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Hr block free Publication 939 - Main Content Table of Contents General Information Taxation of Periodic PaymentsInvestment in the Contract Expected Return Computation Under the General Rule How To Use Actuarial TablesUnisex Annuity Tables Special Elections Worksheets for Determining Taxable Annuity Actuarial Tables Requesting a Ruling on Taxation of Annuity How To Get Tax HelpLow Income Taxpayer Clinics General Information Some of the terms used in this publication are defined in the following paragraphs. Hr block free A pension is generally a series of payments made to you after you retire from work. Hr block free Pension payments are made regularly and are for past services with an employer. Hr block free An annuity is a series of payments under a contract. Hr block free You can buy the contract alone or you can buy it with the help of your employer. Hr block free Annuity payments are made regularly for more than one full year. Hr block free Note. Hr block free Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted. Hr block free Types of pensions and annuities. Hr block free   Particular types of pensions and annuities include: Fixed period annuities. Hr block free You receive definite amounts at regular intervals for a definite length of time. Hr block free Annuities for a single life. Hr block free You receive definite amounts at regular intervals for life. Hr block free The payments end at death. Hr block free Joint and survivor annuities. Hr block free The first annuitant receives a definite amount at regular intervals for life. Hr block free After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Hr block free The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Hr block free Variable annuities. Hr block free You receive payments that may vary in amount for a definite length of time or for life. Hr block free The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes. Hr block free Disability pensions. Hr block free You are under minimum retirement age and receive payments because you retired on disability. Hr block free If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524. Hr block free If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans. Hr block free A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries. Hr block free This plan must meet Internal Revenue Code requirements. Hr block free It qualifies for special tax benefits, including tax deferral for employer contributions and rollover distributions. Hr block free However, you must use the General Rule if you were 75 or over and the annuity payments are guaranteed for more than 5 years. Hr block free A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Hr block free A tax-sheltered annuity is a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization. Hr block free   The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. Hr block free A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. Hr block free It does not qualify for most of the tax benefits of a qualified plan. Hr block free Annuity worksheets. Hr block free   The worksheets found near the end of the text of this publication may be useful to you in figuring the taxable part of your annuity. Hr block free Request for a ruling. Hr block free   If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. Hr block free This is treated as a request for a ruling. Hr block free See Requesting a Ruling on Taxation of Annuity near the end of this publication. Hr block free Withholding tax and estimated tax. Hr block free   Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. Hr block free If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments. Hr block free Taxation of Periodic Payments This section explains how the periodic payments you receive under a pension or annuity plan are taxed under the General Rule. Hr block free Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Hr block free These payments are also known as amounts received as an annuity. Hr block free If you receive an amount from your plan that is a nonperiodic payment (amount not received as an annuity), see Taxation of Nonperiodic Payments in Publication 575. Hr block free In general, you can recover your net cost of the pension or annuity tax free over the period you are to receive the payments. Hr block free The amount of each payment that is more than the part that represents your net cost is taxable. Hr block free Under the General Rule, the part of each annuity payment that represents your net cost is in the same proportion that your investment in the contract is to your expected return. Hr block free These terms are explained in the following discussions. Hr block free Investment in the Contract In figuring how much of your pension or annuity is taxable under the General Rule, you must figure your investment in the contract. Hr block free First, find your net cost of the contract as of the annuity starting date (defined later). Hr block free To find this amount, you must first figure the total premiums, contributions, or other amounts paid. Hr block free This includes the amounts your employer contributed if you were required to include these amounts in income. Hr block free It also includes amounts you actually contributed (except amounts for health and accident benefits and deductible voluntary employee contributions). Hr block free From this total cost you subtract: Any refunded premiums, rebates, dividends, or unrepaid loans (any of which were not included in your income) that you received by the later of the annuity starting date or the date on which you received your first payment. Hr block free Any additional premiums paid for double indemnity or disability benefits. Hr block free Any other tax-free amounts you received under the contract or plan before the later of the dates in (1). Hr block free The annuity starting date   is the later of the first day of the first period for which you receive payment under the contract or the date on which the obligation under the contract becomes fixed. Hr block free Example. Hr block free On January 1 you completed all your payments required under an annuity contract providing for monthly payments starting on August 1, for the period beginning July 1. Hr block free The annuity starting date is July 1. Hr block free This is the date you use in figuring your investment in the contract and your expected return (discussed later). Hr block free Adjustments If any of the following items apply, adjust (add or subtract) your total cost to find your net cost. Hr block free Foreign employment. Hr block free   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Hr block free The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (without regard to the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) if the contributions would be excludible from your gross income had they been paid directly to you. Hr block free Foreign employment contributions while a nonresident alien. Hr block free   In determining your cost, special rules apply if you are a U. Hr block free S. Hr block free citizen or resident alien who received distributions from a plan to which contributions were made while you were a nonresident alien. Hr block free Your contributions and your employer's contributions are not included in your cost if the contributions: Were made based on compensation which was for services performed outside the United States which you were a nonresident alien, and Were not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if they had been paid as cash compensation when the services were performed. Hr block free Death benefit exclusion. Hr block free   If you are the beneficiary of a deceased employee (or former employee), who died before August 21, 1996, you may qualify for a death benefit exclusion of up to $5,000. Hr block free The beneficiary of a deceased employee who died after August 20, 1996, will not qualify for the death benefit exclusion. Hr block free How to adjust your total cost. Hr block free   If you are eligible, treat the amount of any allowable death benefit exclusion as additional cost paid by the employee. Hr block free Add it to the cost or unrecovered cost of the annuity at the annuity starting date. Hr block free See Example 3 under Computation Under General Rule for an illustration of the adjustment to the cost of the contract. Hr block free Net cost. Hr block free   Your total cost plus certain adjustments and minus other amounts already recovered before the annuity starting date is your net cost. Hr block free This is the unrecovered investment in the contract as of the annuity starting date. Hr block free If your annuity starting date is after 1986, this is the maximum amount that you may recover tax free under the contract. Hr block free Refund feature. Hr block free   Adjustment for the value of the refund feature is only applicable when you report your pension or annuity under the General Rule. Hr block free Your annuity contract has a refund feature if: The expected return ( discussed later) of an annuity depends entirely or partly on the life of one or more individuals, The contract provides that payments will be made to a beneficiary or the estate of an annuitant on or after the death of the annuitant if a stated amount or a stated number of payments has not been paid to the annuitant or annuitants before death, and The payments are a refund of the amount you paid for the annuity contract. Hr block free   If your annuity has a refund feature, you must reduce your net cost of the contract by the value of the refund feature (figured using Table III or VII at the end of this publication, also see How To Use Actuarial Tables , later) to find the investment in the contract. Hr block free Zero value of refund feature. Hr block free   For a joint and survivor annuity, the value of the refund feature is zero if: Both annuitants are age 74 or younger, The payments are guaranteed for less than 2½ years, and The survivor's annuity is at least 50% of the first annuitant's annuity. Hr block free   For a single-life annuity without survivor benefit, the value of the refund feature is zero if: The payments are guaranteed for less than 2½ years, and The annuitant is: Age 57 or younger (if using the new (unisex) annuity tables), Age 42 or younger (if male and using the old annuity tables), or Age 47 or younger (if female and using the old annuity tables). Hr block free   If you do not meet these requirements, you will have to figure the value of the