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Tax Amendment

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Tax Amendment

Tax amendment Publication 503 - Main Content Table of Contents Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Tax amendment Employment Taxes for Household Employers How To Get Tax HelpLow Income Taxpayer Clinics Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ, and meet all the following tests. Tax amendment The care must be for one or more qualifying persons who are identified on Form 2441. Tax amendment (See Qualifying Person Test. Tax amendment ) You (and your spouse if filing jointly) must have earned income during the year. Tax amendment (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Tax amendment ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Tax amendment (See Work-Related Expense Test, later. Tax amendment ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Tax amendment If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. Tax amendment You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. Tax amendment See Payments to Relatives or Dependents under Work-Related Expense Test, later. Tax amendment Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Tax amendment If you are married, you must file a joint return, unless an exception applies to you. Tax amendment See Joint Return Test, later. Tax amendment You must identify the care provider on your tax return. Tax amendment (See Provider Identification Test, later. Tax amendment ) If you exclude or deduct dependent care benefits provided by a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). Tax amendment (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. Tax amendment See Reduced Dollar Limit under How To Figure the Credit, later. Tax amendment ) These tests are presented in Figure A and are also explained in detail in this publication. Tax amendment Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Tax amendment A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart , later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Tax amendment Dependent defined. Tax amendment   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Tax amendment To be your dependent, a person must be your qualifying child (or your qualifying relative). Tax amendment Qualifying child. Tax amendment   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Tax amendment More information. Tax amendment   For more information about who is a dependent or a qualifying child, see Publication 501. Tax amendment Physically or mentally not able to care for oneself. Tax amendment   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Tax amendment Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Tax amendment Person qualifying for part of year. Tax amendment   You determine a person's qualifying status each day. Tax amendment For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Tax amendment Also see Yearly limit under Dollar Limit, later. Tax amendment Birth or death of otherwise qualifying person. Tax amendment   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home more than half the time he or she was alive in 2013. Tax amendment Taxpayer identification number. Tax amendment   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Tax amendment If the correct information is not shown, the credit may be reduced or disallowed. Tax amendment Individual taxpayer identification number (ITIN) for aliens. Tax amendment   If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person's ITIN. Tax amendment The ITIN is entered wherever an SSN is requested on a tax return. Tax amendment If the alien does not have an ITIN, he or she must apply for one. Tax amendment See Form W-7, Application for IRS Individual Taxpayer Identification Number, for details. Tax amendment   An ITIN is for tax use only. Tax amendment It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Tax amendment S. Tax amendment law. Tax amendment Adoption taxpayer identification number (ATIN). Tax amendment   If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. Tax amendment File Form W-7A, Application for Taxpayer Identification Number for Pending U. Tax amendment S. Tax amendment Adoptions. Tax amendment Child of divorced or separated parents or parents living apart. Tax amendment   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. Tax amendment   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Tax amendment If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Tax amendment For details and an exception for a parent who works at night, see Publication 501. Tax amendment   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. Tax amendment Please click here for the text description of the image. Tax amendment Figure a. Tax amendment Can you claim the credit Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Tax amendment Earned income. Tax amendment   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Tax amendment A net loss from self-employment reduces earned income. Tax amendment Earned income also includes strike benefits and any disability pay you report as wages. Tax amendment   Generally, only taxable compensation is included. Tax amendment However, you can elect to include nontaxable combat pay in earned income. Tax amendment If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Tax amendment (In other words, if one of you makes the election, the other one can also make it but does not have to. Tax amendment ) Including this income will give you a larger credit only if your (or your spouse's) other earned income is less than the amount entered on line 3 of Form 2441. Tax amendment You should figure your credit both ways and make the election if it gives you a greater tax benefit. Tax amendment    You can choose to include your nontaxable combat pay in earned income when figuring your credit for child and dependent care expenses, even if you choose not to include it in earned income for the earned income credit or the exclusion or deduction for dependent care benefits. Tax amendment Members of certain religious faiths opposed to social security. Tax amendment   This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. Tax amendment These forms are: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized religious groups. Tax amendment   Each form is discussed here in terms of what is or is not earned income for purposes of the child and dependent care credit. Tax amendment For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Tax amendment Form 4361. Tax amendment   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. Tax amendment This includes wages, salaries, tips, and other taxable employee compensation. Tax amendment   However, amounts you received for ministerial duties, but not as an employee, do not count as earned income. Tax amendment Examples include fees for performing marriages and honoraria for delivering speeches. Tax amendment   Any amount you received for work that is not related to your ministerial duties is earned income. Tax amendment Form 4029. Tax amendment   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation are earned income. Tax amendment   However, amounts you received as a self-employed individual do not count as earned income. Tax amendment What is not earned income?   