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Income Tax For Seniors

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Income Tax For Seniors

Income tax for seniors 2. Income tax for seniors   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Income tax for seniors Surviving spouse. Income tax for seniors Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Income tax for seniors Payments from a state fund for victims of crime. Income tax for seniors Home Affordable Modification Program (HAMP). Income tax for seniors Mortgage assistance payments. Income tax for seniors Payments to reduce cost of winter energy use. Income tax for seniors Nutrition Program for the Elderly. Income tax for seniors Reemployment Trade Adjustment Assistance (RTAA). Income tax for seniors Generally, income is taxable unless it is specifically exempt (not taxed) by law. Income tax for seniors Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Income tax for seniors Under special provisions of the law, certain items are partially or fully exempt from tax. Income tax for seniors Provisions that are of special interest to older taxpayers are discussed in this chapter. Income tax for seniors Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Income tax for seniors In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Income tax for seniors You need not receive the compensation in cash for it to be taxable. Income tax for seniors Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Income tax for seniors Volunteer work. Income tax for seniors   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Income tax for seniors Retired Senior Volunteer Program (RSVP). Income tax for seniors Foster Grandparent Program. Income tax for seniors Senior Companion Program. Income tax for seniors Service Corps of Retired Executives (SCORE). Income tax for seniors Unemployment compensation. Income tax for seniors   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Income tax for seniors More information. Income tax for seniors   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Income tax for seniors Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Income tax for seniors A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Income tax for seniors A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Income tax for seniors A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Income tax for seniors More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Income tax for seniors Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Income tax for seniors Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Income tax for seniors These are discussed in Publication 590. Income tax for seniors If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Income tax for seniors If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Income tax for seniors Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Income tax for seniors Early distributions. Income tax for seniors   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Income tax for seniors You must include early distributions of taxable amounts in your gross income. Income tax for seniors These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Income tax for seniors For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Income tax for seniors For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Income tax for seniors After age 59½ and before age 70½. Income tax for seniors   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Income tax for seniors Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Income tax for seniors Required distributions. Income tax for seniors   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Income tax for seniors See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Income tax for seniors If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Income tax for seniors For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Income tax for seniors For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Income tax for seniors See also Excess Accumulations (Insufficient Distributions) in Publication 590. Income tax for seniors Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Income tax for seniors However, see Insurance Premiums for Retired Public Safety Officers , later. Income tax for seniors If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Income tax for seniors This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Income tax for seniors The rest of each payment is taxable. Income tax for seniors However, see Insurance Premiums for Retired Public Safety Officers , later. Income tax for seniors You figure the tax-free part of the payment using one of the following methods. Income tax for seniors Simplified Method. Income tax for seniors You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Income tax for seniors You cannot use this method if your annuity is paid under a nonqualified plan. Income tax for seniors General Rule. Income tax for seniors You must use this method if your annuity is paid under a nonqualified plan. Income tax for seniors You generally cannot use this method if your annuity is paid under a qualified plan. Income tax for seniors Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Income tax for seniors You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Income tax for seniors Exclusion limit. Income tax for seniors   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Income tax for seniors Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Income tax for seniors This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Income tax for seniors   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Income tax for seniors If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Income tax for seniors The total exclusion may be more than your cost. Income tax for seniors Cost. Income tax for seniors   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Income tax for seniors Your total cost in the plan includes everything that you paid. Income tax for seniors It also includes amounts your employer contributed that were taxable to you when paid. Income tax for seniors However, see Foreign employment contributions , later. Income tax for seniors   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Income tax for seniors   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Income tax for seniors    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Income tax for seniors , that you receive. Income tax for seniors Foreign employment contributions. Income tax for seniors   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Income tax for seniors For details, see Foreign employment contributions in Publication 575. Income tax for seniors Withholding. Income tax for seniors   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Income tax for seniors However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Income tax for seniors (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Income tax for seniors ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Income tax for seniors   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Income tax for seniors Simplified Method. Income tax for seniors   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Income tax for seniors For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Income tax for seniors For any other annuity, this number is the number of monthly annuity payments under the contract. Income tax for seniors Who must use the Simplified Method. Income tax for seniors   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Income tax for seniors   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Income tax for seniors If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Income tax for seniors Guaranteed payments. Income tax for seniors   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Income tax for seniors If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Income tax for seniors Who cannot use the Simplified Method. Income tax for seniors   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Income tax for seniors   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Income tax for seniors If you did not have to use the General Rule, you could have chosen to use it. Income tax for seniors You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Income tax for seniors   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Income tax for seniors   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Income tax for seniors Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Income tax for seniors   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Income tax for seniors How to use the Simplified Method. Income tax for seniors   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Income tax for seniors Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Income