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Tax Act Online 2009

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Tax Act Online 2009

Tax act online 2009 Publication 575 - Main Content Table of Contents General InformationPension. Tax act online 2009 Annuity. Tax act online 2009 Qualified employee plan. Tax act online 2009 Qualified employee annuity. Tax act online 2009 Designated Roth account. Tax act online 2009 Tax-sheltered annuity plan. Tax act online 2009 Fixed-period annuities. Tax act online 2009 Annuities for a single life. Tax act online 2009 Joint and survivor annuities. Tax act online 2009 Variable annuities. Tax act online 2009 Disability pensions. Tax act online 2009 Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Tax act online 2009 Taxation of Periodic PaymentsPeriod of participation. Tax act online 2009 Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Tax act online 2009 No tax withheld. Tax act online 2009 Partial rollovers. Tax act online 2009 Frozen deposits. Tax act online 2009 Reasonable period of time. Tax act online 2009 20% Mandatory withholding. Tax act online 2009 How to report. Tax act online 2009 How to report. Tax act online 2009 Special rule for Roth IRAs and designated Roth accounts. Tax act online 2009 Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Tax act online 2009 How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Tax act online 2009   Some of the terms used in this publication are defined in the following paragraphs. Tax act online 2009 Pension. Tax act online 2009   A pension is generally a series of definitely determinable payments made to you after you retire from work. Tax act online 2009 Pension payments are made regularly and are based on such factors as years of service and prior compensation. Tax act online 2009 Annuity. Tax act online 2009   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Tax act online 2009 They can be either fixed (under which you receive a definite amount) or variable (not fixed). Tax act online 2009 You can buy the contract alone or with the help of your employer. Tax act online 2009 Qualified employee plan. Tax act online 2009   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Tax act online 2009 It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Tax act online 2009 To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Tax act online 2009 Qualified employee annuity. Tax act online 2009   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Tax act online 2009 Designated Roth account. Tax act online 2009   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Tax act online 2009 Elective deferrals that are designated as Roth contributions are included in your income. Tax act online 2009 However, qualified distributions (explained later) are not included in your income. Tax act online 2009 You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Tax act online 2009 Tax-sheltered annuity plan. Tax act online 2009   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Tax act online 2009 Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Tax act online 2009 Types of pensions and annuities. Tax act online 2009   Pensions and annuities include the following types. Tax act online 2009 Fixed-period annuities. Tax act online 2009   You receive definite amounts at regular intervals for a specified length of time. Tax act online 2009 Annuities for a single life. Tax act online 2009   You receive definite amounts at regular intervals for life. Tax act online 2009 The payments end at death. Tax act online 2009 Joint and survivor annuities. Tax act online 2009   The first annuitant receives a definite amount at regular intervals for life. Tax act online 2009 After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Tax act online 2009 The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Tax act online 2009 Variable annuities. Tax act online 2009   You receive payments that may vary in amount for a specified length of time or for life. Tax act online 2009 The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Tax act online 2009 Disability pensions. Tax act online 2009   You receive disability payments because you retired on disability and have not reached minimum retirement age. Tax act online 2009 More than one program. Tax act online 2009   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Tax act online 2009 If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Tax act online 2009 Also, you may be considered to have received more than one pension or annuity. Tax act online 2009 Your former employer or the plan administrator should be able to tell you if you have more than one contract. Tax act online 2009 Example. Tax act online 2009 Your employer set up a noncontributory profit-sharing plan for its employees. Tax act online 2009 The plan provides that the amount held in the account of each participant will be paid when that participant retires. Tax act online 2009 Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Tax act online 2009 The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Tax act online 2009 Under the pension plan, however, a formula determines the amount of the pension benefits. Tax act online 2009 The amount of contributions is the amount necessary to provide that pension. Tax act online 2009 Each plan is a separate program and a separate contract. Tax act online 2009 If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Tax act online 2009 Distributions from a designated Roth account are treated separately from other distributions from the plan. Tax act online 2009 Qualified domestic relations order (QDRO). Tax act online 2009   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Tax act online 2009 The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Tax act online 2009 A QDRO may not award an amount or form of benefit that is not available under the plan. Tax act online 2009   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Tax act online 2009 The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Tax act online 2009 The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Tax act online 2009 The denominator is the present value of all benefits payable to the participant. Tax act online 2009   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Tax act online 2009 Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Tax act online 2009 For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Tax act online 2009 Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Tax act online 2009 The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Tax act online 2009 The taxable part of a distribution is treated as ordinary income. Tax act online 2009 Net investment income tax. Tax act online 2009   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Tax act online 2009 For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Tax act online 2009 For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Tax act online 2009 Withdrawals. Tax act online 2009   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Tax act online 2009 The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Tax act online 2009   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Tax act online 2009 However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Tax act online 2009 To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Tax act online 2009   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Tax act online 2009   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Tax act online 2009 The rest is taxable. Tax act online 2009   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Tax act online 2009 If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Tax act online 2009 Annuity payments. Tax act online 2009   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Tax act online 2009 For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Tax act online 2009 For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Tax act online 2009 For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Tax act online 2009 Death benefits. Tax act online 2009    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Tax act online 2009 If you choose to receive an annuity, the payments are subject to tax as described above. Tax act online 2009 If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Tax act online 2009 See Survivors and Beneficiaries , later. Tax act online 2009 Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Tax act online 2009 If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Tax act online 2009 You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Tax act online 2009 You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Tax act online 2009 Your 457(b) plan may have a designated Roth account option. Tax act online 2009 If so, you may be able to roll over amounts to the designated Roth account or make contributions. Tax act online 2009 Elective deferrals to a designated Roth account are included in your income. Tax act online 2009 Qualified distributions (explained later) are not included in your income. Tax act online 2009 