refund feature, as explained in the following discussion. Hr block free Examples. Hr block free The first example shows how to figure the value of the refund feature when there is only one beneficiary. Hr block free Example 2 shows how to figure the value of the refund feature when the contract provides, in addition to a whole life annuity, one or more temporary life annuities for the lives of children. Hr block free In both examples, the taxpayer elects to use Tables V through VIII. Hr block free If you need the value of the refund feature for a joint and survivor annuity, write to the Internal Revenue Service as explained under Requesting a Ruling on Taxation of Annuity near the end of this publication. Hr block free Example 1. Hr block free At age 65, Barbara bought for $21,053 an annuity with a refund feature. Hr block free She will get $100 a month for life. Hr block free Barbara's contract provides that if she does not live long enough to recover the full $21,053, similar payments will be made to her surviving beneficiary until a total of $21,053 has been paid under the contract. Hr block free In this case, the contract cost and the total guaranteed return are the same ($21,053). Hr block free Barbara's investment in the contract is figured as follows: Net cost $21,053 Amount to be received annually $1,200   Number of years for which payment is guaranteed ($21,053 divided by $1,200) 17. Hr block free 54   Rounded to nearest whole number of years 18   Percentage from Actuarial Table VII for age 65 with 18 years of guaranteed payments 15%   Value of the refund feature (rounded to the nearest dollar)—15% of $21,053 3,158 Investment in the contract, adjusted for value of refund feature $17,895       If the total guaranteed return were less than the $21,053 net cost of the contract, Barbara would apply the appropriate percentage from the tables to the lesser amount. Hr block free For example, if the contract guaranteed the $100 monthly payments for 17 years to Barbara's estate or beneficiary if she were to die before receiving all the payments for that period, the total guaranteed return would be $20,400 ($100 × 12 × 17 years). Hr block free In this case, the value of the refund feature would be $2,856 (14% of $20,400) and Barbara's investment in the contract would be $18,197 ($21,053 minus $2,856) instead of $17,895. Hr block free Example 2. Hr block free John died while still employed. Hr block free His widow, Eleanor, age 48, receives $171 a month for the rest of her life. Hr block free John's son, Elmer, age 9, receives $50 a month until he reaches age 18. Hr block free John's contributions to the retirement fund totaled $7,559. Hr block free 45, with interest on those contributions of $1,602. Hr block free 53. Hr block free The guarantee or total refund feature of the contract is $9,161. Hr block free 98 ($7,559. Hr block free 45 plus $1,602. Hr block free 53). Hr block free The adjustment in the investment in the contract is figured as follows: A) Expected return:*       1) Widow's expected return:         Annual annuity ($171 × 12) $2,052       Multiplied by factor from Table V         (nearest age 48) 34. Hr block free 9 $71,614. Hr block free 80   2) Child's expected return:         Annual annuity ($50 × 12) $600       Multiplied by factor from         Table VIII (nearest age 9         for term of 9 years) 9. Hr block free 0 5,400. Hr block free 00   3) Total expected return   $77,014. Hr block free 80 B) Adjustment for refund feature:       1) Contributions (net cost) $7,559. Hr block free 45   2) Guaranteed amount (contributions of $7,559. Hr block free 45 plus interest of $1,602. Hr block free 53) $9,161. Hr block free 98   3) Minus: Expected return under child's (temporary life) annuity (A(2)) 5,400. Hr block free 00   4) Net guaranteed amount $3,761. Hr block free 98   5) Multiple from Table VII (nearest age 48 for 2 years duration (recovery of $3,761. Hr block free 98 at $171 a month to nearest whole year)) 0%   6) Adjustment required for value of refund feature rounded to the nearest whole dollar  (0% × $3,761. Hr block free 98, the smaller of B(3) or B(6)) 0 *Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Hr block free See the discussion of expected return, later in this publication. Hr block free Free IRS help. Hr block free   If you need to request assistance to figure the value of the refund feature, see Requesting a Ruling on Taxation of Annuity near the end of this publication. Hr block free Expected Return Your expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Hr block free The following discussions explain how to figure the expected return with each type of annuity. Hr block free A person's age, for purposes of figuring the expected return, is the age at the birthday nearest to the annuity starting date. Hr block free Fixed period annuity. Hr block free   If you will get annuity payments for a fixed number of years, without regard to your life expectancy, you must figure your expected return based on that fixed number of years. Hr block free It is the total amount you will get beginning at the annuity starting date. Hr block free You will receive specific periodic payments for a definite period of time, such as a fixed number of months (but not less than 13). Hr block free To figure your expected return, multiply the fixed number of months for which payments are to be made by the amount of the payment specified for each period. Hr block free Single life annuity. Hr block free   If you are to get annuity payments for the rest of your life, find your expected return as follows. Hr block free You must multiply the amount of the annual payment by a multiple based on your life expectancy as of the annuity starting date. Hr block free These multiples are set out in actuarial Tables I and V near the end of this publication (see How To Use Actuarial Tables , later). Hr block free   You may need to adjust these multiples if the payments are made quarterly, semiannually, or annually. Hr block free See Adjustments to Tables I, II, V, VI, and VIA following Table I. Hr block free Example. Hr block free Henry bought an annuity contract that will give him an annuity of $500 a month for his life. Hr block free If at the annuity starting date Henry's nearest birthday is 66, the expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table V, age 66 × 19. Hr block free 2 Expected return $115,200 If the payments were to be made to Henry quarterly and the first payment was made one full month after the annuity starting date, Henry would adjust the 19. Hr block free 2 multiple by +. Hr block free 1. Hr block free His expected return would then be $115,800 ($6,000 × 19. Hr block free 3). Hr block free Annuity for shorter of life or specified period. Hr block free   With this type of annuity, you are to get annuity payments either for the rest of your life or until the end of a specified period, whichever period is shorter. Hr block free To figure your expected return, multiply the amount of your annual payment by a multiple in Table IV or VIII for temporary life annuities. Hr block free Find the proper multiple based on your sex (if using Table IV), your age at the annuity starting date, and the nearest whole number of years in the specified period. Hr block free Example. Hr block free Harriet purchased an annuity this year that will pay her $200 each month for five years or until she dies, whichever period is shorter. Hr block free She was age 65 at her birthday nearest the annuity starting date. Hr block free She figures the expected return as follows: Annual payment ($200 × 12 months) $2,400 Multiple shown in Table VIII, age 65, 5-year term × 4. Hr block free 9 Expected return $11,760 She uses Table VIII (not Table IV) because all her contributions were made after June 30, 1986. Hr block free See Special Elections, later. Hr block free Joint and survivor annuities. Hr block free   If you have an annuity that pays you a periodic income for life and after your death provides an identical lifetime periodic income to your spouse (or some other person), you figure the expected return based on your combined life expectancies. Hr block free To figure the expected return, multiply the annual payment by a multiple in Table II or VI based on your joint life expectancies. Hr block free If your payments are made quarterly, semiannually, or annually, you may need to adjust these multiples. Hr block free See Adjustments to Tables I, II, V, VI, and VIA following Table I near the end of this publication. Hr block free Example. Hr block free John bought a joint and survivor annuity providing payments of $500 a month for his life, and, after his death, $500 a month for the remainder of his wife's life. Hr block free At John's annuity starting date, his age at his nearest birthday is 70 and his wife's at her nearest birthday is 67. Hr block free The expected return is figured as follows: Annual payment ($500 × 12 months) $6,000 Multiple shown in Table VI, ages 67 and 70 × 22. Hr block free 0 Expected return $132,000 Different payments to survivor. Hr block free   If your contract provides that payments to a survivor annuitant will be different from the amount you receive, you must use a computation which accounts for both the joint lives of the annuitants and the life of the survivor. Hr block free Example 1. Hr block free Gerald bought a contract providing for payments to him of $500 a month for life and, after his death, payments to his wife, Mary, of $350 a month for life. Hr block free If, at the annuity starting date, Gerald's nearest birthday is 70 and Mary's is 67, the expected return under the contract is figured as follows: Combined multiple for Gerald and Mary, ages 70 and 67 (from Table VI)   22. Hr block free 0 Multiple for Gerald, age 70 (from Table V)   16. Hr block free 0 Difference: Multiple applicable to Mary   6. Hr block free 0 Gerald's annual payment ($500 × 12) $6,000   Gerald's multiple 16. Hr block free 0   Gerald's expected return   $96,000 Mary's annual payment ($350 × 12) $4,200   Mary's multiple 6. Hr block free 0   Mary's expected return   25,200 Total expected return under the contract   $121,200 Example 2. Hr block free Your husband died while still employed. Hr block free Under the terms of his employer's retirement plan, you are entitled to get an immediate annuity of $400 a month for the rest of your life or until you remarry. Hr block free Your daughters, Marie and Jean, are each entitled to immediate temporary life annuities of $150 a