tax for seniors   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Income tax for seniors How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Income tax for seniors For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Income tax for seniors    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Income tax for seniors Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Income tax for seniors Single-life annuity. Income tax for seniors   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Income tax for seniors Enter on line 3 the number shown for your age on your annuity starting date. Income tax for seniors This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Income tax for seniors Multiple-lives annuity. Income tax for seniors   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Income tax for seniors Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Income tax for seniors For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Income tax for seniors For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Income tax for seniors Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Income tax for seniors   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Income tax for seniors Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Income tax for seniors This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Income tax for seniors Fixed-period annuities. Income tax for seniors   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Income tax for seniors Line 6. Income tax for seniors   The amount on line 6 should include all amounts that could have been recovered in prior years. Income tax for seniors If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Income tax for seniors    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Income tax for seniors Example. Income tax for seniors Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Income tax for seniors Bill's annuity starting date is January 1, 2013. Income tax for seniors The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Income tax for seniors Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Income tax for seniors Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Income tax for seniors Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Income tax for seniors See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Income tax for seniors You can find a blank version of this worksheet in Publication 575. Income tax for seniors (The references in the illustrated worksheet are to sections in Publication 575). Income tax for seniors His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Income tax for seniors Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Income tax for seniors Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Income tax for seniors The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Income tax for seniors If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Income tax for seniors This deduction is not subject to the 2%-of-adjusted-gross-income limit. Income tax for seniors Worksheet 2-A. Income tax for seniors Simplified Method Worksheet—Illustrated 1. Income tax for seniors Enter the total pension or annuity payments received this year. Income tax for seniors Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Income tax for seniors $ 14,400 2. Income tax for seniors Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Income tax for seniors 31,000   Note. Income tax for seniors If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Income tax for seniors Otherwise, go to line 3. Income tax for seniors     3. Income tax for seniors Enter the appropriate number from Table 1 below. Income tax for seniors But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Income tax for seniors 310 4. Income tax for seniors Divide line 2 by the number on line 3 4. Income tax for seniors 100 5. Income tax for seniors Multiply line 4 by the number of months for which this year's payments were made. Income tax for seniors If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Income tax for seniors Otherwise, go to line 6 5. Income tax for seniors 1,200 6. Income tax for seniors Enter any amount previously recovered tax free in years after 1986. Income tax for seniors This is the amount shown on line 10 of your worksheet for last year 6. Income tax for seniors 0 7. Income tax for seniors Subtract line 6 from line 2 7. Income tax for seniors 31,000 8. Income tax for seniors Enter the smaller of line 5 or line 7 8. Income tax for seniors 1,200 9. Income tax for seniors Taxable amount for year. Income tax for seniors Subtract line 8 from line 1. Income tax for seniors Enter the result, but not less than zero. Income tax for seniors Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Income tax for seniors Note. Income tax for seniors If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Income tax for seniors If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Income tax for seniors 9. Income tax for seniors $ 13,200 10. Income tax for seniors Was your annuity starting date before 1987? □ Yes. Income tax for seniors STOP. Income tax for seniors Do not complete the rest of this worksheet. Income tax for seniors  ☑ No. Income tax for seniors Add lines 6 and 8. Income tax for seniors This is the amount you have recovered tax free through 2013. Income tax for seniors You will need this number if you need to fill out this worksheet next year. Income tax for seniors 10. Income tax for seniors 1,200 11. Income tax for seniors Balance of cost to be recovered. Income tax for seniors Subtract line 10 from line 2. Income tax for seniors If zero, you will not have to complete this worksheet next year. Income tax for seniors The payments you receive next year will generally be fully taxable 11. Income tax for seniors $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Income tax for seniors   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Income tax for seniors . Income tax for seniors . Income tax for seniors   BEFORE November 19, 1996, enter on line 3 . Income tax for seniors . Income tax for seniors . Income tax for seniors AFTER November 18, 1996, enter on line 3 . Income tax for seniors . Income tax for seniors . Income tax for seniors   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Income tax for seniors . Income tax for seniors . Income tax for seniors   THEN enter on line 3 . Income tax for seniors . Income tax for seniors . Income tax for seniors         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Income tax for seniors   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Income tax for seniors   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Income tax for seniors The retiree's cost has already been recovered tax free. Income tax for seniors   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Income tax for seniors The resulting tax-free amount will then remain fixed. Income tax for seniors Any increases in the survivor annuity are fully taxable. Income tax for seniors   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Income tax for seniors See Simplified Method , earlier. Income tax for seniors How to report. Income tax for seniors   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Income tax for seniors If your pension or annuity is fully taxable, enter it on line 16b. Income tax for seniors Do not make an entry on line 16a. Income tax for seniors   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Income tax for seniors If your pension or annuity is fully taxable, enter it on line 12b. Income tax for seniors Do not make an entry on line 12a. Income tax for seniors   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Income tax for seniors If your pension or annuity is fully taxable, enter it on line 17b. Income tax for seniors Do not make an entry on line 17a. Income tax for seniors Example. Income tax for seniors You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Income tax for seniors You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Income tax for seniors The entire $1,200 is taxable. Income tax for seniors You include $1,200 only on Form 1040, line 16b. Income tax for seniors Joint return. Income tax for seniors   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Income tax for seniors Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Income tax for seniors Form 1099-R. Income tax for seniors   You should receive a Form 1099-R for your pension or annuity. Income tax for seniors Form 1099-R shows your pension or annuity for the year and any income tax withheld. Income tax for seniors You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Income tax for seniors You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Income tax for seniors Generally, you should be sent these forms by January 31, 2014. Income tax for seniors Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Income