See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Tax act online 2009 This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Tax act online 2009 For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Tax act online 2009 Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Tax act online 2009 Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Tax act online 2009 Nonelective deferred compensation plans for nonemployees (independent contractors). Tax act online 2009 Deferred compensation plans maintained by churches. Tax act online 2009 Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Tax act online 2009 An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Tax act online 2009 Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Tax act online 2009 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. Tax act online 2009 Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Tax act online 2009 You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Tax act online 2009 For information on this credit, see Publication 524. Tax act online 2009 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Tax act online 2009 Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Tax act online 2009 Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Tax act online 2009 For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Tax act online 2009 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. Tax act online 2009 The premiums can be for coverage for you, your spouse, or dependents. Tax act online 2009 The distribution must be made directly from the plan to the insurance provider. Tax act online 2009 You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Tax act online 2009 You can only make this election for amounts that would otherwise be included in your income. Tax act online 2009 The amount excluded from your income cannot be used to claim a medical expense deduction. Tax act online 2009 An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Tax act online 2009 If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Tax act online 2009 The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Tax act online 2009 Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax act online 2009 Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Tax act online 2009 Enter “PSO” next to the appropriate line on which you report the taxable amount. Tax act online 2009 If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Tax act online 2009 Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Tax act online 2009 These categories are treated differently for income tax purposes. Tax act online 2009 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. Tax act online 2009 This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Tax act online 2009 If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Tax act online 2009 S. Tax act online 2009 Railroad Retirement Board (RRB). Tax act online 2009 For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Tax act online 2009 The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Tax act online 2009 It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Tax act online 2009 Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Tax act online 2009 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. Tax act online 2009 (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Tax act online 2009 ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Tax act online 2009 See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Tax act online 2009 Form RRB-1099-R is used for U. Tax act online 2009 S. Tax act online 2009 citizens, resident aliens, and nonresident aliens. Tax act online 2009 Nonresident aliens. Tax act online 2009   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Tax act online 2009 Nonresident aliens are subject to mandatory U. Tax act online 2009 S. Tax act online 2009 tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Tax act online 2009 A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Tax act online 2009 See Tax withholding next for more information. Tax act online 2009   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Tax act online 2009 To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Tax act online 2009 For information on filing requirements for aliens, see Publication 519, U. Tax act online 2009 S. Tax act online 2009 Tax Guide for Aliens. Tax act online 2009 For information on tax treaties between the United States and other countries that may reduce or eliminate U. Tax act online 2009 S. Tax act online 2009 tax on your benefits, see Publication 901, U. Tax act online 2009 S. Tax act online 2009 Tax Treaties. Tax act online 2009 Tax withholding. Tax act online 2009   To request or change your income tax withholding from SSEB payments, U. Tax act online 2009 S. Tax act online 2009 citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Tax act online 2009 To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Tax act online 2009 If you are a nonresident alien or a U. Tax act online 2009 S. Tax act online 2009 citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Tax act online 2009 S. Tax act online 2009 tax withholding. Tax act online 2009 Nonresident U. Tax act online 2009 S. Tax act online 2009 citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Tax act online 2009 S. Tax act online 2009 Help from the RRB. Tax act online 2009   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Tax act online 2009 S. Tax act online 2009 consulate/Embassy if you reside outside the United States. Tax act online 2009 You can visit the RRB on the Internet at www. Tax act online 2009 rrb. Tax act online 2009 gov. Tax act online 2009 Form RRB-1099-R. Tax act online 2009   The following discussion explains the items shown on Form RRB-1099-R. Tax act online 2009 The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Tax act online 2009   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Tax act online 2009   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Tax act online 2009 To determine if any of these rules apply to your benefits, see the discussions about them later. Tax act online 2009   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Tax act online 2009 Use distribution code “7” if you are asked for a distribution code. Tax act online 2009 Distribution codes are not shown on Form RRB-1099-R. Tax act online 2009   There are three copies of this form. Tax act online 2009 Copy B is to be included with your income tax return if federal income tax is withheld. Tax act online 2009 Copy C is for your own records. Tax act online 2009 Copy 2 is filed with your state, city, or local income tax return, when required. Tax act online 2009 See the illustrated Copy B (Form RRB-1099-R) above. Tax act online 2009       Each beneficiary will receive his or her own Form RRB-1099-R. Tax act online 2009 If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Tax act online 2009 So that you get your form timely, make sure the RRB always has your current mailing address. Tax act online 2009 Please click here for the text description of the image. Tax act online 2009 Form RRB-1099-R Box 1—Claim Number and Payee Code. Tax act online 2009   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Tax act online 2009 This is the number under which the RRB paid your benefits. Tax act online 2009 Your payee code follows your claim number and is the last number in this box. Tax act online 2009 It is used by the RRB to identify you under your claim number. Tax act online 2009 In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Tax act online 2009 Box 2—Recipient's Identification Number. Tax act online 2009   This is the recipient's U. Tax act online 2009 S. Tax act online 2009 taxpayer identification number. Tax act online 2009 It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Tax act online 2009 If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Tax act online 2009 The Instructions for Form W-7 explain how and when to apply. Tax act online 2009 Box 3—Employee Contributions. Tax act online 2009   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Tax act online 2009 This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Tax act online 2009 (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Tax act online 2009 ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Tax act online 2009 It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Tax act online 2009 If this amount has changed, the change is retroactive. Tax act online 2009 You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Tax act online 2009 If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Tax act online 2009    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Tax act online 2009 Box 4—Contributory Amount Paid. Tax act online 2009   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Tax act online 2009 (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax act online 2009 ) This amount is the total contributory pension paid in 2013. Tax act online 2009 It may be partly taxable and partly tax free or fully taxable. Tax act online 2009 If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Tax