month until they reach age 18. Hr block free You were 50 years old at the annuity starting date. Hr block free Marie was 16 and Jean was 14. Hr block free Using the multiples shown in Tables V and VIII at the end of this publication, the total expected return on the annuity starting date is $169,680, figured as follows: Widow, age 50 (multiple from Table V—33. Hr block free 1 × $4,800 annual payment) $158,880 Marie, age 16 for 2 years duration (multiple from Table VIII—2. Hr block free 0 × $1,800 annual payment) 3,600 Jean, age 14 for 4 years duration (multiple from Table VIII—4. Hr block free 0 × $1,800 annual payment) 7,200 Total expected return $169,680 No computation of expected return is made based on your husband's age at the date of death because he died before the annuity starting date. Hr block free Computation Under the General Rule Note. Hr block free Variable annuities use a different computation for determining the exclusion amounts. Hr block free See Variable annuities later. Hr block free Under the General Rule, you figure the taxable part of your annuity by using the following steps: Step 1. Hr block free   Figure the amount of your investment in the contract, including any adjustments for the refund feature and the death benefit exclusion, if applicable. Hr block free See Death benefit exclusion , earlier. Hr block free Step 2. Hr block free   Figure your expected return. Hr block free Step 3. Hr block free   Divide Step 1 by Step 2 and round to three decimal places. Hr block free This will give you the exclusion percentage. Hr block free Step 4. Hr block free   Multiply the exclusion percentage by the first regular periodic payment. Hr block free The result is the tax-free part of each pension or annuity payment. Hr block free   The tax-free part remains the same even if the total payment increases due to variation in the annuity amount such as cost of living increases, or you outlive the life expectancy factor used. Hr block free However, if your annuity starting date is after 1986, the total amount of annuity income that is tax free over the years cannot exceed your net cost. Hr block free   Each annuitant applies the same exclusion percentage to his or her initial payment called for in the contract. Hr block free Step 5. Hr block free   Multiply the tax-free part of each payment (step 4) by the number of payments received during the year. Hr block free This will give you the tax-free part of the total payment for the year. Hr block free    In the first year of your annuity, your first payment or part of your first payment may be for a fraction of the payment period. Hr block free This fractional amount is multiplied by your exclusion percentage to get the tax-free part. Hr block free Step 6. Hr block free   Subtract the tax-free part from the total payment you received. Hr block free The rest is the taxable part of your pension or annuity. Hr block free Example 1. Hr block free You purchased an annuity with an investment in the contract of $10,800. Hr block free Under its terms, the annuity will pay you $100 a month for life. Hr block free The multiple for your age (age 65) is 20. Hr block free 0 as shown in Table V. Hr block free Your expected return is $24,000 (20 × 12 × $100). Hr block free Your cost of $10,800, divided by your expected return of $24,000, equals 45. Hr block free 0%. Hr block free This is the percentage you will not have to include in income. Hr block free Each year, until your net cost is recovered, $540 (45% of $1,200) will be tax free and you will include $660 ($1,200 − $540) in your income. Hr block free If you had received only six payments of $100 ($600) during the year, your exclusion would have been $270 (45% of $100 × 6 payments). Hr block free Example 2. Hr block free Gerald bought a joint and survivor annuity. Hr block free Gerald's investment in the contract is $62,712 and the expected return is $121,200. Hr block free The exclusion percentage is 51. Hr block free 7% ($62,712 ÷ $121,200). Hr block free Gerald will receive $500 a month ($6,000 a year). Hr block free Each year, until his net cost is recovered, $3,102 (51. Hr block free 7% of his total payments received of $6,000) will be tax free and $2,898 ($6,000 − $3,102) will be included in his income. Hr block free If Gerald dies, his wife will receive $350 a month ($4,200 a year). Hr block free If Gerald had not recovered all of his net cost before his death, his wife will use the same exclusion percentage (51. Hr block free 7%). Hr block free Each year, until the entire net cost is recovered, his wife will receive $2,171. Hr block free 40 (51. Hr block free 7% of her payments received of $4,200) tax free. Hr block free She will include $2,028. Hr block free 60 ($4,200 − $2,171. Hr block free 40) in her income tax return. Hr block free Example 3. Hr block free Using the same facts as Example 2 under Different payments to survivor, you are to receive an annual annuity of $4,800 until you die or remarry. Hr block free Your two daughters each receive annual annuities of $1,800 until they reach age 18. Hr block free Your husband contributed $25,576 to the plan. Hr block free You are eligible for the $5,000 death benefit exclusion because your husband died before August 21, 1996. Hr block free Adjusted Investment in the Contract Contributions $25,576 Plus: Death benefit exclusion 5,000 Adjusted investment in the contract $30,576 The total expected return, as previously figured (in Example 2 under Different payments to survivor), is $169,680. Hr block free The exclusion percentage of 18. Hr block free 0% ($30,576 ÷ $169,680) applies to the annuity payments you and each of your daughters receive. Hr block free Each full year $864 (18. Hr block free 0% × $4,800) will be tax free to you, and you must include $3,936 in your income tax return. Hr block free Each year, until age 18, $324 (18. Hr block free 0% × $1,800) of each of your daughters' payments will be tax free and each must include the balance, $1,476, as income on her own income tax return. Hr block free Part-year payments. Hr block free   If you receive payments for only part of a year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments received during the year. Hr block free   If you receive amounts during the year that represent 12 payments, one for each month in that year, and an amount that represents payments for months in a prior year, apply the exclusion percentage to the first regular periodic payment, and multiply the result by the number of payments the amounts received represent. Hr block free For instance, if you received amounts during the year that represent the 12 payments for that year plus an amount that represents three payments for a prior year, multiply that amount by the 15 (12 + 3) payments received that the year. Hr block free   If you received a fractional payment, follow Step 5, discussed earlier. Hr block free This gives you the tax-free part of your total payment. Hr block free Example. Hr block free On September 28, Mary bought an annuity contract for $22,050 that will give her $125 a month for life, beginning October 30. Hr block free The applicable multiple from Table V is 23. Hr block free 3 (age 61). Hr block free Her expected return is $34,950 ($125 × 12 × 23. Hr block free 3). Hr block free Mary's investment in the contract of $22,050, divided by her expected return of $34,950, equals 63. Hr block free 1%. Hr block free Each payment received will consist of 63. Hr block free 1% return of cost and 36. Hr block free 9% taxable income, until her net cost of the contract is fully recovered. Hr block free During the first year, Mary received three payments of $125, or $375, of which $236. Hr block free 63 (63. Hr block free 1% × $375) is a return of cost. Hr block free The remaining $138. Hr block free 37 is included in income. Hr block free Increase in annuity payments. Hr block free   The tax-free amount remains the same as the amount figured at the annuity starting date, even if the payment increases. Hr block free All increases in the installment payments are fully taxable. Hr block free   However, if your annuity payments are scheduled to increase at a definite date in the future you must figure the expected return for that annuity using the method described in section 1. Hr block free 72-5(a)(5) of the regulations. Hr block free Example. Hr block free Joe's wife died while she was still employed and, as her beneficiary, he began receiving an annuity of $147 per month. Hr block free In figuring the taxable part, Joe elects to use Tables V through VIII. Hr block free The cost of the contract was $7,938, consisting of the sum of his wife's net contributions, adjusted for any refund feature. Hr block free His expected return as of the annuity starting date is $35,280 (age 65, multiple of 20. Hr block free 0 × $1,764 annual payment). Hr block free The exclusion percentage is $7,938 ÷ $35,280, or 22. Hr block free 5%. Hr block free During the year he received 11 monthly payments of $147, or $1,617. Hr block free Of this amount, 22. Hr block free 5% × $147 × 11 ($363. Hr block free 83) is tax free as a return of cost and the balance of $1,253. Hr block free 17 is taxable. Hr block free Later, because of a cost-of-living increase, his annuity payment was increased to $166 per month, or $1,992 a year (12 × $166). Hr block free The tax-free part is still only 22. Hr block free 5% of the annuity payments as of the annuity starting date (22. Hr block free 5% × $147 × 12 = $396. Hr block free 90 for a full year). Hr block free The increase of $228 ($1,992 − $1,764 (12 × $147)) is fully taxable. Hr block free Variable annuities. Hr block free   For variable annuity payments, figure the amount of each payment that is tax free by dividing your investment in the contract (adjusted for any refund feature) by the total number of periodic payments you expect to get under the contract. Hr block free   If the annuity is for a definite period, you determine the total number of payments by multiplying the number of payments to be made each year by the number of years you will receive payments. Hr block free If the annuity is for life, you determine the total number of payments by using a multiple from the appropriate actuarial table. Hr block free Example. Hr block free Frank purchased a variable annuity at age 65. Hr block free The total cost of the contract was $12,000. Hr block free The annuity starting date is January 1 of the year of purchase. Hr block free His annuity will be paid, starting July 