tax for seniors Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Income tax for seniors For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Income tax for seniors The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Income tax for seniors See Tax on Early Distributions, later. Income tax for seniors Lump-sum distributions. Income tax for seniors   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Income tax for seniors The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Income tax for seniors The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Income tax for seniors You may be able to use the 10-year tax option to figure tax on the ordinary income part. Income tax for seniors Form 1099-R. Income tax for seniors   If you receive a total distribution from a plan, you should receive a Form 1099-R. Income tax for seniors If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Income tax for seniors The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Income tax for seniors More information. Income tax for seniors   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Income tax for seniors Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Income tax for seniors The tax applies to the taxable part of the distribution. Income tax for seniors For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Income tax for seniors  An IRA is also a qualified retirement plan for purposes of this tax. Income tax for seniors General exceptions to tax. Income tax for seniors   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Income tax for seniors Additional exceptions. Income tax for seniors   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Income tax for seniors See Publication 575 for details. Income tax for seniors Reporting tax. Income tax for seniors   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Income tax for seniors 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Income tax for seniors See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Income tax for seniors Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Income tax for seniors Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Income tax for seniors However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Income tax for seniors For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Income tax for seniors  An IRA is also a qualified retirement plan for purposes of this tax. Income tax for seniors An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Income tax for seniors 5% owners. Income tax for seniors   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Income tax for seniors See Publication 575 for more information. Income tax for seniors Amount of tax. Income tax for seniors   If you do not receive the required minimum distribution, you are subject to an additional tax. Income tax for seniors The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Income tax for seniors You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Income tax for seniors Form 5329. Income tax for seniors   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Income tax for seniors Additional information. Income tax for seniors   For more detailed information on the tax on excess accumulation, see Publication 575. Income tax for seniors Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Income tax for seniors The premiums can be for coverage for you, your spouse, or dependent(s). Income tax for seniors The distribution must be made directly from the plan to the insurance provider. Income tax for seniors You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Income tax for seniors You can only make this election for amounts that would otherwise be included in your income. Income tax for seniors The amount excluded from your income cannot be used to claim a medical expense deduction. Income tax for seniors An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Income tax for seniors If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Income tax for seniors The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Income tax for seniors Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Income tax for seniors Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Income tax for seniors Enter “PSO” next to the appropriate line on which you report the taxable amount. Income tax for seniors Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Income tax for seniors These categories are treated differently for income tax purposes. Income tax for seniors Social security equivalent benefits. Income tax for seniors   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Income tax for seniors This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Income tax for seniors (See Social Security and Equivalent Railroad Retirement Benefits , later. Income tax for seniors ) Non-social security equivalent benefits. Income tax for seniors   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Income tax for seniors It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Income tax for seniors This category of benefits is treated as an amount received from a qualified employee plan. Income tax for seniors This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Income tax for seniors Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Income tax for seniors More information. Income tax for seniors   For more information about railroad retirement benefits, see Publication 575. Income tax for seniors Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Income tax for seniors But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Income tax for seniors For more information, including information about veterans' benefits and insurance, see Publication 525. Income tax for seniors Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Income tax for seniors Social security benefits include monthly retirement, survivor, and disability benefits. Income tax for seniors They do not include supplemental security income (SSI) payments, which are not taxable. Income tax for seniors Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Income tax for seniors They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Income tax for seniors If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Income tax for seniors Are Any of Your Benefits Taxable? Note. Income tax for seniors When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Income tax for seniors  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Income tax for seniors When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Income tax for seniors S. Income tax for seniors savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Income tax for seniors Figuring total income. Income tax for seniors   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Income tax for seniors If that total amount is more than your base amount, part of your benefits may be taxable. Income tax for seniors If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Income tax for seniors Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Income tax for seniors If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Income tax for seniors If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Income tax for seniors Worksheet 2-B. Income tax for seniors A Quick Way To Check if Your Benefits May Be Taxable A. Income tax for seniors Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Income tax for seniors Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Income tax for seniors (If you received more than one form, combine the amounts from box 5  and enter the total. Income tax for seniors ) A. Income tax for seniors     Note. Income tax for seniors If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Income tax for seniors     B. Income tax for seniors Enter one-half of the amount on line A B. Income tax for seniors   C. Income tax for seniors Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Income tax for seniors   D. Income tax for seniors Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Income tax for seniors S. Income tax for seniors savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Income tax for seniors   E. Income tax for seniors Add lines B, C, and D and enter the total E. Income tax for seniors   F. Income tax for seniors If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Income tax for seniors   G. Income tax for seniors Is the amount on line F less than or equal to the amount on line E? □ No. Income tax for seniors None of your benefits are taxable this year. Income tax for seniors  □ Yes. Income tax for seniors Some of your benefits may be taxable. Income tax for seniors To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Income tax for seniors     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Income tax for seniors Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Income tax for seniors