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarships or fellowship grants, except for those reported on Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received, Income of a nonresident alien that is not effectively connected with a U. Tax amendment S. Tax amendment trade or business, or Any amount received for work while an inmate in a penal institution. Tax amendment Rule for student-spouse or spouse not able to care for self. Tax amendment   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. Tax amendment (Your spouse also must live with you for more than half the year. Tax amendment )   If you are filing a joint return, this rule also applies to you. Tax amendment You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. Tax amendment   Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later. Tax amendment   This rule applies to only one spouse for any one month. Tax amendment If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. Tax amendment Full-time student. Tax amendment    You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. Tax amendment You must have been a full-time student for some part of each of 5 calendar months during the year. Tax amendment (The months need not be consecutive. Tax amendment ) School. Tax amendment   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Tax amendment A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax amendment Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Tax amendment Expenses are considered work-related only if both of the following are true. Tax amendment They allow you (and your spouse if filing jointly) to work or look for work. Tax amendment They are for a qualifying person's care. Tax amendment Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Tax amendment If you are married, generally both you and your spouse must work or look for work. Tax amendment One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Tax amendment Your work can be for others or in your own business or partnership. Tax amendment It can be either full time or part time. Tax amendment Work also includes actively looking for work. Tax amendment However, if you do not find a job and have no earned income for the year, you cannot take this credit. Tax amendment See Earned Income Test, earlier. Tax amendment An expense is not considered work-related merely because you had it while you were working. Tax amendment The purpose of the expense must be to allow you to work. Tax amendment Whether your expenses allow you to work or look for work depends on the facts. Tax amendment Example 1. Tax amendment The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Tax amendment Example 2. Tax amendment You work during the day. Tax amendment Your spouse works at night and sleeps during the day. Tax amendment You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Tax amendment Your expenses are considered work-related. Tax amendment Volunteer work. Tax amendment   For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Tax amendment Work for part of year. Tax amendment   If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. Tax amendment For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. Tax amendment However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). Tax amendment Temporary absence from work. Tax amendment   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Tax amendment Instead, you can figure your credit including the expenses you paid for the period of absence. Tax amendment   An absence of 2 weeks or less is a short, temporary absence. Tax amendment An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Tax amendment Example. Tax amendment You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Tax amendment You become ill and miss 4 months of work but receive sick pay. Tax amendment You continue to pay the nanny to care for the children while you are ill. Tax amendment Your absence is not a short, temporary absence, and your expenses are not considered work-related. Tax amendment Part-time work. Tax amendment   If you work part-time, you generally must figure your expenses for each day. Tax amendment However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Tax amendment Any day when you work at least 1 hour is a day of work. Tax amendment Example 1. Tax amendment You work 3 days a week. Tax amendment While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Tax amendment You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Tax amendment Your child attends the center 5 days a week. Tax amendment Your work-related expenses are limited to $150 a week. Tax amendment Example 2. Tax amendment The facts are the same as in Example 1 except the center does not offer a 3-day option. Tax amendment The entire $250 weekly fee may be a work-related expense. Tax amendment Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Tax amendment You do not have to choose the least expensive way of providing the care. Tax amendment The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. Tax amendment Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Tax amendment Expenses for household services qualify if part of the services is for the care of qualifying persons. Tax amendment See Household Services, later. Tax amendment Expenses not for care. Tax amendment   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Tax amendment However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. Tax amendment Otherwise, see the discussion of Expenses partly work-related, later. Tax amendment   Child support payments are not for care and do not qualify for the credit. Tax amendment Education. Tax amendment   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Tax amendment   Expenses to attend kindergarten or a higher grade are not expenses for care. Tax amendment Do not use these expenses to figure your credit. Tax amendment   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Tax amendment   Summer school and tutoring programs are not for care. Tax amendment Example 1. Tax amendment You take your 3-year-old child to a nursery school that provides lunch and a few educational activities as part of its preschool childcare service. Tax amendment The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Tax amendment You can count the total cost when you figure the credit. Tax amendment Example 2. Tax amendment You place your 10-year-old child in a boarding school so you can work full time. Tax amendment Only the part of the boarding school expense that is for the care of your child is a work-related expense. Tax amendment You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Tax amendment You cannot count any part of the amount you pay the school for your child's education. Tax amendment Care outside your home. Tax amendment   You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home. Tax amendment Dependent care center. Tax amendment   You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. Tax amendment   A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. Tax amendment Camp. Tax amendment   The cost of sending your child to an overnight camp is not considered a work-related expense. Tax amendment    The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. Tax amendment Transportation. Tax amendment   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. Tax amendment This includes transportation by bus, subway, taxi, or private car. Tax amendment However, transportation not provided by a care provider is not for the care of a qualifying person. Tax amendment Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. Tax amendment Fees and