1, in variable annual installments for his life. Hr block free The tax-free amount of each payment, until he has recovered his cost of his contract, is: Investment in the contract $12,000 Number of expected annual payments (multiple for age 65 from Table V) 20 Tax-free amount of each payment ($12,000 ÷ 20) $600 If Frank's first payment is $920, he includes only $320 ($920 − $600) in his gross income. Hr block free   If the tax-free amount for a year is more than the payments you receive in that year, you may choose, when you receive the next payment, to refigure the tax-free part. Hr block free Divide the amount of the periodic tax-free part that is more than the payment you received by the remaining number of payments you expect. Hr block free The result is added to the previously figured periodic tax-free part. Hr block free The sum is the amount of each future payment that will be tax free. Hr block free Example. Hr block free Using the facts of the previous example about Frank, assume that after Frank's $920 payment, he received $500 in the following year, and $1,200 in the year after that. Hr block free Frank does not pay tax on the $500 (second year) payment because $600 of each annual pension payment is tax free. Hr block free Since the $500 payment is less than the $600 annual tax-free amount, he may choose to refigure his tax-free part when he receives his $1,200 (third year) payment, as follows: Amount tax free in second year $600. Hr block free 00 Amount received in second year 500. Hr block free 00 Difference $100. Hr block free 00 Number of remaining payments after the first 2 payments (age 67, from Table V) 18. Hr block free 4 Amount to be added to previously determined annual tax-free part ($100 ÷ 18. Hr block free 4) $5. Hr block free 43 Revised annual tax-free part for third and later years ($600 + $5. Hr block free 43) $605. Hr block free 43 Amount taxable in third year ($1,200 − $605. Hr block free 43) $594. Hr block free 57 If you choose to refigure your tax-free amount,   you must file a statement with your income tax return stating that you are refiguring the tax-free amount in accordance with the rules of section 1. Hr block free 72–4(d)(3) of the Income Tax Regulations. Hr block free The statement must also show the following information: The annuity starting date and your age on that date. Hr block free The first day of the first period for which you received an annuity payment in the current year. Hr block free Your investment in the contract as originally figured. Hr block free The total of all amounts received tax free under the annuity from the annuity starting date through the first day of the first period for which you received an annuity payment in the current tax year. Hr block free Exclusion Limits Your annuity starting date determines the total amount of annuity income that you can exclude from income over the years. Hr block free Exclusion limited to net cost. Hr block free   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a return of your cost cannot exceed your net cost (figured without any reduction for a refund feature). Hr block free This is the unrecovered investment in the contract as of the annuity starting date. Hr block free   If your annuity starting date is after July 1, 1986, any unrecovered net cost at your (or last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Hr block free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Hr block free Example 1. Hr block free Your annuity starting date is after 1986. Hr block free Your total cost is $12,500, and your net cost is $10,000, taking into account certain adjustments. Hr block free There is no refund feature. Hr block free Your monthly annuity payment is $833. Hr block free 33. Hr block free Your exclusion ratio is 12% and you exclude $100 a month. Hr block free Your exclusion ends after 100 months, when you have excluded your net cost of $10,000. Hr block free Thereafter, your annuity payments are fully taxable. Hr block free Example 2. Hr block free The facts are the same as in Example 1, except that there is a refund feature, and you die after 5 years with no surviving annuitant. Hr block free The adjustment for the refund feature is $1,000, so the investment in the contract is $9,000. Hr block free The exclusion ratio is 10. Hr block free 8%, and your monthly exclusion is $90. Hr block free After 5 years (60 months), you have recovered tax free only $5,400 ($90 x 60). Hr block free An itemized deduction for the unrecovered net cost of $4,600 ($10,000 net cost minus $5,400) may be taken on your final income tax return. Hr block free Your unrecovered investment is determined without regard to the refund feature adjustment, discussed earlier, under Adjustments. Hr block free Exclusion not limited to net cost. Hr block free   If your annuity starting date was before 1987, you could continue to take your monthly exclusion for as long as you receive your annuity. Hr block free If you choose a joint and survivor annuity, your survivor continues to take the survivor's exclusion figured as of the annuity starting date. Hr block free The total exclusion may be more than your investment in the contract. Hr block free How To Use Actuarial Tables In figuring, under the General Rule, the taxable part of your annuity payments that you are to get for the rest of your life (rather than for a fixed number of years), you must use one or more of the actuarial tables in this publication. Hr block free Unisex Annuity Tables Effective July 1, 1986, the Internal Revenue Service adopted new annuity Tables V through VIII, in which your sex is not considered when determining the applicable factor. Hr block free These tables correspond to the old Tables I through IV. Hr block free In general, Tables V through VIII must be used if you made contributions to the retirement plan after June 30, 1986. Hr block free If you made no contributions to the plan after June 30, 1986, generally you must use only Tables I through IV. Hr block free However, if you received an annuity payment after June 30, 1986, you may elect to use Tables V through VIII (see Annuity received after June 30, 1986, later). Hr block free Special Elections Although you generally must use Tables V through VIII if you made contributions to the retirement plan after June 30, 1986, and Tables I through IV if you made no contributions after June 30, 1986, you can make the following special elections to select which tables to use. Hr block free Contributions made both before July 1986 and after June 1986. Hr block free   If you made contributions to the retirement plan both before July 1986 and after June 1986, you may elect to use Tables I through IV for the pre-July 1986 cost of the contract, and Tables V through VIII for the post-June 1986 cost. Hr block free (See the examples below. Hr block free )    Making the election. Hr block free Attach this statement to your income tax return for the first year in which you receive an annuity:    “I elect to apply the provisions of paragraph (d) of section 1. Hr block free 72–6 of the Income Tax Regulations. Hr block free ”   The statement must also include your name, address, social security number, and the amount of the pre-July 1986 investment in the contract. Hr block free   If your investment in the contract includes post-June 1986 contributions to the plan, and you do not make the election to use Tables I through IV and Tables V through VIII, then you can only use Tables V through VIII in figuring the taxable part of your annuity. Hr block free You must also use Tables V through VIII if you are unable or do not wish to determine the portions of your contributions which were made before July 1, 1986, and after June 30, 1986. Hr block free    Advantages of election. Hr block free In general, a lesser amount of each annual annuity payment is taxable if you separately figure your exclusion ratio for pre-July 1986 and post-June 1986 contributions. Hr block free    If you intend to make this election, save your records that substantiate your pre-July 1986 and post-June 1986 contributions. Hr block free If the death benefit exclusion applies (see discussion, earlier), you do not have to apportion it between the pre-July 1986 and the post-June 1986 investment in the contract. Hr block free   The following examples illustrate the separate computations required if you elect to use Tables I through IV for your pre-July 1986 investment in the contract and Tables V through VIII for your post-June 1986 investment in the contract. Hr block free Example 1. Hr block free Bill, who is single, contributed $42,000 to the retirement plan and will receive an annual annuity of $24,000 for life. Hr block free Payment of the $42,000 contribution is guaranteed under a refund feature. Hr block free Bill is 55 years old as of the annuity starting date. Hr block free For figuring the taxable part of Bill's annuity, he chose to make separate computations for his pre-July 1986 investment in the contract of $41,300, and for his post-June 1986 investment in the contract of $700. Hr block free       Pre- July 1986   Post- June 1986 A. Hr block free Adjustment for refund feature         1) Net cost $41,300   $700   2) Annual annuity—$24,000  ($41,300/$42,000 × $24,000) $23,600       ($700/$42,000 × $24,000)     $400   3) Guarantee under contract $41,300   $700   4) No. Hr block free of years payments  guaranteed (rounded), A(3) ÷ A(2) 2   2   5) Applicable percentage from  Tables III and VII 1%   0%   6) Adjustment for value of refund  feature, A(5) × smaller of A(1)  or A(3) $413   $0 B. Hr block free Investment in the contract         1) Net cost $41,300   $700   2) Minus: Amount in A(6) 413   0   3) Investment in the contract $40,887   $700 C. Hr block free Expected return         1) Annual annuity receivable $24,000   $24,000   2) Multiples from Tables I and V 21. Hr block free 7   28. Hr block free 6   3) Expected return, C(1) × C(2) $520,800   $686,400 D. Hr block free Tax-free part of annuity         1) Exclusion ratio as decimal,  B(3) ÷ C(3) . Hr block free 079   . Hr block free 001   2) Tax-free part, C(1) × D(1) $1,896   $24 The tax-free part of Bill's total annuity is $1,920 ($1,896 plus $24). Hr block free The taxable part of his annuity is $22,080 ($24,000 minus $1,920). Hr block free If the annuity starting date is after 1986, the exclusion over the years cannot exceed the net cost (figured without any reduction for a refund feature). Hr block free Example 2. Hr block free Al is age 62 at his nearest