It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Income tax for seniors If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Income tax for seniors Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Income tax for seniors Your repayments are shown in box 4. Income tax for seniors The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Income tax for seniors Use the amount in box 5 to figure whether any of your benefits are taxable. Income tax for seniors Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Income tax for seniors If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Income tax for seniors If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Income tax for seniors For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Income tax for seniors How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Income tax for seniors Generally, the higher that total amount, the greater the taxable part of your benefits. Income tax for seniors Maximum taxable part. Income tax for seniors   The taxable part of your benefits usually cannot be more than 50%. Income tax for seniors However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Income tax for seniors The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Income tax for seniors You are married filing separately and lived with your spouse at any time during 2013. Income tax for seniors   If you are a nonresident alien, 85% of your benefits are taxable. Income tax for seniors However, this income is exempt under some tax treaties. Income tax for seniors Which worksheet to use. Income tax for seniors   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Income tax for seniors However, you will need to use a different worksheet(s) if any of the following situations applies to you. Income tax for seniors You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Income tax for seniors In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Income tax for seniors Situation (1) does not apply and you take one or more of the following exclusions. Income tax for seniors Interest from qualified U. Income tax for seniors S. Income tax for seniors savings bonds (Form 8815). Income tax for seniors Employer-provided adoption benefits (Form 8839). Income tax for seniors Foreign earned income or housing (Form 2555 or Form 2555-EZ). Income tax for seniors Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Income tax for seniors In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Income tax for seniors You received a lump-sum payment for an earlier year. Income tax for seniors In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Income tax for seniors See Lump-Sum Election , later. Income tax for seniors How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Income tax for seniors You cannot use Form 1040EZ. Income tax for seniors Reporting on Form 1040. Income tax for seniors   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Income tax for seniors If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Income tax for seniors Reporting on Form 1040A. Income tax for seniors   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Income tax for seniors If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Income tax for seniors Reporting on Form 1040NR. Income tax for seniors   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Income tax for seniors Benefits not taxable. Income tax for seniors   If you are filing Form 1040EZ, do not report any benefits on your tax return. Income tax for seniors If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Income tax for seniors Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Income tax for seniors If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Income tax for seniors Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Income tax for seniors This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Income tax for seniors No part of the lump-sum death benefit is subject to tax. Income tax for seniors For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Income tax for seniors SSA. Income tax for seniors gov, and use keyword: death benefit. Income tax for seniors Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Income tax for seniors However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Income tax for seniors You can elect this method if it lowers your taxable benefits. Income tax for seniors See Publication 915 for more information. Income tax for seniors Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Income tax for seniors If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Income tax for seniors If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Income tax for seniors If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Income tax for seniors S. Income tax for seniors Railroad Retirement Board field office. Income tax for seniors Joint return. Income tax for seniors   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Income tax for seniors You do this to get your net benefits when figuring if your combined benefits are taxable. Income tax for seniors Repayment of benefits received in an earlier year. Income tax for seniors   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Income tax for seniors   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Income tax for seniors Claim it on Schedule A (Form 1040), line 23. Income tax for seniors   If this deduction is more than $3,000, you have to follow some special instructions. Income tax for seniors See Publication 915 for those instructions. Income tax for seniors Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Income tax for seniors If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Income tax for seniors However, certain payments may not be taxable to you. Income tax for seniors Some of these payments are discussed later in this section. Income tax for seniors Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Income tax for seniors Cost paid by you. Income tax for seniors   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Income tax for seniors If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Income tax for seniors Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Income tax for seniors You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Income tax for seniors Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Income tax for seniors If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Income tax for seniors See Credit for the Elderly or the Disabled, later. Income tax for seniors For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Income tax for seniors Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Income tax for seniors Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Income tax for seniors For more information on pensions and annuities, see Publication 575. Income tax for seniors Retirement and profit-sharing plans. Income tax for seniors   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Income tax for seniors The payments must be reported as a pension or annuity. Income tax for seniors Accrued leave payment. Income tax for seniors   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Income tax for seniors The payment is not a disability payment. Income tax for seniors Include it in your income in the tax year you receive it. Income tax for seniors Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Income tax for seniors Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Income tax for seniors However, the amount you can exclude may be limited. Income tax for seniors Long-term care insurance contracts are discussed in more detail in Publication 525. Income tax for seniors Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Income tax for seniors The exemption also applies to your survivors. Income tax for seniors The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Income tax for seniors If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Income tax for seniors For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Income tax for seniors Return to work. Income tax for seniors   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Income tax for seniors Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Income tax for seniors Federal Employees' Compensation Act (FECA). Income tax for seniors   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Income tax for seniors However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Income tax for seniors Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Income tax for seniors Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Income tax for seniors    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Income tax for seniors For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Income tax for seniors Other compensation. Income tax for seniors   Many other amounts you receive as compensation for sickness or injury are not