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How Can I File My 2011 Tax Return

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How Can I File My 2011 Tax Return

How can i file my 2011 tax return Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. How can i file my 2011 tax return S. How can i file my 2011 tax return Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. How can i file my 2011 tax return Full-time student. How can i file my 2011 tax return Adjusted gross income. How can i file my 2011 tax return More information. How can i file my 2011 tax return Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). How can i file my 2011 tax return Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. How can i file my 2011 tax return Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. How can i file my 2011 tax return You are a member of a religious order who has taken a vow of poverty. How can i file my 2011 tax return You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. How can i file my 2011 tax return See Exemption From Self-Employment (SE) Tax , later. How can i file my 2011 tax return You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. How can i file my 2011 tax return For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. How can i file my 2011 tax return Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. How can i file my 2011 tax return See Ministerial Services , later. How can i file my 2011 tax return Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. How can i file my 2011 tax return However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. How can i file my 2011 tax return For the specific services covered, see Ministerial Services , later. How can i file my 2011 tax return Ministers defined. How can i file my 2011 tax return   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. How can i file my 2011 tax return Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. How can i file my 2011 tax return   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. How can i file my 2011 tax return Employment status for other tax purposes. How can i file my 2011 tax return   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. How can i file my 2011 tax return For income tax or retirement plan purposes, your income earned as an employee will be considered wages. How can i file my 2011 tax return Common-law employee. How can i file my 2011 tax return   Under common-law rules, you are considered either an employee or a self-employed person. How can i file my 2011 tax return Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. How can i file my 2011 tax return For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. How can i file my 2011 tax return   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. How can i file my 2011 tax return However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. How can i file my 2011 tax return Example. How can i file my 2011 tax return A church hires and pays you a salary to perform ministerial services subject to its control. How can i file my 2011 tax return Under the common-law rules, you are an employee of the church while performing those services. How can i file my 2011 tax return Form SS-8. How can i file my 2011 tax return   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. How can i file my 2011 tax return Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. How can i file my 2011 tax return See Ministerial Services , later. How can i file my 2011 tax return However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. How can i file my 2011 tax return Vow of poverty. How can i file my 2011 tax return   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. How can i file my 2011 tax return You do not need to request a separate exemption. How can i file my 2011 tax return For income tax purposes, the earnings are tax free to you. How can i file my 2011 tax return Your earnings are considered the income of the religious order. How can i file my 2011 tax return Services covered under FICA at the election of the order. How can i file my 2011 tax return   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. How can i file my 2011 tax return Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. How can i file my 2011 tax return   The order or subdivision elects coverage by filing Form SS-16. How can i file my 2011 tax return The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. How can i file my 2011 tax return If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. How can i file my 2011 tax return You do not pay any of the FICA tax. How can i file my 2011 tax return Services performed outside the order. How can i file my 2011 tax return   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. How can i file my 2011 tax return   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. How can i file my 2011 tax return You may, however, be able to take a charitable deduction for the amount you turn over to the order. How can i file my 2011 tax return See Publication 526, Charitable Contributions. How can i file my 2011 tax return Rulings. How can i file my 2011 tax return   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. How can i file my 2011 tax return To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. How can i file my 2011 tax return R. How can i file my 2011 tax return B. How can i file my 2011 tax return 1, available at www. How can i file my 2011 tax return irs. How can i file my 2011 tax return gov/irb/2014-1_IRB/ar05. How can i file my 2011 tax return html. How can i file my 2011 tax return Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. How can i file my 2011 tax return However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. How can i file my 2011 tax return Practitioners. How can i file my 2011 tax return   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. How can i file my 2011 tax return State law specifically exempts Christian Science practitioners from licensing requirements. How can i file my 2011 tax return   Some Christian Science practitioners also are Christian Science teachers or lecturers. How can i file my 2011 tax return Income from teaching or lecturing is considered the same as income from their work as practitioners. How can i file my 2011 tax return Readers. How can i file my 2011 tax return   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. How can i file my 2011 tax return Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. How can i file my 2011 tax return Some exceptions are discussed next. How can i file my 2011 tax return Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. How can i file my 2011 tax return If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. How can i file my 2011 tax return Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. How can i file my 2011 tax return 28 during the tax year. How can i file my 2011 tax return However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. How can i file my 2011 tax return Churches and church organizations make this election by filing two copies of Form 8274. How can i file my 2011 tax return For more information about making this election, see Form 8274. How can i file my 2011 tax return Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. How can i file my 2011 tax return This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. How can i file my 2011 tax return Make this choice by filing Form 4029. How can i file my 2011 tax return See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. How can i file my 2011 tax return U. How can i file my 2011 tax return S. How can i file my 2011 tax return Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. How can i file my 2011 tax return Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. How can i file my 2011 tax return S. How can i file my 2011 tax return social security system. How can i file my 2011 tax return To determine your alien status, see Publication 519, U. How can i file my 2011 tax return S. How can i file my 2011 tax return Tax Guide for Aliens. How can i file my 2011 tax return Residents of Puerto Rico, the U. How can i file my 2011 tax return S. How can i file my 2011 tax return Virgin Islands, Guam, the CNMI, and American Samoa. How can i file my 2011 tax return   If you are a resident of one of these U. How can i file my 2011 tax return S. How can i file my 2011 tax return possessions but not a U. How can i file my 2011 tax return S. How