birthday to the annuity starting date. Hr block free Al's wife is age 60 at her nearest birthday to the annuity starting date. Hr block free The joint and survivor annuity pays $1,000 per month to Al for life, and $500 per month to Al's surviving wife after his death. Hr block free The pre-July 1986 investment in the contract is $53,100 and the post-June 1986 investment in the contract is $7,000. Hr block free Al makes the election described in Example 1 . Hr block free For purposes of this example, assume the refund feature adjustment is zero. Hr block free If an adjustment is required, IRS will figure the amount. Hr block free See Requesting a Ruling on Taxation of Annuity near the end of this publication. Hr block free       Pre-  July 1986   Post-  June 1986 A. Hr block free Adjustment for refund feature         1) Net cost $53,100   $7,000   2) Annual annuity—$12,000  ($53,100/$60,100 × $12,000) $10,602       ($7,000/$60,100 × $12,000)     $1,398   3) Guaranteed under the contract $53,100   $7,000   4) Number of years guaranteed,  rounded, A(3) ÷ A(2) 5   5   5) Applicable percentages 0%   0%   6) Refund feature adjustment, A(5) × smaller of A(1) or A(3) 0   0 B. Hr block free Investment in the contract         1) Net cost $53,100   $7,000   2) Refund feature adjustment 0   0   3) Investment in the contract adjusted for refund feature $53,100   $7,000 C. Hr block free Expected return         1) Multiple for both annuitants from Tables II and VI 25. Hr block free 4   28. Hr block free 8   2) Multiple for first annuitant from Tables I and V 16. Hr block free 9   22. Hr block free 5   3) Multiple applicable to surviving annuitant, subtract C(2) from C(1) 8. Hr block free 5   6. Hr block free 3   4) Annual annuity to surviving annuitant $6,000   $6,000   5) Portion of expected return for surviving annuitant, C(4) × C(3) $51,000   $37,800   6) Annual annuity to first annuitant $12,000   $12,000   7) Plus: Portion of expected return for first annuitant, C(6) × C(2) $202,800   $270,000   8) Expected return for both annuitants, C(5) + C(7) $253,800   $307,800 D. Hr block free Tax-free part of annuity         1) Exclusion ratio as a decimal, B(3) ÷ C(8) . Hr block free 209   . Hr block free 023   2) Retiree's tax-free part of annuity, C(6) × D(1) $2,508   $276   3) Survivor's tax-free part of annuity, C(4) × D(1) $1,254   $138 The tax-free part of Al's total annuity is $2,784 ($2,508 + $276). Hr block free The taxable part of his annuity is $9,216 ($12,000 − $2,784). Hr block free The exclusion over the years cannot exceed the net cost of the contract (figured without any reduction for a refund feature) if the annuity starting date is after 1986. Hr block free After Al's death, his widow will apply the same exclusion percentages (20. Hr block free 9% and 2. Hr block free 3%) to her annual annuity of $6,000 to figure the tax-free part of her annuity. Hr block free Annuity received after June 30, 1986. Hr block free   If you receive an annuity payment after June 30, 1986, (regardless of your annuity starting date), you may elect to treat the entire cost of the contract as post-June 1986 cost (even if you made no post-June 1986 contributions to the plan) and use Tables V through VIII. Hr block free Once made, you cannot revoke the election, which will apply to all payments during the year and in any later year. Hr block free    Make the election by attaching the following statement to your income tax return. Hr block free    “I elect, under section 1. Hr block free 72–9 of the Income Tax Regulations, to treat my entire cost of the contract as a post-June 1986 cost of the plan. Hr block free ”   The statement must also include your name, address, and social security number. Hr block free   You should also indicate you are making this election if you are unable or do not wish to determine the parts of your contributions which were made before July 1, 1986, and after June 30, 1986. Hr block free Disqualifying form of payment or settlement. Hr block free   If your annuity starting date is after June 30, 1986, and the contract provides for a disqualifying form of payment or settlement, such as an option to receive a lump sum in full discharge of the obligation under the contract, the entire investment in the contract is treated as post-June 1986 investment in the contract. Hr block free See regulations section 1. Hr block free 72–6(d)(3) for additional examples of disqualifying forms of payment or settlement. Hr block free You can find the Income Tax Regulations in many libraries and at Internal Revenue Service Offices. Hr block free Worksheets for Determining Taxable Annuity Worksheets I and II. Hr block free   Worksheets I and II follow for determining your taxable annuity under Regulations Section 1. Hr block free 72–6(d)(6) Election. Hr block free Worksheet I For Determining Taxable Annuity Under Regulations Section 1. Hr block free 72-6(d)(6) Election For Single Annuitant With No Survivor Annuity               Pre-July 1986   Post-June 1986 A. Hr block free   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Hr block free )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)   Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages* from Tables III and VII                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Hr block free If not, the IRS will calculate the refund feature percentage. Hr block free             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Hr block free   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund feature:                   B(1) minus B(2)                             C. Hr block free   Expected Return             1)   Annual Annuity:                   12 times monthly annuity**             2)   Expected return multiples from Tables I and V             3)     Expected return:                   C(1) times C(2)                             D. Hr block free   Tax-Free Part of Annuity             1)     Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(3)             2)     Tax-free part of annuity:                   C(1) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Hr block free     Worksheet II For Determining Taxable Annuity Under Regulations Section 1. Hr block free 72-6(d)(6) Election For Joint and Survivor Annuity               Pre-July 1986   Post-June 1986 A. Hr block free   Refund Feature Adjustment             1)   Net cost (total cost less returned premiums, dividends, etc. Hr block free )             2)   Annual annuity allocation:                   Portion of net cost in A(1) x annual annuity                   Net cost             3)   Guaranteed under the contract             4)     Number of years guaranteed, rounded to whole years:                   A(3) divided by A(2)             5)   Applicable percentages*                   *If your annuity meets the three conditions listed in Zero value of refund feature in Investment in the Contract, earlier, both percentages are 0. Hr block free If not, the IRS will calculate the refund feature percentage. Hr block free             6)   Refund feature adjustment:                   A(5) times lesser of A(1) or A(3)                             B. Hr block free   Investment in the Contract             1)   Net cost:                   A(1)             2)   Refund feature adjustment:                   A(6)             3)   Investment in the contract adjusted for refund future:                   B(1) minus B(2)                             C. Hr block free   Expected Return             1)   Multiples for both annuitants, Tables II and VI             2)   Multiple for retiree. Hr block free Tables I and VI             3)   Multiple for survivor:                   C(1) minus C(2)             4)   Annual annuity to survivor:                   12 times potential monthly rate for survivor**             5)   Expected return for survivor:                   C(3) times C(4)             6)   Annual annuity to retiree:                   12 times monthly rate for retiree**             7)   Expected return for retiree:                   C(2) times C(6)             8)   Total expected return:                   C(5) plus C(7)                             D. Hr block free   Tax-Free Part of Annuity             1)   Exclusion ratio, as a decimal rounded to 3 places:                   B(3) divided by C(8)             2)   Retiree's tax-free part of annuity:                   C(6) times D(1)             3)   Survivor's tax-free part of annuity, if surviving after death of retiree:                   C(4) times D(1)             **If the annuity is not paid monthly, figure the amount to enter by using the total number of periodic payments for the year times the amount of the periodic payment. Hr block free   Actuarial Tables Please click here for the text description of the image. Hr block free Actuarial Tables Please click here for the text description of the image. Hr block free Actuarial Tables Please click here for the text description of the image. Hr block free Actuarial tables Please click here for the text description of the image. Hr block free Actuarial tables Please click here for the text description of the image. 