compensation. Help amending tax return   Many other amounts you receive as compensation for sickness or injury are not taxable. Help amending tax return These include the following amounts. Help amending tax return Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Help amending tax return Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Help amending tax return Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Help amending tax return Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Help amending tax return This compensation must be based only on the injury and not on the period of your absence from work. Help amending tax return These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Help amending tax return Reimbursement for medical care. Help amending tax return    A reimbursement for medical care is generally not taxable. Help amending tax return However, it may reduce your medical expense deduction. Help amending tax return For more information, see chapter 21. Help amending tax return Prev  Up  Next   Home   More Online Publications
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The Help Amending Tax Return

Help amending tax return Publication 525 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionAssignment of income. Help amending tax return Ordering forms and publications. Help amending tax return Tax questions. Help amending tax return Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 525, such as legislation enacted after it was published, go to www. Help amending tax return irs. Help amending tax return gov/pub525. Help amending tax return What's New Health flexible spending arrangements (health FSAs) under cafeteria plans. Help amending tax return  For plan years beginning after 2012, health FSAs are subject to a $2,500 limit on salary reduction contributions. Help amending tax return For plan years beginning after 2013, the $2,500 limit is subject to an inflation adjustment. Help amending tax return Itemized deduction for medical expenses. Help amending tax return  Beginning in 2013, an itemized deduction is generally allowed for uncompensated medical expenses that exceed 10% of adjusted gross income (AGI). Help amending tax return If an individual or an individual’s spouse was born before January 2, 1949, the deduction is allowed for expenses that exceed 7. Help amending tax return 5% of AGI. Help amending tax return Additional Medicare Tax. Help amending tax return  Beginning in 2013, a 0. Help amending tax return 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). Help amending tax return For more information, see Form 8959 and its instructions. Help amending tax return Net Investment Income Tax (NIIT). Help amending tax return  Beginning in 2013, the NIIT applies at a rate of 3. Help amending tax return 8% to certain net investment income of individuals, estates and trusts that have income above the threshold amounts. Help amending tax return Individuals will owe the tax if they have net investment income and also have modified adjusted gross income over the following thresholds for their filing status: Married filing jointly, $250,000; Married filing separately, $125,000; Single, $200,000; Head of household (with qualifying person), $200,000; Qualifying widow(er) with dependent child, $250,000. Help amending tax return For more information, see Form 8960 and its instructions. Help amending tax return Reminders Terrorist attacks. Help amending tax return  You can exclude from income certain disaster assistance, disability, and death payments received as a result of a terrorist or military action. Help amending tax return For more information, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Help amending tax return Gulf oil spill. Help amending tax return  You are required to include in your gross income payments you received for lost wages, lost business income, or lost profits. Help amending tax return See Gulf oil spill under Other Income, later. Help amending tax return Qualified settlement income. Help amending tax return . Help amending tax return  If you are a qualified taxpayer, you can contribute all or part of your qualified settlement income, up to $100,000, to an eligible retirement plan, including an IRA. Help amending tax return Contributions to eligible retirement plans, other than a Roth IRA or a designated Roth contribution, reduce the qualified settlement income that you must include in income. Help amending tax return See Exxon Valdez settlement income under Other Income, later. Help amending tax return Foreign income. Help amending tax return  If you are a U. Help amending tax return S. Help amending tax return citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Help amending tax return S. Help amending tax return law. Help amending tax return This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Help amending tax return This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Help amending tax return If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Help amending tax return For details, see Publication 54, Tax Guide for U. Help amending tax return S. Help amending tax return Citizens and Resident Aliens Abroad. Help amending tax return Disaster mitigation payments. Help amending tax return . Help amending tax return  You can exclude from income grants you use to mitigate (reduce the severity of) potential damage from future natural disasters that are paid to you through state and local governments. Help amending tax return For more information, see Disaster mitigation payments under Welfare and Other Public Assistance Benefits, later. Help amending tax return Qualified joint venture. Help amending tax return  A qualified joint venture conducted by you and your spouse may not be treated as a partnership if you file a joint return for the tax year. Help amending tax return See Partnership Income under Business and Investment Income, later. Help amending tax return Photographs of missing children. Help amending tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Help amending tax return Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. Help amending tax return You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Help amending tax return Introduction You can receive income in the form of money, property, or services. Help amending tax return This publication discusses many kinds of income and explains whether they are taxable or nontaxable. Help amending tax return It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. Help amending tax return It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Help amending tax return Check the index for the location of a specific subject. Help amending tax return In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Help amending tax return Income that is taxable must be reported on your return and is subject to tax. Help amending tax return Income that is nontaxable may have to be shown on your tax return but is not taxable. Help amending tax return Constructively received income. Help amending tax return   You are generally taxed on income that is available to you, regardless of whether it is actually in your possession. Help amending tax return    A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. Help amending tax return For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. Help amending tax return If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you otherwise could not get the funds before the end of the year, you include the amount in your income for the next tax year. Help amending tax return Assignment of income. Help amending tax return   Income received by an agent for you is income you constructively received in the year the agent received it. Help amending tax return If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it. Help amending tax return Example. Help amending tax return You and your employer agree that part of your salary is to be paid directly to one of your creditors. Help amending tax return You must include that amount in your income when your creditor receives it. Help amending tax return Prepaid income. Help amending tax return   In most cases, prepaid income, such as compensation for future services, is included in your income in the year you receive it. Help amending tax return However, if you use an accrual method of accounting, you can defer prepaid income you receive for services to be performed before the end of the next tax year. Help amending tax return In this case, you include the payment in your income as you earn it by performing the services. Help amending tax return Comments and suggestions. Help amending tax return   We welcome your comments about this publication and your suggestions for future editions. Help amending tax return   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Help amending tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Help amending tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Help amending tax return   You can send your comments from www. Help amending tax return irs. Help amending tax return gov/formspubs/. Help amending tax return Click on “More Information” and then on “Comment on Tax Forms and Publications. Help amending tax return ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Help amending tax return Ordering forms and publications. Help amending tax return   Visit www. Help amending tax return irs. Help amending tax return gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Help amending tax return Internal Revenue Service 1201 N. Help amending tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Help amending tax return   If you have a tax question, check the information available on IRS. Help amending tax return gov or call 1-800-829-1040. Help amending tax return We cannot answer tax questions sent to either of the above addresses. Help amending tax return Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 527 Residential Rental Property 541 Partnerships 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 559 Survivors, Executors, and Administrators 575 Pension and Annuity Income 915 Social Security and Equivalent Railroad Retirement Benefits 970 Tax Benefits for Education 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 1040 U. Help amending tax return S. Help amending tax return Individual Income Tax Return 1040A U. Help amending tax return S. Help amending tax return Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1040NR U. Help amending tax return S. Help amending tax return Nonresident Alien Income Tax Return 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Help amending tax return W-2 Wage and Tax Statement  See How To Get Tax Help , near the end of this publication, for information about getting these publications. Help amending tax return Prev  Up  Next   Home   More Online Publications