can i file my 2011 tax return citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. How can i file my 2011 tax return For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. How can i file my 2011 tax return Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. How can i file my 2011 tax return Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. How can i file my 2011 tax return Even if you have an exemption, only the income you receive for performing ministerial services is exempt. How can i file my 2011 tax return The exemption does not apply to any other income. How can i file my 2011 tax return The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. How can i file my 2011 tax return Ministers Most services you perform as a minister, priest, rabbi, etc. How can i file my 2011 tax return , are ministerial services. How can i file my 2011 tax return These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. How can i file my 2011 tax return You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. How can i file my 2011 tax return A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. How can i file my 2011 tax return Services for nonreligious organizations. How can i file my 2011 tax return   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. How can i file my 2011 tax return Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. How can i file my 2011 tax return   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. How can i file my 2011 tax return Services that are not part of your ministry. How can i file my 2011 tax return   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. How can i file my 2011 tax return The following are not ministerial services. How can i file my 2011 tax return Services you perform for nonreligious organizations other than the services stated above. How can i file my 2011 tax return Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. How can i file my 2011 tax return These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. How can i file my 2011 tax return (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. How can i file my 2011 tax return ) Services you perform in a government-owned and operated hospital. How can i file my 2011 tax return (These services are considered performed by a government employee, not by a minister as part of the ministry. How can i file my 2011 tax return ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. How can i file my 2011 tax return Books or articles. How can i file my 2011 tax return   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. How can i file my 2011 tax return   This rule also applies to members of religious orders and to Christian Science practitioners and readers. How can i file my 2011 tax return Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. How can i file my 2011 tax return The services are considered ministerial because you perform them as an agent of the order. How can i file my 2011 tax return For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. How can i file my 2011 tax return However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. How can i file my 2011 tax return Effect of employee status. How can i file my 2011 tax return   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. How can i file my 2011 tax return In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. How can i file my 2011 tax return This result is true even if you have taken a vow of poverty. How can i file my 2011 tax return Example. How can i file my 2011 tax return Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. How can i file my 2011 tax return They renounce all claims to their earnings. How can i file my 2011 tax return The earnings belong to the order. How can i file my 2011 tax return Pat is a licensed attorney. How can i file my 2011 tax return The superiors of the order instructed her to get a job with a law firm. How can i file my 2011 tax return Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. How can i file my 2011 tax return Chris is a secretary. How can i file my 2011 tax return The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. How can i file my 2011 tax return Chris took the job and gave all his earnings to the order. How can i file my 2011 tax return Pat's services are not duties required by the order. How can i file my 2011 tax return Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. How can i file my 2011 tax return Chris' services are duties required by the order. How can i file my 2011 tax return He is acting as an agent of the order and not as an employee of a third party. How can i file my 2011 tax return He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. How can i file my 2011 tax return Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. How can i file my 2011 tax return Amounts you receive for performing these services are generally subject to SE tax. How can i file my 2011 tax return You may request an exemption from SE tax, discussed next, which applies only to those services. How can i file my 2011 tax return Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. How can i file my 2011 tax return Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. How can i file my 2011 tax return They do not have to request the exemption. How can i file my 2011 tax return Who cannot be exempt. How can i file my 2011 tax return   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. How can i file my 2011 tax return These elections are irrevocable. How can i file my 2011 tax return You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. How can i file my 2011 tax return You elected before 1968 to be covered under social security for your ministerial services. How can i file my 2011 tax return Requesting exemption. How can i file my 2011 tax return    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. How can i file my 2011 tax return More detailed explanations follow. How can i file my 2011 tax return If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. How can i file my 2011 tax return It does not apply to any other self-employment income. How can i file my 2011 tax return Table 2. How can i file my 2011 tax return The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. How can i file my 2011 tax return You file Form 4361, described below under Requesting Exemption—Form 4361 . How can i file my 2011 tax return You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. How can i file my 2011 tax return You file for other than economic reasons. How can i file my 2011 tax return You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). How can i file my 2011 tax return This requirement does not apply to Christian Science practitioners or readers. How can i file my 2011 tax return You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. How can i file my 2011 tax return You establish that the organization is a church or a convention or association of churches. How can i file my 2011 tax return You did not make an election discussed earlier under Who cannot be exempt . How can i file my 2011 tax return You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. How can i file my 2011 tax return Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. How can i file my 2011 tax return The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. How can i file my 2011 tax return If it is approved, keep the approved copy of Form 4361 in your permanent records. How can i file my 2011 tax return When to file. How can i file my 2011 tax return   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. How can i file my 2011 tax return You have net earnings from self-employment of at least $400. How can i file my 2011 tax return Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. How can i file my 2011 tax return The 2 years do not have to be consecutive tax years. How can i file my 2011 tax return    The approval process can take some time, so you should file Form 4361 as soon as possible. How can i file my 2011 tax return Example 1. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. How can i file my 2011 tax return He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. How can i file my 2011 tax return However, if Rev. How can i file my 2011 tax return Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. How can i file my 2011 tax return Example 2. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. How can i file my 2011 tax return She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. How can i file my 2011 tax return However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. How can i file my 2011 tax return Example 3. How can i file my 2011 tax return In 2011, Rev. How can i file my 2011 tax return David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. How can i file my 2011 tax return In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. How can i file my 2011 tax return Therefore, he had no net self-employment earnings as a minister in 2012. How can i file my 2011 tax return Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. How can i file my 2011 tax return In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. How can i file my 2011 tax return Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. How can i file my 2011 tax return Death of individual. How can i file my 2011 tax return   The right to file an application for exemption ends with an individual's death. How can i file my 2011 tax return A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. How can i file my 2011 tax return Effective date of exemption. How can i file my 2011 tax return   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. How can i file my 2011 tax return Once the exemption is approved, it is irrevocable. How can i file my 2011 tax return Example. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. How can i file my 2011 tax return She files an application for exemption on February 20, 2014. How can i file my 2011 tax return If an exemption is granted, it is effective for 2010 and the following years. How can i file my 2011 tax return Refunds of SE tax. How can i file my 2011 tax return   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. How can i file my 2011 tax return Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. How can i file my 2011 tax return A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. How can i file my 2011 tax return   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. How can i file my 2011 tax return Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. How can i file my 2011 tax return Exception. How can i file my 2011 tax return   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. How can i file my 2011 tax return However, if you pay your benefits back, you may be considered for exemption. How can i file my 2011 tax return Contact your local Social Security Administration office to find out the amount you must pay back. How can i file my 2011 tax return Eligibility requirements. How can i file my 2011 tax return   To claim this exemption from SE tax, all the following requirements must be met. How can i file my 2011 tax return You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . How can i file my 2011 tax return As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. How can i file my 2011 tax return You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. How can i file my 2011 tax return The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. How can i file my 2011 tax return Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. How can i file my 2011 tax return The sect or division must complete part of the form. How can i file my 2011 tax return The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. How can i file my 2011 tax return If it is approved, keep the approved copy of Form 4029 in your permanent records. How can i file my 2011 tax return When to file. How can i file my 2011 tax return   You can file Form 4029 at any time. How can i file my 2011 tax return   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. How can i file my 2011 tax return See Effective date of exemption next for information on when the newly approved exemption would become effective. How can i file my 2011 tax return    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. How can i file my 2011 tax return Effective date of exemption. How can i file my 2011 tax return   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. How can i file my 2011 tax return (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. How can i file my 2011 tax return )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. How can i file my 2011 tax return You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. How can i file my 2011 tax return The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. How can i file my 2011 tax return Refunds of SE tax paid. How can i file my 2011 tax return    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. How can i file my 2011 tax return For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. How can i file my 2011 tax return Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. How can i file my 2011 tax return Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. How can i file my 2011 tax return A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. How can i file my 2011 tax return If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. How can i file my 2011 tax return Information for employers. How can i file my 2011 tax return   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. How can i file my 2011 tax return   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. How can i file my 2011 tax return Form W-2. How can i file my 2011 tax return   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. How can i file my 2011 tax return ” Do not make any entries in boxes 3, 4, 5, or 6. How can i file my 2011 tax return Forms 941, 943, and 944. How can i file my 2011 tax return   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. How can i file my 2011 tax return Instead, follow the instructions given below. How can i file my 2011 tax return Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. How can i file my 2011 tax return Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. How can i file my 2011 tax return Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. How can i file my 2011 tax return Effective date. How can i file my 2011 tax return   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. How can i file my 2011 tax return The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. How can i file my 2011 tax return Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. How can i file my 2011 tax return Regular method. How can i file my 2011 tax return Nonfarm optional method. How can i file my 2011 tax return You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. How can i file my 2011 tax return Blank worksheets are in the back of this publication, after the Comprehensive Example. How can i file my 2011 tax return Regular Method Most people use the regular method. How can i file my 2011 tax return Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. How can i file my 2011 tax return Then, subtract your allowable business deductions and multiply the difference by 92. How can i file my 2011 tax return 35% (. How can i file my 2011 tax return 9235). How can i file my 2011 tax return Use Schedule SE (Form 1040) to figure your net earnings and SE tax. How can i file my 2011 tax return If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. How can i file my 2011 tax return 35% (. How can i file my 2011 tax return 9235). How can i file my 2011 tax return Do not reduce your wages by any business deductions when making this computation. How can i file my 2011 tax return Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. How can i file my 2011 tax return If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. How can i file my 2011 tax return Amounts included in gross income. How can i file my 2011 tax return   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. How can i file my 2011 tax return , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. How can i file my 2011 tax return This amount is also subject to income tax. How can i file my 2011 tax return   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. How can i file my 2011 tax return Example. How can i file my 2011 tax return Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. How can i file my 2011 tax return The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. How can i file my 2011 tax return His church owns a parsonage that has a fair rental value of $12,000 per year. How can i file my 2011 tax return The church gives Pastor Adams the use of the parsonage. How can i file my 2011 tax return He is not exempt from SE tax. How can i file my 2011 tax return He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. How can i file my 2011 tax