taxable. Income tax for seniors These include the following amounts. Income tax for seniors Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Income tax for seniors Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Income tax for seniors Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Income tax for seniors This compensation must be based only on the injury and not on the period of your absence from work. Income tax for seniors These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Income tax for seniors Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Income tax for seniors This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Income tax for seniors Proceeds not received in installments. Income tax for seniors   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Income tax for seniors If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Income tax for seniors Proceeds received in installments. Income tax for seniors   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Income tax for seniors   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Income tax for seniors Include anything over this excluded part in your income as interest. Income tax for seniors Installments for life. Income tax for seniors   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Income tax for seniors If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Income tax for seniors Surviving spouse. Income tax for seniors   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Income tax for seniors If you remarry, you can continue to take the exclusion. Income tax for seniors Surrender of policy for cash. Income tax for seniors   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Income tax for seniors In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Income tax for seniors You should receive a Form 1099-R showing the total proceeds and the taxable part. Income tax for seniors Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Income tax for seniors Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Income tax for seniors Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Income tax for seniors To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Income tax for seniors Include in your income the part of the lump-sum payment that is more than your cost. Income tax for seniors Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Income tax for seniors The tax treatment of an annuity is explained in Publication 575. Income tax for seniors For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Income tax for seniors This election must be made within 60 days after the lump-sum payment first becomes payable to you. Income tax for seniors Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Income tax for seniors However, see Exception , later. Income tax for seniors For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Income tax for seniors Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Income tax for seniors In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Income tax for seniors Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Income tax for seniors To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Income tax for seniors Terminally or chronically ill defined. Income tax for seniors   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Income tax for seniors A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Income tax for seniors The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Income tax for seniors The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Income tax for seniors Exception. Income tax for seniors   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Income tax for seniors Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Income tax for seniors Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Income tax for seniors You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Income tax for seniors Main home. Income tax for seniors   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Income tax for seniors Repaying the first-time homebuyer credit because you sold your home. Income tax for seniors   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Income tax for seniors For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Income tax for seniors   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Income tax for seniors If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Income tax for seniors If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Income tax for seniors   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Income tax for seniors Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Income tax for seniors You meet the ownership test. Income tax for seniors You meet the use test. Income tax for seniors During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Income tax for seniors You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Income tax for seniors Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Income tax for seniors This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Income tax for seniors Exception to ownership and use tests. Income tax for seniors   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Income tax for seniors Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Income tax for seniors The maximum amount you can exclude will be reduced. Income tax for seniors See Publication 523, Selling Your Home, for more information. Income tax for seniors Exception to use test for individuals with a disability. Income tax for seniors   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Income tax for seniors Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Income tax for seniors   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Income tax for seniors Exception to ownership test for property acquired in a like-kind exchange. Income tax for seniors   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Income tax for seniors This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Income tax for seniors A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Income tax for seniors See Publication 523 for more information. Income tax for seniors Period of nonqualified use. Income tax for seniors   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Income tax for seniors Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Income tax for seniors See Publication 523 for more information. Income tax for seniors Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Income tax for seniors However, see Special rules for joint returns , next. Income tax for seniors Special rules for joint returns. Income tax for seniors   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Income tax for seniors You are married and file a joint return for the year. Income tax for seniors Either you or your spouse meets the ownership test. Income tax for seniors Both you and your spouse meet the use test. Income tax for seniors During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Income tax for seniors Sale of home by surviving spouse. Income tax for seniors   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Income tax for seniors   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Income tax for seniors The sale or exchange took place no more than 2 years after the date of death of your spouse. Income tax for seniors You have not remarried. Income tax for seniors You and your spouse met the use test at the time of your spouse's death. Income tax for seniors You or your spouse met the ownership test at the time of your spouse's death. Income tax for seniors Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Income tax for seniors Home transferred from spouse. Income tax for seniors   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Income tax for seniors Use of home after divorce. Income tax for seniors   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Income tax for seniors Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Income tax for seniors However, you must meet the ownership and use tests. Income tax for seniors See Publication 523 for more information. Income tax for seniors Depreciation after May 6, 1997. Income tax for seniors   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Income tax for seniors See Publication 523 for more information. Income tax for seniors Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Income tax for seniors If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Income tax for seniors Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Income tax for seniors If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Income tax for seniors See Publication 523 for more information. Income tax for seniors Reverse Mortgages A revers
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Understanding Your CP188 Notice

We are holding your refund until we determine you owe no other taxes.