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Hr block free Actuarial tables Please click here for the text description of the image. Hr block free Actuarial tables Please click here for the text description of the image. Hr block free Actuarial tables Please click here for the text description of the image. Hr block free Actuarial tables Requesting a Ruling on Taxation of Annuity If you are a retiree, or the survivor of an employee or retiree, you may ask the Internal Revenue Service to help you determine the taxation of your annuity. Hr block free If you make this request, you are asking for a ruling. Hr block free User fee. Hr block free   Under the law in effect at the time this publication went to print, the IRS must charge a user fee for all ruling requests. Hr block free You should call the IRS for the proper fee. Hr block free A request solely for the value of the refund feature is not treated as a ruling request and requires no fee. Hr block free Send your request to:     Internal Revenue Service  Attention: EP Letter Rulings P. Hr block free O. Hr block free Box 27063 McPherson Station Washington, DC 20038 The user fee is allowed as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit. Hr block free When to make the request. Hr block free   Please note that requests sent between February 1 and April 15 may experience some delay. Hr block free We process requests in the order received, and we will reply to your request as soon as we can process it. Hr block free If you do not receive your ruling by the required filing date, you may use Form 4868, Application for Automatic Extension of Time To File U. Hr block free S. Hr block free Individual Income Tax Return, to get an extension of time to file. Hr block free Information you must furnish. Hr block free   You must furnish the information listed below so the IRS can comply with your request. Hr block free Failure to furnish the information will result in a delay in processing your request. Hr block free Please send only copies of the following documents, as the IRS retains all material sent for its records: A letter explaining the question(s) you wish to have resolved or the information you need from the ruling. Hr block free Copies of any documents showing distributions, annuity rates, and annuity options available to you. Hr block free A copy of any Form 1099–R you received since your annuity began. Hr block free A statement indicating whether you have filed your return for the year for which you are making the request. Hr block free If you have requested an extension of time to file that return, please indicate the extension date. Hr block free Your daytime phone number. Hr block free Your current mailing address. Hr block free A power of attorney if someone other than you, an attorney, a certified public accountant, or an enrolled agent is signing this request. Hr block free Form 2848, Power of Attorney and Declaration of Representative, may be used for this purpose. Hr block free A completed Tax Information Sheet (or facsimile) shown on the next page. Hr block free Sign and date the Disclosure and Perjury Statement (or facsimile) at the end of the tax information sheet. Hr block free This statement must be signed by the retiree or the survivor annuitant. Hr block free It cannot be signed by a representative. Hr block free Tax Information Sheet Please click here for the text description of the image. Hr block free Tax Information Sheet Please click here for the text description of the image. Hr block free Tax Information Sheet (continued) How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Hr block free Free help with your tax return. Hr block free   You can get free help preparing your return nationwide from IRS-certified volunteers. Hr block free The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Hr block free The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Hr block free Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Hr block free In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Hr block free To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Hr block free gov, download the IRS2Go app, or call 1-800-906-9887. Hr block free   As part of the TCE program, AARP offers the Tax-Aide counseling program. Hr block free To find the nearest AARP Tax-Aide site, visit AARP's website at www. Hr block free aarp. Hr block free org/money/taxaide or call 1-888-227-7669. Hr block free For more information on these programs, go to IRS. Hr block free gov and enter “VITA” in the search box. Hr block free Internet. Hr block free    IRS. Hr block free gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Hr block free Download the free IRS2Go app from the iTunes app store or from Google Play. Hr block free Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Hr block free Check the status of your 2013 refund with the Where's My Refund? application on IRS. Hr block free gov or download the IRS2Go app and select the Refund Status option. Hr block free The IRS issues more than 9 out of 10 refunds in less than 21 days. Hr block free Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Hr block free You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Hr block free The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Hr block free Use the Interactive Tax Assistant (ITA) to research your tax questions. Hr block free No need to wait on the phone or stand in line. Hr block free The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Hr block free When you reach the response screen, you can print the entire interview and the final response for your records. Hr block free New subject areas are added on a regular basis. Hr block free  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Hr block free gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Hr block free You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Hr block free The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Hr block free When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Hr block free Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Hr block free You can also ask the IRS to mail a return or an account transcript to you. Hr block free Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Hr block free gov or by calling 1-800-908-9946. Hr block free Tax return and tax account transcripts are generally available for the current year and the past three years. Hr block free Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Hr block free Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Hr block free If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Hr block free Check the status of your amended return using Where's My Amended Return? Go to IRS. Hr block free gov and enter Where's My Amended Return? in the search box. Hr block free You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Hr block free It can take up to 3 weeks from the date you mailed it to show up in our system. Hr block free Make a payment using one of several safe and convenient electronic payment options available on IRS. Hr block free gov. Hr block free Select the Payment tab on the front page of IRS. Hr block free gov for more information. Hr block free Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Hr block free Figure your income tax withholding with the IRS Withholding Calculator on IRS. Hr block free gov. Hr block free Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Hr block free Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Hr block free gov. Hr block free Request an Electronic Filing PIN by going to IRS. Hr block free gov and entering Electronic Filing PIN in the search box. Hr block free Download forms, instructions and publications, including accessible versions for people with disabilities. Hr block free Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Hr block free gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Hr block free An employee can answer questions about your tax account or help you set up a payment plan. Hr block free Before you visit, check the Office Locator on IRS. Hr block free gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Hr block free If you have a special need, such as a disability, you can request an appointment. Hr block free Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Hr block free Apply for an Employer Identification Number (EIN). Hr block free Go to IRS. Hr block free gov and enter Apply for an EIN in the search box. Hr block free Read the Internal Revenue Code, regulations, or other official guidance. Hr block free Read Internal Revenue Bulletins. Hr block free Sign up to receive local and national tax news and more by email. Hr block free Just click on “subscriptions” above the search box on IRS. Hr block free gov and choose from a variety of options. Hr block free    Phone. Hr block free You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Hr block free Download the free IRS2Go app from the iTunes app store or from Google Play. Hr block free Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Hr block free gov, or download the IRS2Go app. Hr block free Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Hr block free The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Hr block free Mos
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Hr block free 19. Hr block free   Education- Related Adjustments Table of Contents Introduction Useful Items - You may want to see: Student Loan Interest DeductionStudent Loan Interest Defined Can You Claim the Deduction How Much Can You Deduct How Do You Figure the Deduction Tuition and Fees DeductionCan You Claim the Deduction What Expenses Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses How Much Can You Deduct Educator Expenses Introduction This chapter discusses the education-related adjustment you can deduct in figuring your adjusted gross income. Hr block free This chapter covers the student loan interest deduction, tuition and fees deduction, and the deduction for educator expenses. Hr block free Useful Items - You may want to see: Publication 970 Tax Benefits for Education Student Loan Interest Deduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Hr block free However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 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. Hr block free 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. Hr block free This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Hr block free Table 19-1 summarizes the features of the student loan interest deduction. Hr block free Table 19-1. Hr block free Student Loan Interest Deduction at a Glance Do not rely on this table alone. Hr block free Refer to the text for more details. Hr block free Feature Description Maximum benefit You can reduce your income subject to tax by up to $2,500. Hr block free Loan qualifications Your student loan: •  must have been taken out solely to pay qualified education expenses, and   • cannot be from a related person or made under a qualified employer plan. Hr block free Student qualifications The student must be: • you, your spouse, or your dependent, and   • enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Hr block free Time limit on deduction You can deduct interest paid during the remaining period of your student loan. Hr block free Phaseout The amount of your deduction depends on your income level. Hr block free Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Hr block free It includes both required and voluntary interest payments. Hr block free 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 (defined in chapter 3) when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period when the student is an eligible student. Hr block free Loans from the following sources are not qualified student loans. Hr block free A related person. Hr block free A qualified employer plan. Hr block free Exceptions. Hr block free   For purposes of