act online 2009 Box 5—Vested Dual Benefit. Tax act online 2009   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Tax act online 2009 It is fully taxable. Tax act online 2009 VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax act online 2009 Note. Tax act online 2009 The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Tax act online 2009 Box 6—Supplemental Annuity. Tax act online 2009   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Tax act online 2009 It is fully taxable. Tax act online 2009 Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax act online 2009 Box 7—Total Gross Paid. Tax act online 2009   This is the sum of boxes 4, 5, and 6. Tax act online 2009 The amount represents the total pension paid in 2013. Tax act online 2009 Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax act online 2009 Box 8—Repayments. Tax act online 2009   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Tax act online 2009 The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Tax act online 2009 It only includes repayments of benefits that were taxable to you. Tax act online 2009 This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Tax act online 2009 If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Tax act online 2009 For more information about repayments, see Repayment of benefits received in an earlier year , later. Tax act online 2009    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Tax act online 2009 Box 9—Federal Income Tax Withheld. Tax act online 2009   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Tax act online 2009 Include this on your income tax return as tax withheld. Tax act online 2009 If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Tax act online 2009 Determine the total amount of U. Tax act online 2009 S. Tax act online 2009 federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Tax act online 2009 Box 10—Rate of Tax. Tax act online 2009   If you are taxed as a U. Tax act online 2009 S. Tax act online 2009 citizen or resident alien, this box does not apply to you. Tax act online 2009 If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Tax act online 2009 If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Tax act online 2009 Box 11—Country. Tax act online 2009   If you are taxed as a U. Tax act online 2009 S. Tax act online 2009 citizen or resident alien, this box does not apply to you. Tax act online 2009 If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Tax act online 2009 If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Tax act online 2009 Box 12—Medicare Premium Total. Tax act online 2009   This is for information purposes only. Tax act online 2009 The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Tax act online 2009 Medicare premium refunds are not included in the Medicare total. Tax act online 2009 The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Tax act online 2009 However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Tax act online 2009 If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Tax act online 2009 Repayment of benefits received in an earlier year. Tax act online 2009   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Tax act online 2009   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Tax act online 2009 The 2%-of-adjusted-gross-income limit applies to this deduction. Tax act online 2009 You cannot take this deduction if you file Form 1040A. Tax act online 2009    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Tax act online 2009 For more information, see Repayments in Publication 525. Tax act online 2009 Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Tax act online 2009 However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Tax act online 2009 (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Tax act online 2009 ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Tax act online 2009 See Estimated tax , later. Tax act online 2009 The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Tax act online 2009 For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Tax act online 2009 There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Tax act online 2009 Choosing no withholding. Tax act online 2009   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Tax act online 2009 You can make this choice on Form W-4P for periodic and nonperiodic payments. Tax act online 2009 This choice generally remains in effect until you revoke it. Tax act online 2009   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Tax act online 2009   To choose not to have tax withheld, a U. Tax act online 2009 S. Tax act online 2009 citizen or resident alien must give the payer a home address in the United States or its possessions. Tax act online 2009 Without that address, the payer must withhold tax. Tax act online 2009 For example, the payer has to withhold tax if the recipient has provided a U. Tax act online 2009 S. Tax act online 2009 address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Tax act online 2009 S. Tax act online 2009 home address. Tax act online 2009   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Tax act online 2009 S. Tax act online 2009 citizen, a U. Tax act online 2009 S. Tax act online 2009 resident alien, or someone who left the country to avoid tax. Tax act online 2009 But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Tax act online 2009 This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Tax act online 2009 For details, get Publication 519. Tax act online 2009 Periodic payments. Tax act online 2009   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Tax act online 2009 Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Tax act online 2009 You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Tax act online 2009 If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Tax act online 2009   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Tax act online 2009   You must file a new withholding certificate to change the amount of withholding. Tax act online 2009 Nonperiodic distributions. Tax act online 2009    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Tax act online 2009 You can also ask the payer to withhold an additional amount using Form W-4P. Tax act online 2009 The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Tax act online 2009 Eligible rollover distribution. Tax act online 2009    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Tax act online 2009 You cannot choose not to have tax withheld from an eligible rollover distribution. Tax act online 2009 However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Tax act online 2009 For more information about eligible rollover distributions, see Rollovers , later. Tax act online 2009 Estimated tax. Tax act online 2009   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Tax act online 2009 Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Tax act online 2009 If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Tax act online 2009 For more information, get Publication 505, Tax Withholding and Estimated Tax. Tax act online 2009 In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Tax act online 2009 See Publication 915. Tax act online 2009 You can choose to have income tax withheld from those benefits. Tax act online 2009 Use Form W-4V to make this choice. Tax act online 2009 Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Tax act online 2009 If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Tax act online 2009 Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Tax act online 2009 In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Tax act online 2009 To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Tax act online 2009 This includes the amounts your employer contributed that were taxable to you when paid. Tax act online 2009 (However, see Foreign employment contributions , later. Tax act online 2009 ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Tax act online 2009 It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Tax act online 2009 From this total cost you must subtract the following amounts. Tax act online 2009 Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Tax act online 2009 Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Tax act online 2009 If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Tax act online 2009 (See Simplified Method , later, for information on its required use. Tax act online 2009 ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Tax act online 2009 (See General Rule , later, for information on its use. Tax act online 2009 ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Tax act online 2009 For more information, see Publication 939. Tax act online 2009 The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Tax act online 2009 Form 1099-R. Tax act online 2009 If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Tax act online 2009 Annuity starting date defined. Tax act online 2009   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Tax act online 2009 Example. Tax act online 2009 On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Tax