return The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. How can i file my 2011 tax return Overseas duty. How can i file my 2011 tax return   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. How can i file my 2011 tax return S. How can i file my 2011 tax return citizen or resident alien serving abroad and living in a foreign country. How can i file my 2011 tax return   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. How can i file my 2011 tax return Example. How can i file my 2011 tax return Diane Jones was the minister of a U. How can i file my 2011 tax return S. How can i file my 2011 tax return church in Mexico. How can i file my 2011 tax return She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. How can i file my 2011 tax return The United States does not have a social security agreement with Mexico, so Mrs. How can i file my 2011 tax return Jones is subject to U. How can i file my 2011 tax return S. How can i file my 2011 tax return SE tax and must include $35,000 when figuring net earnings from self-employment. How can i file my 2011 tax return Specified U. How can i file my 2011 tax return S. How can i file my 2011 tax return possessions. How can i file my 2011 tax return    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. How can i file my 2011 tax return Also see Residents of Puerto Rico, the U. How can i file my 2011 tax return S. How can i file my 2011 tax return Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. How can i file my 2011 tax return S. How can i file my 2011 tax return Citizens and Resident and Nonresident Aliens. How can i file my 2011 tax return Amounts not included in gross income. How can i file my 2011 tax return   Do not include the following amounts in gross income when figuring your net earnings from self-employment. How can i file my 2011 tax return Offerings that others made to the church. How can i file my 2011 tax return Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. How can i file my 2011 tax return Pension payments or retirement allowances you receive for your past ministerial services. How can i file my 2011 tax return The rental value of a parsonage or a parsonage allowance provided to you after you retire. How can i file my 2011 tax return Allowable deductions. How can i file my 2011 tax return   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. How can i file my 2011 tax return These are ministerial expenses you incurred while working other than as a common-law employee of the church. How can i file my 2011 tax return They include expenses incurred in performing marriages and baptisms, and in delivering speeches. How can i file my 2011 tax return Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. How can i file my 2011 tax return   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . How can i file my 2011 tax return Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. How can i file my 2011 tax return Do not complete Schedule C or C-EZ (Form 1040). How can i file my 2011 tax return However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. How can i file my 2011 tax return Employee reimbursement arrangements. How can i file my 2011 tax return   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. How can i file my 2011 tax return Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. How can i file my 2011 tax return Accountable plans. How can i file my 2011 tax return   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. How can i file my 2011 tax return Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. How can i file my 2011 tax return You must adequately account to your employer for these expenses within a reasonable period of time. How can i file my 2011 tax return You must return any excess reimbursement or allowance within a reasonable period of time. How can i file my 2011 tax return   The reimbursement is not reported on your Form W-2. How can i file my 2011 tax return Generally, if your expenses equal your reimbursement, you have no deduction. How can i file my 2011 tax return If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. How can i file my 2011 tax return Nonaccountable plan. How can i file my 2011 tax return   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. How can i file my 2011 tax return In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. How can i file my 2011 tax return Excess reimbursements you fail to return to your employer. How can i file my 2011 tax return Reimbursement of nondeductible expenses related to your employer's business. How can i file my 2011 tax return   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. How can i file my 2011 tax return Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. How can i file my 2011 tax return   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. How can i file my 2011 tax return Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. How can i file my 2011 tax return If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. How can i file my 2011 tax return Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. How can i file my 2011 tax return The tax rate for the social security part is 12. How can i file my 2011 tax return 4%. How can i file my 2011 tax return In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. How can i file my 2011 tax return This tax rate is 2. How can i file my 2011 tax return 9%. How can i file my 2011 tax return The combined self-employment tax rate is 15. How can i file my 2011 tax return 3%. How can i file my 2011 tax return Additional Medicare Tax. How can i file my 2011 tax return   Beginning in 2013, a 0. How can i file my 2011 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 for any other filing status. How can i file my 2011 tax return Medicare wages and self-employment income are combined to determine if income exceeds the threshold. How can i file my 2011 tax return A self-employment loss is not considered for purposes of this tax. How can i file my 2011 tax return RRTA compensation is separately compared to the threshold. How can i file my 2011 tax return For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. How can i file my 2011 tax return Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. How can i file my 2011 tax return In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. How can i file my 2011 tax return You may use the nonfarm optional method if you meet all the following tests. How can i file my 2011 tax return You are self-employed on a regular basis. How can i file my 2011 tax return You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. How can i file my 2011 tax return The net earnings can be from either farm or nonfarm earnings or both. How can i file my 2011 tax return You have used this method less than 5 prior years. How can i file my 2011 tax return (There is a 5-year lifetime limit. How can i file my 2011 tax return ) The years do not have to be consecutive. How can i file my 2011 tax return Your net nonfarm profits were: Less than $5,024, and Less than 72. How can i file my 2011 tax return 189% of your gross nonfarm income. How can i file my 2011 tax return If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. How can i file my 2011 tax return Table 3. How can i file my 2011 tax return Figuring Nonfarm Net Earnings IF your gross nonfarm income is . How can i file my 2011 tax return . How can i file my 2011 tax return . How can i file my 2011 tax return THEN your net earnings are equal to . How can i file my 2011 tax return . How can i file my 2011 tax return . How can i file my 2011 tax return $6,960 or less Two-thirds of your gross nonfarm income. How can i file my 2011 tax return More than $6,960 $4,640. How can i file my 2011 tax return Actual net earnings. How can i file my 2011 tax return   Multiply your total earnings subject to SE tax by 92. How can i file my 2011 tax return 35% (. How can i file my 2011 tax return 9235) to get actual net earnings. How can i file my 2011 tax return Actual net earnings are equivalent to net earnings under the “Regular Method. How can i file my 2011 tax return ” More information. How can i file my 2011 tax return   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. How can i file my 2011 tax return Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. How can i file my 2011 tax return Note. How can i file my 2011 tax return For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. How can i file my 2011 tax return Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. How can i file my 2011 tax return Offerings and Fees 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. How can i file my 2011 tax return , in addition to your salary. How can i file my 2011 tax return If the offering is made to the religious institution, it is not taxable to you. How can i file my 2011 tax return Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. How can i file my 2011 tax return However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. How can i file my 2011 tax return For more information, see Publication 526. How can i file my 2011 tax return Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. How can i file my 2011 tax return Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. How can i file my 2011 tax return This exclusion applies only for income tax purposes. How can i file my 2011 tax return It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. How can i file my 2011 tax return Designation requirement. How can i file my 2011 tax return   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. How can i file my 2011 tax return It must designate a definite amount. How can i file my 2011 tax return It cannot determine the amount of the housing allowance at a later date. How can i file my 2011 tax return If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. How can i file my 2011 tax return   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. How can i file my 2011 tax return The local congregation must officially designate the part of your salary that is a housing allowance. How can i file my 2011 tax return However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. How can i file my 2011 tax return Rental allowances. How can i file my 2011 tax return   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. How can i file my 2011 tax return   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. How can i file my 2011 tax return Fair rental value of parsonage. How can i file my 2011 tax return   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. How can i file my 2011 tax return However, the exclusion cannot be more than the reasonable pay for your services. How can i file my 2011 tax return If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. How can i file my 2011 tax return Example. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Joanna Baker is a full-time minister. How can i file my 2011 tax return The church allows her to use a parsonage that has an annual fair rental value of $24,000. How can i file my 2011 tax return The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. How can i file my 2011 tax return Her actual utility costs during the year were $7,000. How can i file my 2011 tax return For income tax purposes, Rev. How can i file my 2011 tax return Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). How can i file my 2011 tax return She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). How can i file my 2011 tax return Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). How can i file my 2011 tax return Home ownership. How can i file my 2011 tax return   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. How can i file my 2011 tax return Excess rental allowance. How can i file my 2011 tax return   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. How can i file my 2011 tax return   Include in the total on Form 1040, line 7. How can i file my 2011 tax return On the dotted line next to line 7, enter “Excess allowance” and the amount. How can i file my 2011 tax return You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. How can i file my 2011 tax return However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). How can i file my 2011 tax return Retired ministers. How can i file my 2011 tax return   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. How can i file my 2011 tax return However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. How can i file my 2011 tax return Teachers or administrators. How can i file my 2011 tax return   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. How can i file my 2011 tax return However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. How can i file my 2011 tax return    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. How can i file my 2011 tax return In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. How can i file my 2011 tax return   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. How can i file my 2011 tax return Theological students. How can i file my 2011 tax return   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. How can i file my 2011 tax return Traveling evangelists. How can i file my 2011 tax return   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. How can i file my 2011 tax return You are an ordained minister. How can i file my 2011 tax return You perform ministerial services at churches located away from your community. How can i file my 2011 tax return You actually use the rental allowance to maintain your permanent home. How can i file my 2011 tax return Cantors. How can i file my 2011 tax return   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. How can i file my 2011 tax return Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. How can i file my 2011 tax return See Members of Religious Orders , earlier, under Social Security Coverage. How can i file my 2011 tax return Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. How can i file my 2011 tax return S. How can i file my 2011 tax return possession. How can i file my 2011 tax return Publication 54 discusses the foreign earned income exclusion. How can i file my 2011 tax return Publication 570, Tax Guide for Individuals With Income From U. How can i file my 2011 tax return S. How can i file my 2011 tax return Possessions, covers the rules for taxpayers with income from U. How can i file my 2011 tax return S. How can i file my 2011 tax return possessions. How can i file my 2011 tax return You can get these free publications from the Internal Revenue Service at IRS. How can i file my 2011 tax return gov or from most U. How can i file my 2011 tax return S. How can i file my 2011 tax return Embassies or consulates. How can i file my 2011 tax return Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. How can i file my 2011 tax return Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. How can i file my 2011 tax return You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). How can i file my 2011 tax return You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. How can i file my 2011 tax return See Publication 529 for more information on this limit. How can i file my 2011 tax return However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). How can i file my 2011 tax return Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. How can i file my 2011 tax return You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. How can i file my 2011 tax return Exception. How can i file my 2011 tax return   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. How can i file my 2011 tax return Figuring the allocation. How can i file my 2011 tax return   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. How can i file my 2011 tax return    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. How can i file my 2011 tax return Example. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. How can i file my 2011 tax return He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. How can i file my 2011 tax return $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. How can i file my 2011 tax return Rev. How can i file my 2011 tax return Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. How can i file my 2011 tax return Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. How can i file my 2011 tax return   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. How can i file my 2011 tax return The statement must contain all of the following information. How can i file my 2011 tax return A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. How can i file my 2011 tax return ) plus the amount. How can i file my 2011 tax return A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. How can i file my 2011 tax return A list of each item of otherwise deductible ministerial expenses plus the amount. How can i file my 2011 tax return How you figured the nondeductible part of your otherwise deductible expenses. How can i file my 2011 tax return A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. How can i file my 2011 tax return   See the attachments prepared for the Comprehensive Example , later. How can i file my 2011 tax return Following the example, you will find blank worksheets for your own use. How can i file my 2011 tax return Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. How can i file my 2011 tax return If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. How can i file my 2011 tax return See the Instructions for Form 1040 to figure your deduction. How can i file my 2011 tax return The following special rules apply to the self-employed health insurance deduction. How can i file my 2011 tax return You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. How can i file my 2011 tax return You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. How can i file my 2011 tax return The deduction cannot exceed your net earnings from the business under which the insurance plan is established. How can i file my 2011 tax return Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. How can i file my 2011 tax return More information. How can i file my 2011 tax return   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. How can i file my 2011 tax return Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. How can i file my 2011 tax return This is an income tax deduction only, on Form 1040, line 27. How can i file my 2011 tax return Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. How can i file my 2011 tax return Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. How can i file my 2011 tax return You must pay the tax as you earn or receive income during the year. How can i file my 2011 tax return An employee usually has income tax withheld from his or her wages or salary. How can i file my 2011 tax return However, your salary is not subject to federal income tax withholding if both of the following conditions apply. How can i file my 2011 tax return You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. How can i file my 2011 tax return Your salary is for ministerial services (see Ministerial Services , earlier). How can i file my 2011 tax return If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. How can i file my 2011 tax return You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. How can i file my 2011 tax return Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. How can i file my 2011 tax return Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. How can i file my 2011 tax return See Form 1040-ES for the different payment methods. How can i file my 2011 tax return The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. How can i file my 2011 tax return For more information, see chapter 2 of Publication 505. How can i file my 2011 tax return If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. How can i file my 2011 tax return Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. How can i file my 2011 tax return Table 4. How can i file my 2011 tax return 2013 Filing Requirements for Most Taxpayers IF your filing status is . How can i file my 2011 tax return . How can i file my 2011 tax return . How can i file my 2011 tax return AND at the end of 2013 you were* . How can i file my 2011 tax return . How can i file my 2011 tax return . How can i file my 2011 tax return THEN file a return if your gross income** was at least . How can i file my 2011 tax return . How can i file my 2011 tax return . How can i file my 2011 tax return single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. How can i file my 2011 tax return ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). How can i file my 2011 tax return Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). How can i file my 2011 tax return If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. How can i file my 2011 tax return Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). How can i file my 2011 tax return Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. How can i file my 2011 tax return But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. How can i file my 2011 tax return *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. How can i file my 2011 tax return Additional requirements. How can i file my 2011 tax return   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. How can i file my 2011 tax return 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). How can i file my 2011 tax return Self-employment tax. How can i file my 2011 tax return   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. How can i file my 2011 tax return   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. How can i file my 2011 tax return You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). How can i file my 2011 tax return You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. How can i file my 2011 tax return However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). How can i file my 2011 tax return Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. How can i file my 2011 tax return Note. How can i file my 2011 tax return For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. How can i file my 2011 tax return You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. How can i file my 2011 tax return Exemption from SE tax. How can i file my 2011 tax return   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). How can i file my 2011 tax return Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. How can i file my 2011 tax return However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. How can i file my 2011 tax return    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). How can i file my 2011 tax return Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. How can i file my 2011 tax return More information. How can i file my 2011 tax return   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. How can i file my 2011 tax return Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. How can i file my 2011 tax return You generally can deduct your contributions to the plan. How can i file my 2011 tax return Your contributions and the earnings on them are not taxed until they are distributed. How can i file my 2011 tax return Retirement plans for the self-employed. How can i file my 2011 tax return   To set up one of the following plans you must be self-employed. How can i file my 2011 tax return SEP (simplified employee pension) plan. How can i file my 2011 tax return SIMPLE (savings incentive match plan for employees) plan. How can i file my 2011 tax return Qualified retirement plan (also called a Keogh or H. How can i file my 2011 tax return R. How can i file my 2011 tax return 10 plan). How can i file my 2011 tax return   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. How can i file my 2011 tax return See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. How can i file my 2011 tax return This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. How can i file my 2011 tax return   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. How can i file my 2011 tax return You are not a self-employed person for purposes of setting up a retirement plan. How can i file my 2011 tax return This result is true even if your salary is subject to SE tax. How can i file my 2011 tax return   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. How can i file my 2011 tax return   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). How can i file my 2011 tax return Individual retirement arrangements (IRAs). How can i file my 2011 tax return   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. How can i file my 2011 tax return Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). How can i file my 2011 tax return   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. How can i file my 2011 tax return You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. How can i file my 2011 tax return   If you contribute to a traditional IRA, your contribution may be deductible. How can i file my 2011 tax return However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). How can i file my 2011 tax return   For more information on IRAs, see Publication 590. How can i file my 2011 tax return Tax-sheltered annuity plans. How can i file my 2011 tax return   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. 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Tax Benefits for Education: Information Center

Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education.

  • A tax credit reduces the amount of income tax you may have to pay.
  • A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.
  • Certain savings plans allow the accumulated interest to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.
  • An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit. 
  • Education credits are claimed on Form 8863, Education Credits. For details, see IRS Publication 970, Tax Benefits of Education.
 You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for educational credits or deductions, including the American opportunity credit, the lifetime learning credit and the tuition and fees deduction.

Credits


American Opportunity Credit

Under the American Recovery and Reinvestment Act (ARRA), more parents and students qualify for a tax credit, the American opportunity credit, to pay for college expenses.

The American opportunity credit originally modified the existing Hope credit for tax years 2009 and 2010. The American opportunity credit was later extended through 2017, making the benefit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the the prior Hope and existing lifetime learning credit.

If you have questions about the American opportunity credit, these questions and answers might help. For more information, see American opportunity credit.

Lifetime Learning Credit

The lifetime learning credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the American opportunity credit and lifetime learning credits for the same student in one year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

Generally, you can claim the lifetime learning credit if all three of the following requirements are met:

  • You pay qualified education expenses of higher education.
  • You pay the education expenses for an eligible student.
  • The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year.


Deductions


Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.

You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:

  • You pay qualified education expenses of higher education.
  • You pay the education expenses for an eligible student.
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

You cannot claim the tuition and fees deduction if any of the following apply:

  • Your filing status is married filing separately.

  • Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the deduction even if the other person does not actually claim that exemption.

  • Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).

  • You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.

  • You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid.

Student-activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040's Schedule A.

Qualified Student Loan

This is a loan you took out solely to pay qualified education expenses (defined later) that were:

  • For you, your spouse, or a person who was your dependent when you took out the loan.
  • Paid or incurred within a reasonable period of time before or after you took out the loan.
  • For education provided during an academic period for an eligible student.

Loans from the following sources are not qualified student loans:

  • A related person.
  • A qualified employer plan.