What you need to do

  • You need not take any action at this time.
  • Review your notice carefully; it will explain the time frames necessary to review your account.

You may want to...


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP188, Page 1

Page Last Reviewed or Updated: 25-Jul-2013

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Income Tax For Seniors

Income tax for seniors 3. Income tax for seniors   Limit on Annual Additions Table of Contents Ministers and church employees. Income tax for seniors Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Income tax for seniors This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Income tax for seniors The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Income tax for seniors More than one 403(b) account. Income tax for seniors If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Income tax for seniors Ministers and church employees. Income tax for seniors   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Income tax for seniors For more information, see chapter 5. Income tax for seniors Participation in a qualified plan. Income tax for seniors If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Income tax for seniors You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Income tax for seniors Includible Compensation for Your Most Recent Year of Service Definition. Income tax for seniors   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Income tax for seniors When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Income tax for seniors This can happen if your tax year is not the same as your employer's annual work period. Income tax for seniors When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Income tax for seniors Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Income tax for seniors Tax year different from employer's annual work period. Income tax for seniors   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Income tax for seniors Example. Income tax for seniors A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Income tax for seniors To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Income tax for seniors Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Income tax for seniors A full year of service is equal to full-time employment for your employer's annual work period. Income tax for seniors After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Income tax for seniors Part-time or employed only part of the year. Income tax for seniors   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Income tax for seniors To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Income tax for seniors Example. Income tax for seniors You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Income tax for seniors Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Income tax for seniors Not yet employed for 1 year. Income tax for seniors   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Income tax for seniors Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Income tax for seniors Includible compensation is not the same as income included on your tax return. Income tax for seniors Compensation is a combination of income and benefits received in exchange for services provided to your employer. Income tax for seniors Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Income tax for seniors Includible compensation includes the following amounts. Income tax for seniors Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Income tax for seniors Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Income tax for seniors Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Income tax for seniors  Note. Income tax for seniors For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Income tax for seniors Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Income tax for seniors Income otherwise excluded under the foreign earned income exclusion. Income tax for seniors Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Income tax for seniors Includible compensation does not include the following items. Income tax for seniors Your employer's contributions to your 403(b) account. Income tax for seniors Compensation earned while your employer was not an eligible employer. Income tax for seniors Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Income tax for seniors The cost of incidental life insurance. Income tax for seniors See Cost of Incidental Life Insurance, later. Income tax for seniors If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Income tax for seniors Contributions after retirement. Income tax for seniors   Nonelective contributions may be made for an employee for up to 5 years after retirement. Income tax for seniors These contributions would be based on includible compensation for the last year of service before retirement. Income tax for seniors Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Income tax for seniors If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Income tax for seniors If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Income tax for seniors If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Income tax for seniors Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Income tax for seniors Not all annuity contracts include life insurance. Income tax for seniors Contact your plan administrator to determine if your contract includes incidental life insurance. Income tax for seniors If it does, you will need to figure the cost of life insurance each year the policy is in effect. Income tax for seniors Figuring the cost of incidental life insurance. Income tax for seniors If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Income tax for seniors To determine the amount of the life insurance premiums, you will need to know the following information. Income tax for seniors The value of your life insurance contract, which is the amount payable upon your death. Income