act online 2009 The annuity starting date is July 1. Tax act online 2009 This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Tax act online 2009 Designated Roth accounts. Tax act online 2009   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Tax act online 2009 Your cost will also include any in-plan Roth rollovers you included in income. Tax act online 2009 Foreign employment contributions. Tax act online 2009   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Tax act online 2009 The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Tax act online 2009 Foreign employment contributions while a nonresident alien. Tax act online 2009   In determining your cost, special rules apply if you are a U. Tax act online 2009 S. Tax act online 2009 citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Tax act online 2009 Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Tax act online 2009 Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Tax act online 2009 Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Tax act online 2009 These payments are also known as amounts received as an annuity. Tax act online 2009 If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Tax act online 2009 In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Tax act online 2009 The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Tax act online 2009 Designated Roth accounts. Tax act online 2009   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Tax act online 2009 This applies to both your cost in the account and income earned on that account. Tax act online 2009 A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Tax act online 2009   If the distribution is not a qualified distribution, the rules discussed in this section apply. Tax act online 2009 The designated Roth account is treated as a separate contract. Tax act online 2009 Period of participation. Tax act online 2009   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Tax act online 2009 Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Tax act online 2009   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Tax act online 2009   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Tax act online 2009 This is known as an in-plan Roth rollover. Tax act online 2009 For more details, see In-plan Roth rollovers , later. Tax act online 2009 Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Tax act online 2009 You did not pay anything or are not considered to have paid anything for your pension or annuity. Tax act online 2009 Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Tax act online 2009 Your employer did not withhold contributions from your salary. Tax act online 2009 You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Tax act online 2009 Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Tax act online 2009 You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax act online 2009 Deductible voluntary employee contributions. Tax act online 2009   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Tax act online 2009 Accumulated deductible voluntary employee contributions include net earnings on the contributions. Tax act online 2009 If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Tax act online 2009 Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Tax act online 2009 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. Tax act online 2009 The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Tax act online 2009 You figure the tax-free part of the payment using one of the following methods. Tax act online 2009 Simplified Method. Tax act online 2009 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). Tax act online 2009 You cannot use this method if your annuity is paid under a nonqualified plan. Tax act online 2009 General Rule. Tax act online 2009 You must use this method if your annuity is paid under a nonqualified plan. Tax act online 2009 You generally cannot use this method if your annuity is paid under a qualified plan. Tax act online 2009 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. Tax act online 2009 If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Tax act online 2009 Qualified plan annuity starting before November 19, 1996. Tax act online 2009   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Tax act online 2009 If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Tax act online 2009 If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Tax act online 2009 Exclusion limit. Tax act online 2009   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Tax act online 2009 Once your annuity starting date is determined, it does not change. Tax act online 2009 If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Tax act online 2009 That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Tax act online 2009 Exclusion limited to cost. Tax act online 2009   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Tax act online 2009 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. Tax act online 2009 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax act online 2009 Example 1. Tax act online 2009 Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Tax act online 2009 The total cost of your annuity is $12,000. Tax act online 2009 Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Tax act online 2009 After that, your annuity payments are generally fully taxable. Tax act online 2009 Example 2. Tax act online 2009 The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Tax act online 2009 You have recovered tax free only $9,600 (8 × $1,200) of your cost. Tax act online 2009 An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Tax act online 2009 Exclusion not limited to cost. Tax act online 2009   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Tax act online 2009 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. Tax act online 2009 The total exclusion may be more than your cost. Tax act online 2009 Simplified Method 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. Tax act online 2009 For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Tax act online 2009 For any other annuity, this number is the number of monthly annuity payments under the contract. Tax act online 2009 Who must use the Simplified Method. Tax act online 2009   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Tax act online 2009 You receive your pension or annuity payments from any of the following plans. Tax act online 2009 A qualified employee plan. Tax act online 2009 A qualified employee annuity. Tax act online 2009 A tax-sheltered annuity plan (403(b) plan). Tax act online 2009 On your annuity starting date, at least one of the following conditions applies to you. Tax act online 2009 You are under age 75. Tax act online 2009 You are entitled to less than 5 years of guaranteed payments. Tax act online 2009 Guaranteed payments. Tax act online 2009   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. Tax act online 2009 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. Tax act online 2009 Annuity starting before November 19, 1996. Tax act online 2009   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Tax act online 2009 You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Tax act online 2009 Who cannot use the Simplified Method. Tax act online 2009   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Tax act online 2009 See General Rule , later. Tax act online 2009 How to use the Simplified Method. Tax act online 2009    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Tax act online 2009 Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Tax act online 2009   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Tax act online 2009 How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Tax act online 2009 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. Tax act online 2009    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. Tax act online 2009 Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Tax act online 2009 Single-life annuity. Tax act online 2009   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. Tax act online 2009 Enter on line 3 the number shown for your age on your annuity starting date. Tax act online 2009 This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Tax act online 2009 Multiple-lives annuity. Tax act online 2009   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. Tax act online 2009 Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Tax act online 2009 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. Tax act online 2009 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. Tax act online 2009 Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Tax act online 2009   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Tax act online 2009 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. Tax act online 2009 This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Tax act online 2009 Fixed-period annuity. Tax act online 2009   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. Tax act online 2009 Line 6. Tax act online 2009   The amount on line 6 