Qualified Education Expenses

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items:

  • Tuition and fees.
  • Room and board.
  • Books, supplies and equipment.
  • Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it is not more than the greater of:

  • The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or
  • The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Business Deduction for Work-Related Education


If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income. An itemized deduction may reduce the amount of your income subject to tax.

If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This may reduce the amount of your income subject to both income tax and self-employment tax.

Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the lifetime learning credit. You may qualify for these other benefits even if you do not meet the requirements listed above.

To claim a business deduction for work-related education, you must:

  • Be working.
  • Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.
  • File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed.
  • Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, below.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

  • The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer.
  • The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:

  • Is needed to meet the minimum educational requirements of your present trade or business or
  • Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

Education Required by Employer or by Law

Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education is qualifying work-related education if all three of the following requirements are met.

  • It is required for you to keep your present salary, status or job.
  • The requirement serves a business purpose of your employer.
  • The education is not part of a program that will qualify you for a new trade or business.

When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work.

Education to Maintain or Improve Skills

If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments and academic or vocational courses.


Savings Plans


529 Plans

States sponsor 529 plans — qualified tuition programs authorized under section 529 of the Internal Revenue Code — that allow taxpayers to either prepay or contribute to an account for paying a student's qualified higher education expenses. Similarly, colleges and groups of colleges sponsor 529 plans that allow them to prepay a student's qualified education expenses. These 529 plans have, in recent years, become a popular way for parents and other family members to save for a child’s college education. Though contributions to 529 plans are not deductible, there is also no income limit for contributors.

529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books and supplies. For someone who is at least a half-time student, room and board also qualify.

For 2009 and 2010, an ARRA change to tax-free college savings plans and prepaid tuition programs added to this list expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American opportunity credit, lifetime learning credit or tuition and fees deduction.

Coverdell Education Savings Account

This account was created as an incentive to help parents and students save for education expenses. Unlike a 529 plan, a Coverdell ESA can be used to pay a student’s eligible k-12 expenses, as well as post-secondary expenses. On the other hand, income limits apply to contributors, and  the total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

  • Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.

  • There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.

  • Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.

  • If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

For more information, see Tax Tip 2008-59, Coverdell Education Savings Accounts.


Scholarships and Fellowships


A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate. A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

A scholarship or fellowship is tax free only if you meet the following conditions:

  • You are a candidate for a degree at an eligible educational institution.
  • You use the scholarship or fellowship to pay qualified education expenses.

Qualified Education Expenses

For purposes of tax-free scholarships and fellowships, these are expenses for:

  • Tuition and fees required to enroll at or attend an eligible educational institution.
  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. 

Expenses that Don’t Qualify

Qualified education expenses do not include the cost of:

  • Room and board.
  • Travel.
  • Research.
  • Clerical help.
  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.

For more information, see Pub. 970.


Exclusions from Income


You may exclude certain educational assistance benefits from your income. That means that you won’t have to pay any tax on them. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit.

Employer-Provided Educational Assistance


If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.

Educational Assistance Program

To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

Educational Assistance Benefits

Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items.

  • Meals, lodging, or transportation.
  • Tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
  • Courses involving sports, games, or hobbies unless they:
    • Have a reasonable relationship to the business of your employer, or
    • Are required as part of a degree program.

Benefits over $5,250

If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.

Working Condition Fringe Benefit 

However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.


Related Items:

 

Page Last Reviewed or Updated: 24-Jan-2014

The How Can I File My 2011 Tax Return

How can i file my 2011 tax return Publication 957 - Introductory Material Table of Contents Future Developments Introduction Future Developments For the latest information about developments related to Publication 957, such as legislation enacted after it was published, go to www. How can i file my 2011 tax return irs. How can i file my 2011 tax return gov/pub957. How can i file my 2011 tax return Introduction The Social Security Administration (SSA) has special rules for back pay awarded by a court or government agency to enforce a worker protection statute (law). How can i file my 2011 tax return The SSA also has rules for reporting special wage payments made to employees after they retire. How can i file my 2011 tax return These rules enable the SSA to correctly compute an employee's benefits under the social security earnings test. How can i file my 2011 tax return These rules are for social security coverage and benefit purposes only. How can i file my 2011 tax return This publication, written primarily for employers, discusses back pay under a statute and special wage payments. How can i file my 2011 tax return It also explains how to report these payments to the SSA. How can i file my 2011 tax return For more information, visit SSA's website at www. How can i file my 2011 tax return socialsecurity. How can i file my 2011 tax return gov/employer. How can i file my 2011 tax return To get a copy of Form SSA-131, Employer Report of Special Wage Payments, visit SSA's website at www. How can i file my 2011 tax return socialsecurity. How can i file my 2011 tax return gov/online/ssa-131. How can i file my 2011 tax return html. How can i file my 2011 tax return Prev  Up  Next   Home   More Online Publications