the student loan interest deduction, the following are exceptions to the general rules for dependents. Hr block free An individual can be your dependent even if you are the dependent of another taxpayer. Hr block free An individual can be your dependent even if the individual files a joint return with a spouse. Hr block free An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Hr block free    Reasonable period of time. Hr block free   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Hr block free   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Hr block free The expenses relate to a specific academic period. Hr block free The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Hr block free   If neither of the above situations applies, the reasonable period of time is determined based on all the relevant facts and circumstances. Hr block free Academic period. Hr block free   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Hr block free In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Hr block free Eligible student. Hr block free   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Hr block free Enrolled at least half-time. Hr block free   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Hr block free   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Hr block free However, the standard may not be lower than any of those established by the U. Hr block free S. Hr block free Department of Education under the Higher Education Act of 1965. Hr block free Related person. Hr block free   You cannot deduct interest on a loan you get from a related person. Hr block free Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Hr block free ), Your lineal descendants (children, grandchildren, etc. Hr block free ), and Certain corporations, partnerships, trusts, and exempt organizations. Hr block free Qualified employer plan. Hr block free   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Hr block free 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. Hr block free They include amounts paid for the following items. Hr block free Tuition and fees. Hr block free Room and board. Hr block free Books, supplies, and equipment. Hr block free Other necessary expenses (such as transportation). Hr block free The cost of room and board qualifies only to the extent that it is not more than: 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 If greater, the actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Hr block free Eligible educational institution. Hr block free   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Hr block free S. Hr block free Department of Education. Hr block free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Hr block free   Certain educational institutions located outside the United States also participate in the U. Hr block free S. Hr block free Department of Education's Federal Student Aid (FSA) programs. Hr block free   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Hr block free   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Hr block free The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Hr block free    The educational institution should be able to tell you if it is an eligible educational institution. Hr block free Adjustments to qualified education expenses. Hr block free   You must reduce your qualified education expenses by certain tax-free items (such as the tax-free part of scholarships and fellowships). Hr block free See chapter 4 of Publication 970 for details. Hr block free Include as Interest In addition to simple interest on the loan, certain loan origination fees, capitalized interest, interest on revolving lines of credit, and interest on refinanced student loans can be student loan interest if all other requirements are met. Hr block free Loan origination fee. Hr block free   In general, this is a one-time fee charged by the lender when a loan is made. Hr block free To be deductible as interest, the fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Hr block free A loan origination fee treated as interest accrues over the life of the loan. Hr block free Capitalized interest. Hr block free    This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Hr block free Interest on revolving lines of credit. Hr block free   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Hr block free See Qualified Education Expenses , earlier. Hr block free Interest on refinanced student loans. Hr block free   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Hr block free If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Hr block free Voluntary interest payments. Hr block free   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Hr block free Do Not Include as Interest You cannot claim a student loan interest deduction for any of the following items. Hr block free Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Hr block free Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Hr block free Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Hr block free For more information, see Student Loan Repayment Assistance in chapter 5 of Publication 970. Hr block free Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Hr block free Your filing status is any filing status except married filing separately. Hr block free No one else is claiming an exemption for you on his or her tax return. Hr block free You are legally obligated to pay interest on a qualified student loan. Hr block free You paid interest on a qualified student loan. Hr block free Interest paid by others. Hr block free   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Hr block free See chapter 4 of Publication 970 for more information. Hr block free No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, home mortgage interest). Hr block free How Much Can You Deduct Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Hr block free However, the amount determined above is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Hr block free You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Hr block free For details on figuring your MAGI, see chapter 4 of Publication 970. Hr block free How Do You Figure the Deduction Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions. Hr block free However, if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1 in chapter 4 of Publication 970. Hr block free To help you figure your student loan interest deduction, you should receive Form 1098-E, Student Loan Interest Statement. Hr block free Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Hr block free For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Hr block free Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Hr block free However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Hr block free For information on allocating payments between interest and principal, see chapter 4 of Publication 970. Hr block free To claim the deduction, enter the allowable amount on Form 1040, line 33, or Form 1040A, line 18. Hr block free Tuition and Fees Deduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). Hr block free 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. Hr block free The qualified expenses must be for higher education, as explained later under What Expenses Qualify . Hr block free The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. Hr block free Table 19-2 summarizes the features of the tuition and fees deduction. Hr block free You may be able to take a credit for your education expenses instead of a deduction. Hr block free You can choose the one that will give you the lower tax. Hr block free See chapter 35, Education Credits, for details about the credits. Hr block free Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. Hr block free Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. Hr block free You paid qualified education expenses of higher education in 2013 for academic periods beginning in 2013 and those beginning in the first three months of 2014. Hr block free You paid the education expenses for an eligible student. Hr block free The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption (defined in chapter 3) on your tax return. Hr block free Qualified education expenses are defined under What Expenses Qualify . Hr block free Eligible students are defined later under Who Is an Eligible Student . Hr block free Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. Hr block free Your filing status is married filing separately. Hr block free Another person can claim an exemption for you as a dependent on his or her tax return. Hr block free You cannot take the deduction even if the other person does not actually claim that exemption. Hr block free Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). Hr block free You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Hr block free More information on nonresident aliens can be found in Publication 519, U. Hr block free S. Hr block free Tax Guide for Aliens. Hr block free You or anyone else claims an American opportunity or lifetime learning credit in 2013 with respect to expenses of the student for whom the qualified education expenses were paid. Hr block free However, a state tax credit will not disqualify you from claiming a tuition and fees deduction. Hr block free Table 19-2. Hr block free Tuition and Fees Deduction at a Glance Do not rely on this table alone. Hr block free Refer to the text for more details. Hr block free Question   Answer What is the maximum benefit?   You can reduce your income subject to tax by up to $4,000. Hr block free Where is the deduction taken?   As an adjustment to income on Form 1040, line 34, or Form 1040A, line 19. Hr block free For whom must the expenses be paid?   A student enrolled in an eligible educational institution who is either: you, your spouse, or your dependent for whom you claim an exemption. Hr block free What tuition and fees are deductible?   Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. Hr block free What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Hr block free Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period (defined earlier under Student Loan Interest Deduction ) beginning in 2013 or in the first 3 months of 2014. Hr block free Payments with borrowed funds. Hr block free   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Hr block free Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Hr block free Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Hr block free Student withdraws from class(es). Hr block free   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. Hr block free Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Hr block free Eligible educational institution. Hr block free   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Hr block free S. Hr block free Department of Education. Hr block free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Hr block free The educational institution should be able to tell you if it is an eligible educational institution. Hr block free   Certain educational institutions located outside the United States also participate in the U. Hr block free S. Hr block free Department of Education's Federal Student Aid (FSA) programs. Hr block free Academic period. Hr block free    An academic period is any quarter, semester, trimester, or any other period of study as reasonably determined by an eligible educational institution. Hr block free If an eligible educational institution uses credit hours and does not have academic terms, each payment period may be treated as an academic period. Hr block free Related expenses. Hr block free   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses for the tuition and fees deduction only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Hr block free Prepaid expenses. Hr block free   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring the tuition and fees deduction. Hr block free See Academic period, earlier. Hr block free For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring the tuition and fees deduction for 2013 only if you meet all the other requirements. Hr block free    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 tuition and fees deduction. Hr block free No Double Benefit Allowed You cannot do any of the following. Hr block free Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. Hr block free Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. Hr block free Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). Hr block free For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Hr block free See Figuring the Taxable Portion of a Distribution in chapter 7 (Coverdell ESA) and chapter 8 (QTP) of Publication 970. Hr block free Deduct qualified education expenses that have been paid with tax-free interest on U. Hr block free S. Hr block free savings bonds (Form 8815). Hr block free See Figuring the Tax-Free Amount in chapter 10 of Publication 970. Hr block free Deduct qualified education expenses that have been paid with tax-free educational assistance such as a scholarship, grant, or employer-provided educational assistance. Hr block free See Adjustments to qualified education expenses, later. Hr block free Adjustments to qualified education expenses. Hr block free   For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Hr block free The result is the amount of adjusted qualified education expenses for each student. Hr block free Tax-free educational assistance. Hr block free   For tax-free educational assistance you received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance to that academic period. Hr block free See Academic period, earlier. Hr block free   This includes: The tax-free part of scholarships and fellowships, including Pell grants (see chapter 1 of Publication 970), The tax-free part of any employer-provided educational assistance (see chapter 11 of Publication 970), Veterans' educational assistance (see chapter 1 of Publication 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Hr block free Generally, any scholarship or fellowship you receive is treated as tax-free educational assistance. Hr block free However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent you include it in gross income (if you are required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Hr block free 970, chapter 1. Hr block free The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Hr block free 970, chapter 1. Hr block free You may be able to increase the combined value of your tuition and fees deduction and certain educational assistance if you include some or all of the educational assistance in income in the year it is received. Hr block free For details, see Adjustments to Qualified Education Expenses in chapter 6 of Pub. Hr block free 970. Hr block free Some tax-free educational assistance received in 2013 may be treated as a refund of qualified education expenses paid in 2013. Hr block free This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Hr block free If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Hr block free If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Hr block free Refunds. Hr block free   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or may require you to include some or all of the refund in your gross income for the year the refund is received. Hr block free See chapter 6 of Pub. Hr block free 970 for more information. Hr block free Some tax-free educational assistance received after 2013 may be treated as a refund. Hr block free See Tax-free educational assistance, earlier. Hr block free Refunds received in 2013. Hr block free    For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Hr block free Refunds received after 2013 but before your income tax return is filed. Hr block free   If you receive a refund after 2013 of qualified education expenses you paid in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Hr block free Refunds received after 2013 and after your income tax return is filed. Hr block free   If you receive a refund after 2013 of qualified education expenses you paid in 2013 and the refund is received after you file your 2013 income tax return, you may need to include some or all of the refund in your gross income for the year the refund is received. Hr block free See chapter 6 of Pub. Hr block free 970 for more information. Hr block free Coordination with Coverdell education savings accounts and qualified tuition programs. Hr block free    Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). Hr block free For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Hr block free Amounts that do not reduce qualified education expenses. Hr block free   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Hr block free   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Hr block free The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses. Hr block free The use of the money is not restricted. Hr block free Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Hr block free This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Hr block free Sports, games, hobbies, and noncredit courses. Hr block free   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Hr block free However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Hr block free Comprehensive or bundled fees. Hr block free   Some eligible educational institutions combine all of their fees for an academic period into one amount. Hr block free If you do not receive, or do not have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Hr block free The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Hr block free See How Do You Figure the Deduction , later, for more information about Form 1098-T. Hr block free Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (defined earlier). Hr block free Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. Hr block free Table 19-3 summarizes who can claim the deduction. Hr block free How Much Can You Deduct The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. Hr block free For details on figuring your MAGI, see chapter 6 of Publication 970. Hr block free How Do You Figure the Deduction Figure the deduction using Form 8917. Hr block free To help you figure your tuition and fees deduction, you should receive Form 1098-T, Tuition Statement. Hr block free Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Hr block free To claim the deduction, enter the allowable amount on Form 1040, line 34, or Form 1040A, line 19, and attach your completed Form 8917. Hr block free Table 19-3. Hr block free Who Can Claim a Dependent's Expenses Do not rely on this table alone. Hr block free See Who Can Claim a Dependent's Expenses in chapter 6 of Publication 970. Hr block free IF your dependent is an eligible student and you. Hr block free . Hr block free . Hr block free AND. Hr block free . Hr block free . Hr block free THEN. Hr block free . Hr block free . Hr block free claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. Hr block free Your dependent cannot take a deduction. Hr block free claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Hr block free do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. Hr block free do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Hr block free Educator Expenses If you were an eligible educator in 2013, you can deduct on Form 1040, line 23, or Form 1040A, line 16, up to $250 of qualified expenses you paid in 2013. Hr block free If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Hr block free However, neither spouse can deduct more than $250 of his or her qualified expenses on Form 1040, line 23, or Form 1040A, line 16. Hr block free You may be able to deduct expenses that are more than the $250 (or $500) limit on Schedule A (Form 1040), line 21. Hr block free Eligible educator. Hr block free   An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. Hr block free Qualified expenses. Hr block free   Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. Hr block free An ordinary expense is one that is common and accepted in your educational field. Hr block free A necessary expense is one that is helpful and appropriate for your profession as an educator. Hr block free An expense does not have to be required to be considered necessary. Hr block free   Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. Hr block free   You must reduce your qualified expenses by the following amounts. Hr block free Excludable U. Hr block free S. Hr block free series EE and I savings bond interest from Form 8815. Hr block free See Figuring the Tax-Free Amount in chapter 10 of Publication 970. Hr block free Nontaxable qualified tuition program earnings or distributions. Hr block free See Figuring the Taxable Portion of a Distribution in chapter 8 of Publication 970. Hr block free Nontaxable distribution of earnings from a Coverdell education savings account. Hr block free See Figuring the Taxable Portion of a Distribution in chapter 7 of Publication 970. Hr block free Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2. Hr block free Prev  Up  Next   Home   More Online Publications