should include all amounts that could have been recovered in prior years. Tax act online 2009 If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Tax act online 2009 Example. Tax act online 2009 Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Tax act online 2009 Bill's annuity starting date is January 1, 2013. Tax act online 2009 The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Tax act online 2009 Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Tax act online 2009 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. Tax act online 2009 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. Tax act online 2009 Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Tax act online 2009 His completed worksheet is shown later. Tax act online 2009 Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Tax act online 2009 Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Tax act online 2009 The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Tax act online 2009 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. Tax act online 2009 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax act online 2009 Worksheet A. Tax act online 2009 Simplified Method Worksheet for Bill Smith 1. Tax act online 2009 Enter the total pension or annuity payments received this year. Tax act online 2009 Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Tax act online 2009 $14,400 2. Tax act online 2009 Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Tax act online 2009 * See Cost (Investment in the Contract) , earlier 2. Tax act online 2009 31,000   Note. Tax act online 2009 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). Tax act online 2009 Otherwise, go to line 3. Tax act online 2009     3. Tax act online 2009 Enter the appropriate number from Table 1 below. Tax act online 2009 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. Tax act online 2009 310 4. Tax act online 2009 Divide line 2 by the number on line 3 4. Tax act online 2009 100 5. Tax act online 2009 Multiply line 4 by the number of months for which this year's payments were made. Tax act online 2009 If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Tax act online 2009 Otherwise, go to line 6 5. Tax act online 2009 1,200 6. Tax act online 2009 Enter any amount previously recovered tax free in years after 1986. Tax act online 2009 This is the amount shown on line 10 of your worksheet for last year 6. Tax act online 2009 -0- 7. Tax act online 2009 Subtract line 6 from line 2 7. Tax act online 2009 31,000 8. Tax act online 2009 Enter the smaller of line 5 or line 7 8. Tax act online 2009 1,200 9. Tax act online 2009 Taxable amount for year. Tax act online 2009 Subtract line 8 from line 1. Tax act online 2009 Enter the result, but not less than zero. Tax act online 2009 Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Tax act online 2009 Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Tax act online 2009 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 9. Tax act online 2009 $13,200 10. Tax act online 2009 Was your annuity starting date before 1987? □ Yes. Tax act online 2009 STOP. Tax act online 2009 Do not complete the rest of this worksheet. Tax act online 2009  ☑ No. Tax act online 2009 Add lines 6 and 8. Tax act online 2009 This is the amount you have recovered tax free through 2013. Tax act online 2009 You will need this number if you need to fill out this worksheet next year 10. Tax act online 2009 1,200 11. Tax act online 2009 Balance of cost to be recovered. Tax act online 2009 Subtract line 10 from line 2. Tax act online 2009 If zero, you will not have to complete this worksheet next year. Tax act online 2009 The payments you receive next year will generally be fully taxable 11. Tax act online 2009 $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Tax act online 2009           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Tax act online 2009 . Tax act online 2009 . Tax act online 2009 BEFORE November 19, 1996, enter on line 3. Tax act online 2009 . Tax act online 2009 . Tax act online 2009 AFTER November 18, 1996, enter on line 3. Tax act online 2009 . Tax act online 2009 . Tax act online 2009     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Tax act online 2009 . Tax act online 2009 . Tax act online 2009 THEN enter on line 3. Tax act online 2009 . Tax act online 2009 . Tax act online 2009     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Tax act online 2009   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Tax act online 2009 Figure your share by taking the following steps. Tax act online 2009 Complete your worksheet through line 4 to figure the monthly tax-free amount. Tax act online 2009 Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Tax act online 2009 Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Tax act online 2009 The result is your share of the monthly tax-free amount. Tax act online 2009   Replace the amount on line 4 of the worksheet with the result in (3) above. Tax act online 2009 Enter that amount on line 4 of your worksheet each year. Tax act online 2009 General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Tax act online 2009 Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Tax act online 2009 To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Tax act online 2009 Who must use the General Rule. Tax act online 2009   You 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 your annuity payments are guaranteed for at least 5 years. Tax act online 2009 Annuity starting before November 19, 1996. Tax act online 2009   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Tax act online 2009 You also had to use it for any fixed-period annuity. Tax act online 2009 If you did not have to use the General Rule, you could have chosen to use it. Tax act online 2009 If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Tax act online 2009   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. Tax act online 2009 Who cannot use the General Rule. Tax act online 2009   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Tax act online 2009 See Simplified Method , earlier. Tax act online 2009 More information. Tax act online 2009   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Tax act online 2009 Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Tax act online 2009 Nonperiodic distributions are also known as amounts not received as an annuity. Tax act online 2009 They include all payments other than periodic payments and corrective distributions. Tax act online 2009 For example, the following items are treated as nonperiodic distributions. Tax act online 2009 Cash withdrawals. Tax act online 2009 Distributions of current earnings (dividends) on your investment. Tax act online 2009 However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Tax act online 2009 Certain loans. Tax act online 2009 See Loans Treated as Distributions , later. Tax act online 2009 The value of annuity contracts transferred without full and adequate consideration. Tax act online 2009 See Transfers of Annuity Contracts , later. Tax act online 2009 Corrective distributions of excess plan contributions. Tax act online 2009   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Tax act online 2009 To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Tax act online 2009 Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Tax act online 2009 It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax act online 2009    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Tax act online 2009   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Tax act online 2009 Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Tax act online 2009 If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Tax act online 2009 If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Tax act online 2009 You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Tax act online 2009 See Rollovers, later. Tax act online 2009 If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Tax act online 2009 See Lump-Sum Distributions, later. Tax act online 2009 Annuity starting date. Tax act online 2009   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Tax act online 2009 Distributions of employer securities. Tax act online 2009    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Tax act online 2009 The NUA is the net increase in the securities' value while they were in the trust. Tax act online 2009 This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Tax act online 2009   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Tax act online 2009    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Tax act online 2009    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und
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IRS Seeks Applications for the Electronic Tax Administration Advisory Committee

IR-2014-25 March 7, 2014

WASHINGTON — The Internal Revenue Service is opening the nomination and application process for membership on the Electronic Tax Administration Advisory Committee (ETAAC). The deadline for submitting applications is April 21, 2014.