tax for seniors The cash value of your life insurance contract at the end of the tax year. Income tax for seniors Your age on your birthday nearest the beginning of the policy year. Income tax for seniors Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Income tax for seniors You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Income tax for seniors Example. Income tax for seniors Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Income tax for seniors Your cash value in the contract at the end of the first year is zero. Income tax for seniors Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Income tax for seniors The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Income tax for seniors The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Income tax for seniors The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Income tax for seniors Figure 3-1. Income tax for seniors Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Income tax for seniors 70   35 $0. Income tax for seniors 99   70 $20. Income tax for seniors 62 1 0. Income tax for seniors 41   36 1. Income tax for seniors 01   71 22. Income tax for seniors 72 2 0. Income tax for seniors 27   37 1. Income tax for seniors 04   72 25. Income tax for seniors 07 3 0. Income tax for seniors 19   38 1. Income tax for seniors 06   73 27. Income tax for seniors 57 4 0. Income tax for seniors 13   39 1. Income tax for seniors 07   74 30. Income tax for seniors 18 5 0. Income tax for seniors 13   40 1. Income tax for seniors 10   75 33. Income tax for seniors 05 6 0. Income tax for seniors 14   41 1. Income tax for seniors 13   76 36. Income tax for seniors 33 7 0. Income tax for seniors 15   42 1. Income tax for seniors 20   77 40. Income tax for seniors 17 8 0. Income tax for seniors 16   43 1. Income tax for seniors 29   78 44. Income tax for seniors 33 9 0. Income tax for seniors 16   44 1. Income tax for seniors 40   79 49. Income tax for seniors 23 10 0. Income tax for seniors 16   45 1. Income tax for seniors 53   80 54. Income tax for seniors 56 11 0. Income tax for seniors 19   46 1. Income tax for seniors 67   81 60. Income tax for seniors 51 12 0. Income tax for seniors 24   47 1. Income tax for seniors 83   82 66. Income tax for seniors 74 13 0. Income tax for seniors 28   48 1. Income tax for seniors 98   83 73. Income tax for seniors 07 14 0. Income tax for seniors 33   49 2. Income tax for seniors 13   84 80. Income tax for seniors 35 15 0. Income tax for seniors 38   50 2. Income tax for seniors 30   85 88. Income tax for seniors 76 16 0. Income tax for seniors 52   51 2. Income tax for seniors 52   86 99. Income tax for seniors 16 17 0. Income tax for seniors 57   52 2. Income tax for seniors 81   87 110. Income tax for seniors 40 18 0. Income tax for seniors 59   53 3. Income tax for seniors 20   88 121. Income tax for seniors 85 19 0. Income tax for seniors 61   54 3. Income tax for seniors 65   89 133. Income tax for seniors 40 20 0. Income tax for seniors 62   55 4. Income tax for seniors 15   90 144. Income tax for seniors 30 21 0. Income tax for seniors 62   56 4. Income tax for seniors 68   91 155. Income tax for seniors 80 22 0. Income tax for seniors 64   57 5. Income tax for seniors 20   92 168. Income tax for seniors 75 23 0. Income tax for seniors 66   58 5. Income tax for seniors 66   93 186. Income tax for seniors 44 24 0. Income tax for seniors 68   59 6. Income tax for seniors 06   94 206. Income tax for seniors 70 25 0. Income tax for seniors 71   60 6. Income tax for seniors 51   95 228. Income tax for seniors 35 26 0. Income tax for seniors 73   61 7. Income tax for seniors 11   96 250. Income tax for seniors 01 27 0. Income tax for seniors 76   62 7. Income tax for seniors 96   97 265. Income tax for seniors 09 28 0. Income tax for seniors 80   63 9. Income tax for seniors 08   98 270. Income tax for seniors 11 29 0. Income tax for seniors 83   64 10. Income tax for seniors 41   99 281. Income tax for seniors 05 30 0. Income tax for seniors 87   65 11. Income tax for seniors 90       31 0. Income tax for seniors 90   66 13. Income tax for seniors 51       32 0. Income tax for seniors 93   67 15. Income tax for seniors 20       33 0. Income tax for seniors 96   68 16. Income tax for seniors 92       34 0. Income tax for seniors 98   69 18. Income tax for seniors 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Income tax for seniors Example 1. Income tax for seniors Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Income tax for seniors The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Income tax for seniors Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Income tax for seniors Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Income tax for seniors When figuring her includible compensation for this year, Lynne will subtract $28. Income tax for seniors Table 3-1. Income tax for seniors Worksheet A. Income tax for seniors Cost of Incidental Life Insurance Note. Income tax for seniors Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Income tax for seniors This amount will be used to figure includible compensation for your most recent year of service. Income tax for seniors 1. Income tax for seniors Enter the value of the contract (amount payable upon your death) 1. Income tax for seniors $20,000. Income tax for seniors 00 2. Income tax for seniors Enter the cash value in the contract at the end of the year 2. Income tax for seniors 0. Income tax for seniors 00 3. Income tax for seniors Subtract line 2 from line 1. Income tax for seniors This is the value of your current life insurance protection 3. Income tax for seniors $20,000. Income tax for seniors 00 4. Income tax for seniors Enter your age on your birthday nearest the beginning of the policy year 4. Income tax for seniors 44 5. Income tax for seniors Enter the 1-year term premium for $1,000 of life insurance based on your age. Income tax for seniors (From Figure 3-1) 5. Income tax for seniors $1. Income tax for seniors 40 6. Income tax for seniors Divide line 3 by $1,000 6. Income tax for seniors 20 7. Income tax for seniors Multiply line 6 by line 5. Income tax for seniors This is the cost of your incidental life insurance 7. Income tax for seniors $28. Income tax for seniors 00 Example 2. Income tax for seniors Lynne's cash value in the contract at the end of the second year is $1,000. Income tax for seniors In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Income tax for seniors In year two, Lynne's employer will include $29. Income tax for seniors 07 in her current year's income. Income tax for seniors Lynne will subtract this amount when figuring her includible compensation. Income tax for seniors Table 3-2. Income tax for seniors Worksheet A. Income tax for seniors Cost of Incidental Life Insurance Note. Income tax for seniors Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Income tax for seniors This amount will be used to figure includible compensation for your most recent year of service. Income tax for seniors 1. Income tax for seniors Enter the value of the contract (amount payable upon your death) 1. Income tax for seniors $20,000. Income tax for seniors 00 2. Income tax for seniors Enter the cash value in the contract at the end of the year 2. Income tax for seniors $1,000. Income tax for seniors 00 3. Income tax for seniors Subtract line 2 from line 1. Income tax for seniors This is the value of your current life insurance protection 3. Income tax for seniors $19,000. Income tax for seniors 00 4. Income tax for seniors Enter your age on your birthday nearest the beginning of the policy year 4. Income tax for seniors 45 5. Income tax for seniors Enter the 1-year term premium for $1,000 of life insurance based on your age. Income tax for seniors (From Figure 3-1) 5. Income tax for seniors $1. Income tax for seniors 53 6. Income tax for seniors Divide line 3 by $1,000 6. Income tax for seniors 19 7. Income tax for seniors Multiply line 6 by line 5. Income tax for seniors This is the cost of your incidental life insurance 7. Income tax for seniors $29. Income tax for seniors 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Income tax for seniors Example. Income tax for seniors Floyd has been periodically working full-time for a local hospital since September 2011. Income tax for seniors He needs to figure his limit on annual additions for 2014. Income tax for seniors The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Income tax for seniors During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Income tax for seniors Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Income tax for seniors Floyd has never worked abroad and there is no life insurance provided under the plan. Income tax for seniors Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Income tax for seniors Table 3-3. Income tax for seniors Floyd's Compensation Note. Income tax for seniors This table shows information Floyd will use to figure includible compensation for his most recent year of service. Income tax for seniors   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Income tax for seniors Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Income tax for seniors If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Income tax for seniors He figures his most recent year of service shown in the following list. Income tax for seniors Time he will work in 2014 is 6/12 of a year. Income tax for seniors Time worked in 2013 is 4/12 of a year. Income tax for seniors All of this time will be used to determine Floyd's most recent year of service. Income tax for seniors Time worked in 2012 is 4/12 of a year. Income tax for seniors Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Income tax for seniors Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Income tax for seniors Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Income tax for seniors His includible compensation for his most recent year of service is figured as shown in Table 3-4. Income tax for seniors After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Income tax for seniors Table 3-4. Income tax for seniors Worksheet B. Income tax for seniors Includible Compensation for Your Most Recent Year of Service1 Note. Income tax for seniors Use this worksheet to figure includible compensation for your most recent year of service. Income tax for seniors 1. Income tax for seniors Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Income tax for seniors $66,000 2. Income tax for seniors Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Income tax for seniors 4,4753 3. Income tax for seniors Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Income tax for seniors -0- 4. Income tax for seniors Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Income tax for seniors -0- 5. Income tax for seniors Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Income tax for seniors -0- 6. Income tax for seniors Enter your foreign earned income exclusion for your most recent year of service 6. Income tax for seniors -0- 7. Income tax for seniors Add lines 1, 2, 3, 4, 5, and 6 7. Income tax for seniors 70,475 8. Income tax for seniors Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Income tax for seniors -0- 9. Income tax for seniors Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Income tax for seniors -0- 10. Income tax for seniors Add lines 8 and 9 10. Income tax for seniors -0- 11. Income tax for seniors Subtract line 10 from line 7. Income tax for seniors This is your includible compensation for your most recent year of service 11. Income tax for seniors 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Income tax for seniors 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Income tax for seniors  3$4,475 ($2,000 + $1,650 + $825). 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