ETAAC was established as required by the Internal Revenue Service Restructuring and Reform Act of 1998. The purpose of the ETAAC is to provide continued input into the development and implementation of the agency’s strategy for electronic tax administration as well as to provide an organized public forum for the discussion of issues in electronic tax administration.

Nominations of qualified individuals may be made by letter and received from individuals or professional associations. Applicants should complete the ETAAC application including a short statement of interest and a resume. Be sure to describe and document your qualifications, past and current affiliations, and dealings in electronic tax administration. A notice published in the Federal Register contains more details about the ETAAC and the application process.

Members are approved by Treasury to serve three-year terms, beginning in the fall of 2014. Members must pass an IRS tax compliance check and Federal Bureau of Investigation (FBI) background investigation and may not be federally registered lobbyists.

Questions about the application process can be sent to etaac@irs.gov.

 

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Page Last Reviewed or Updated: 07-Mar-2014

The Tax Act Online 2009

Tax act online 2009 4. Tax act online 2009   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Tax act online 2009 Line of business. Tax act online 2009 Examples. Tax act online 2009 Improvement of business conditions. Tax act online 2009 Exception for local legislation. Tax act online 2009 De minimis exception. Tax act online 2009 Grass roots lobbying. Tax act online 2009 501(c)(7) - Social and Recreation ClubsLimited membership. Tax act online 2009 Support. Tax act online 2009 Facilities open to public. Tax act online 2009 Gross receipts from nonmembership sources. Tax act online 2009 Gross receipts. Tax act online 2009 Nontraditional activities. Tax act online 2009 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Tax act online 2009 Losses and expenses. Tax act online 2009 Distributions of proceeds. Tax act online 2009 The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Tax act online 2009 Perpetual care organization. Tax act online 2009 Care of individual plots. Tax act online 2009 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Tax act online 2009 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Tax act online 2009 Waiver of payment of income. Tax act online 2009 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Tax act online 2009 Section 501(c)(3) organizations are covered in chapter 3 of this publication. Tax act online 2009 The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Tax act online 2009 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Tax act online 2009 The discussion that follows describes the information you must provide when applying. Tax act online 2009 For application procedures, see chapter 1. Tax act online 2009 To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Tax act online 2009 In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Tax act online 2009 If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Tax act online 2009 See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Tax act online 2009 Examples. Tax act online 2009   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Tax act online 2009 Nonprofit operation. Tax act online 2009   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Tax act online 2009 However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Tax act online 2009 Social welfare. Tax act online 2009   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Tax act online 2009   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Tax act online 2009 It therefore does not qualify as a section 501(c)(4) organization. Tax act online 2009 Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Tax act online 2009 However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Tax act online 2009 Political activity. Tax act online 2009   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Tax act online 2009 However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Tax act online 2009 See the discussion in chapter 2 under Political Organization Income Tax Return . Tax act online 2009 Social or recreational activity. Tax act online 2009   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Tax act online 2009 Retirement benefit program. Tax act online 2009   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Tax act online 2009 It may qualify under another paragraph of section 501(c) depending on all the facts. Tax act online 2009   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Tax act online 2009 Tax treatment of donations. Tax act online 2009   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Tax act online 2009 Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Tax act online 2009 They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Tax act online 2009 However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Tax act online 2009 for more information. Tax act online 2009 For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Tax act online 2009 gov. Tax act online 2009 Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Tax act online 2009 Volunteer fire companies. Tax act online 2009   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Tax act online 2009   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Tax act online 2009 In this event, your organization should file Form 1023. Tax act online 2009 Homeowners' associations. Tax act online 2009   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Tax act online 2009 The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Tax act online 2009 Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Tax act online 2009 Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Tax act online 2009   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Tax act online 2009 It also must show that it does not engage in exterior maintenance of private homes. Tax act online 2009   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Tax act online 2009 Other organizations. Tax act online 2009   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Tax act online 2009 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Tax act online 2009 You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Tax act online 2009 In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Tax act online 2009 Submit any additional information that may be required, as described in this section. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Tax act online 2009 However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Tax act online 2009 For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Tax act online 2009 Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Tax act online 2009 To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Tax act online 2009 In addition, no net earnings of the organization can inure to the benefit of any member. Tax act online 2009 Composition of membership. Tax act online 2009   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Tax act online 2009 You must show in your application that your organization has the purposes described in the preceding paragraph. Tax act online 2009 These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Tax act online 2009 Benefits to members. Tax act online 2009   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Tax act online 2009 However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Tax act online 2009   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Tax act online 2009 gov. Tax act online 2009 Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Tax act online 2009 For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Tax act online 2009 The term harvesting, in this case, includes fishing and related pursuits. Tax act online 2009 Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Tax act online 2009 When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Tax act online 2009 The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Tax act online 2009 The following list contains some examples of activities that show an agricultural or horticultural purpose. Tax act online 2009 Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Tax act online 2009 Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Tax act online 2009 Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Tax act online 2009 Guarding the purity of a specific breed of livestock. Tax act online 2009 Encouraging improvements in the production of fish on privately owned fish farms. Tax act online 2009 Negotiating with processors for the price to be paid to members for their crops. Tax act online 2009 For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Tax act online 2009 gov. Tax act online 2009 501(c)(6) - Business Leagues, etc. Tax act online 2009 If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Tax act online 2009 For a discussion of the procedure to follow, see chapter 1. Tax act online 2009 Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Tax act online 2009 In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Tax act online 2009 It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Tax act online 2009 A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Tax act online 2009 Trade associations and professional associations are considered business leagues. Tax act online 2009 Chamber of commerce. Tax act online 2009   A chamber of commerce usually is composed of the merchants and traders of a city. Tax act online 2009 Board of trade. Tax act online 2009   A board of trade often consists of persons engaged in similar lines of business. Tax act online 2009 For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Tax act online 2009   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Tax act online 2009 Real estate board. Tax act online 2009   A real estate board consists of members interested in improving the business conditions in the real estate field. Tax act online 2009 It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Tax act online 2009 Professional football leagues. Tax act online 2009   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Tax act online 2009 They are exempt whether or not they administer a pension fund for football players. Tax act online 2009 General purpose. Tax act online 2009   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Tax act online 2009 It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Tax act online 2009 Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Tax act online 2009 Line of business. Tax act online 2009   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Tax act online 2009 It does not include a group composed of businesses that market a particular brand within an industry. Tax act online 2009 Common business interest. Tax act online 2009   A common business interest of all members of the organization must be established by the application documents. Tax act online 2009 Examples. Tax act online 2009   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Tax act online 2009 Improvement of business conditions. Tax act online 2009   Generally, this must be shown to be the purpose of the organization. Tax act online 2009 This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Tax act online 2009 Stock or commodity exchange. Tax act online 2009   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Tax act online 2009 Legislative activity. Tax act online 2009   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Tax act online 2009 Deduction not allowed for dues used for political or legislative activities. Tax act online 2009   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Tax act online 2009 Influencing legislation. Tax act online 2009 Participating or intervening in a political campaign for, or against, any candidate for public office. Tax act online 2009 Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Tax act online 2009 Communicating directly with certain executive branch officials to try to influence their official actions or positions. Tax act online 2009 See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Tax act online 2009 Exception for local legislation. Tax act online 2009   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Tax act online 2009 Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Tax act online 2009 De minimis exception. Tax act online 2009   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Tax act online 2009 Grass roots lobbying. Tax act online 2009   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Tax act online 2009 Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Tax act online 2009 They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Tax act online 2009   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Tax act online 2009 gov. Tax act online 2009 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Tax act online 2009 In applying for recognition of exemption, you should submit the information described in this section. Tax act online 2009 Also see chapter 1 for the procedures to follow. Tax act online 2009 Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Tax act online 2009 Discrimination prohibited. Tax act online 2009   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Tax act online 2009   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Tax act online 2009 Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Tax act online 2009 Private benefit prohibited. Tax act online 2009   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Tax act online 2009 For purposes of this requirement, it is not necessary that net earnings be actually distributed. Tax act online 2009 Even undistributed earnings can benefit members. Tax act online 2009 Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Tax act online 2009 However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Tax act online 2009 Purposes. Tax act online 2009   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Tax act online 2009 You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Tax act online 2009   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Tax act online 2009 A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Tax act online 2009   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Tax act online 2009 For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Tax act online 2009 Limited membership. Tax act online 2009   The membership in a social club must be limited. Tax act online 2009 To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Tax act online 2009   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Tax act online 2009 Corporate members of a club are not the kind of members contemplated by the law. Tax act online 2009 Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Tax act online 2009 See Gross receipts from nonmembership sources , later. Tax act online 2009 Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Tax act online 2009   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Tax act online 2009 However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Tax act online 2009 Support. Tax act online 2009   In general, your club should be supported solely by membership fees, dues, and assessments. Tax act online 2009 However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Tax act online 2009 Business activities. Tax act online 2009   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Tax act online 2009 However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Tax act online 2009 Facilities open to public. Tax act online 2009   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Tax act online 2009 This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Tax act online 2009 Gross receipts from nonmembership sources. Tax act online 2009   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Tax act online 2009 Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Tax act online 2009 Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Tax act online 2009 If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Tax act online 2009 Gross receipts. Tax act online 2009   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Tax act online 2009 These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Tax act online 2009 Receipts do not include initiation fees and capital contributions. Tax act online 2009 Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Tax act online 2009 Nontraditional activities. Tax act online 2009   Activities conducted by a social club need to further its exempt purposes. Tax act online 2009 Traditional business activities are those that further a social club's exempt purposes. Tax act online 2009 Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Tax act online 2009 Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Tax act online 2009 Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Tax act online 2009 Fraternity foundations. Tax act online 2009   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Tax act online 2009 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Tax act online 2009 The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Tax act online 2009 , purposes. Tax act online 2009 The procedures to follow in applying for recognition of exemption are described in chapter 1. Tax act online 2009 If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Tax act online 2009 If so, your organization need not apply for individual recognition of exemption. Tax act online 2009 For more information, see Group Exemption Letter in chapter 1 of this publication. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Tax act online 2009 Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Tax act online 2009 The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Tax act online 2009 Lodge system. Tax act online 2009   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Tax act online 2009 Payment of benefits. Tax act online 2009   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Tax act online 2009 An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Tax act online 2009   The benefits must be limited to members and their dependents. Tax act online 2009 If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Tax act online 2009 Whole-life insurance. Tax act online 2009   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Tax act online 2009 Reinsurance pool. Tax act online 2009   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Tax act online 2009 Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Tax act online 2009 The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Tax act online 2009 S. Tax act online 2009 , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Tax act online 2009 The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Tax act online 2009 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Tax act online 2009 Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Tax act online 2009 Chapter 1 describes the procedures to follow in applying for exemption. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Tax act online 2009 Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Tax act online 2009 A local employees' association must apply for recognition of exemption by filing Form 1024. Tax act online 2009 The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Tax act online 2009 A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Tax act online 2009 Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Tax act online 2009 Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Tax act online 2009 The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Tax act online 2009 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Tax act online 2009 Note. Tax act online 2009 Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Tax act online 2009 Notice requirement. Tax act online 2009   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Tax act online 2009 The organization gives notice by filing Form 1024. Tax act online 2009 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Tax act online 2009 An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Tax act online 2009 Membership. Tax act online 2009   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Tax act online 2009 This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Tax act online 2009   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Tax act online 2009 For example, the owner of a business whose employees are members of the association can be a member. Tax act online 2009 An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Tax act online 2009 Employees. Tax act online 2009   Employees include individuals who became entitled to membership because they are or were employees. Tax act online 2009 For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Tax act online 2009   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Tax act online 2009 Conversely, membership is involuntary if the designation as a member is due to employee status. Tax act online 2009 However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Tax act online 2009 An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Tax act online 2009 Payment of benefits. Tax act online 2009   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Tax act online 2009 The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Tax act online 2009 Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Tax act online 2009 Nondiscrimination requirements. Tax act online 2009   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Tax act online 2009 However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Tax act online 2009   A plan meets the nondiscrimination requirements only if both of the following statements are true. Tax act online 2009 Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Tax act online 2009 The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Tax act online 2009 A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Tax act online 2009   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Tax act online 2009 This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Tax act online 2009   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Tax act online 2009 The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Tax act online 2009 For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Tax act online 2009 Excluded employees. Tax act online 2009   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Tax act online 2009 These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Tax act online 2009 Highly compensated individual. Tax act online 2009   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Tax act online 2009 Go to IRS. Tax act online 2009 gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Tax act online 2009 However, the employer can choose not to have (3) apply. Tax act online 2009 Aggregation rules. Tax act online 2009   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Tax act online 2009 Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Tax act online 2009 Leased employees are treated as employees of the recipient. Tax act online 2009 One employee. Tax act online 2009   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Tax act online 2009 Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Tax act online 2009 The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Tax act online 2009 A conformed copy of the plan of which the trust is a part should be attached to the application. Tax act online 2009 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Tax act online 2009 Note. Tax act online 2009 Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Tax act online 2009 Notice requirement. Tax act online 2009   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Tax act online 2009 The organization gives notice by filing Form 1024. Tax act online 2009 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Tax act online 2009 An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Tax act online 2009 Types of payments. Tax act online 2009   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Tax act online 2009 In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Tax act online 2009 Diversion of funds. Tax act online 2009   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Tax act online 2009 Discrimination in benefits. Tax act online 2009   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Tax act online 2009 However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Tax act online 2009 Prohibited transactions and exemption. Tax act online 2009   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Tax act online 2009 It must file the claim on Form 1024. Tax act online 2009 The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Tax act online 2009 An authorized principal officer of your organization must make this declaration under the penalties of perjury. Tax act online 2009   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Tax act online 2009 However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Tax act online 2009 Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Tax act online 2009 For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Tax act online 2009 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Tax act online 2009 Benevolent life insurance associations of a purely local character and like organizations. Tax act online 2009 Mutual ditch or irrigation companies and like organizations. Tax act online 2009 Mutual or cooperative telephone companies and like organizations. Tax act online 2009 A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Tax act online 2009 The information to be provided upon application by each of these organizations is described in this section. Tax act online 2009 For information as to the procedures to follow in applying for exemption, see chapter 1. Tax act online 2009 General requirements. Tax act online 2009   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Tax act online 2009 They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Tax act online 2009 Mutual character. Tax act online 2009   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Tax act online 2009 They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Tax act online 2009 To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Tax act online 2009   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Tax act online 2009 Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Tax act online 2009 The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Tax act online 2009 Membership. Tax act online 2009   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Tax act online 2009 In a stock company, the stockholders are members. Tax act online 2009 However, a mutual life insurance organization cannot have policyholders other than its members. Tax act online 2009 Losses and expenses. Tax act online 2009   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Tax act online 2009 Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Tax act online 2009 If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Tax act online 2009 Distributions of proceeds. Tax act online 2009   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Tax act online 2009 Such distribution represents a refund in the costs of services rendered to the member. Tax act online 2009 The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Tax act online 2009 Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Tax act online 2009 Mutual or cooperative telephone company. Tax act online 2009   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Tax act online 2009 Mutual or cooperative electric company. Tax act online 2009   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Tax act online 2009   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Tax act online 2009 Qualified pole rental. Tax act online 2009   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Tax act online 2009   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Tax act online 2009 The 85% requirement is applied on the basis of an annual accounting period. Tax act online 2009 Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Tax act online 2009 Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Tax act online 2009 Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Tax act online 2009 Example. Tax act online 2009   The books of an organization reflect the following for the calendar year. Tax act online 2009 Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Tax act online 2009   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Tax act online 2009   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Tax act online 2009   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Tax act online 2009 Tax treatment of donations. Tax act online 2009   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Tax act online 2009 Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Tax act online 2009 If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Tax act online 2009 To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Tax act online 2009 If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Tax act online 2009 A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Tax act online 2009 A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Tax act online 2009 Organizations similar to local benevolent life insurance companies. Tax act online 2009   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Tax act online 2009 However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Tax act online 2009 Burial and funeral benefit insurance organization. Tax act online 2009   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Tax act online 2009 An organization that provides its benefits in the form of supplies and service is not a life insurance company. Tax act online 2009 Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Tax act online 2009 Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Tax act online 2009 They can serve noncontiguous areas. Tax act online 2009 Like organization. Tax act online 2009   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Tax act online 2009 Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Tax act online 2009 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Tax act online 2009 For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Tax act online 2009 A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Tax act online 2009 A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Tax act online 2009 The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Tax act online 2009 If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Tax act online 2009 Operating a mortuary is not permitted. Tax act online 2009 However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Tax act online 2009 How income can be used. Tax act online 2009   You should show that your organization's earnings are or will be used only in one or more of the following ways. Tax act online 2009 To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Tax act online 2009 To buy cemetery property. Tax act online 2009 To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Tax act online 2009 No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Tax act online 2009 Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Tax act online 2009 Buying cemetery property. Tax act online 2009   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Tax act online 2009 You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Tax act online 2009   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Tax act online 2009 Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not