deposits. Tax amendment   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. Tax amendment However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Tax amendment Example 1. Tax amendment You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. Tax amendment The fee you paid is a work-related expense. Tax amendment Example 2. Tax amendment You placed a deposit with a preschool to reserve a place for your 3-year-old child. Tax amendment You later sent your child to a different preschool and forfeited the deposit. Tax amendment The forfeited deposit is not for care and so is not a work-related expense. Tax amendment Household Services Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. Tax amendment Definition. Tax amendment   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Tax amendment They include the services of a housekeeper, maid, or cook. Tax amendment However, they do not include the services of a chauffeur, bartender, or gardener. Tax amendment Housekeeper. Tax amendment   In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Tax amendment Expenses partly work-related. Tax amendment   If part of an expense is work-related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. Tax amendment To figure your credit, count only the part that is work-related. Tax amendment However, you do not have to divide the expense if only a small part is for other purposes. Tax amendment Example. Tax amendment You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. Tax amendment The housekeeper spends most of the time doing normal household work and spends 30 minutes a day driving you to and from work. Tax amendment You do not have to divide the expenses. Tax amendment You can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. Tax amendment Nor do you have to divide the expenses between the two children, even though the expenses are partly for the 15-year-old child who is not a qualifying person, because the expense is also partly for the care of your 9-year-old child, who is a qualifying person. Tax amendment However, the dollar limit (discussed later) is based on one qualifying person, not two. Tax amendment Meals and lodging provided for housekeeper. Tax amendment   If you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. Tax amendment If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also. Tax amendment Example. Tax amendment To provide lodging to the housekeeper, you move to an apartment with an extra bedroom. Tax amendment You can count the extra rent and utility expenses for the housekeeper's bedroom as work-related. Tax amendment However, if your housekeeper moves into an existing bedroom in your home, you can count only the extra utility expenses as work-related. Tax amendment Taxes paid on wages. Tax amendment   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Tax amendment For more information on a household employer's tax responsibilities, see Employment Taxes for Household Employers, later. Tax amendment Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. Tax amendment However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. Tax amendment Joint Return Test Generally, married couples must file a joint return to take the credit. Tax amendment However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Tax amendment Legally separated. Tax amendment   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Tax amendment You may be eligible to take the credit on your return using head of household filing status. Tax amendment Married and living apart. Tax amendment   You are not considered married and are eligible to take the credit if all the following apply. Tax amendment You file a return apart from your spouse. Tax amendment Your home is the home of a qualifying person for more than half the year. Tax amendment You pay more than half the cost of keeping up your home for the year. Tax amendment Your spouse does not live in your home for the last 6 months of the year. Tax amendment Costs of keeping up a home. Tax amendment   The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. Tax amendment   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Tax amendment   They also do not include the purchase, permanent improvement, or replacement of property. Tax amendment For example, you cannot include the cost of replacing a water heater. Tax amendment However, you can include the cost of repairing a water heater. Tax amendment Death of spouse. Tax amendment   If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. Tax amendment If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's own return. Tax amendment Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Tax amendment Use Form 2441, Part I, to show the information. Tax amendment If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). Tax amendment Information needed. Tax amendment   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Tax amendment    If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Tax amendment If the care provider is an organization, then it is the employer identification number (EIN). Tax amendment   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). Tax amendment In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Tax amendment   If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Tax amendment Getting the information. Tax amendment    You can use Form W-10, Dependent Care Provider's Identification and Certification, to request the required information from the care provider. Tax amendment If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10, including: A copy of the provider's social security card, A copy of the provider's completed Form W-4, Employee's Withholding Allowance Certificate, if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the necessary information. Tax amendment    You should keep this information with your tax records. Tax amendment Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Tax amendment Due diligence. Tax amendment   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Tax amendment However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Tax amendment   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. Tax amendment Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Tax amendment Provider refusal. Tax amendment    If the provider refuses to give you the identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Tax amendment Enter “See Attached Statement” in the columns calling for the information you do not have. Tax amendment Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Tax amendment Be sure to write your name and social security number on this statement. Tax amendment The statement will show that you used due diligence in trying to furnish the necessary information. Tax amendment U. Tax amendment S. Tax amendment citizens and resident aliens living abroad. Tax amendment   If you are living abroad, your care provider may not have, and may not be required to get, a U. Tax amendment S. Tax amendment taxpayer identification number (for example, an SSN or an EIN). Tax amendment If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Tax amendment How To Figure the Credit Your credit is a percentage of your work-related expenses. Tax amendment Your expenses are subject to the earned income limit and the dollar limit. Tax amendment The percentage is based on your adjusted gross income. Tax amendment Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Tax amendment Expenses prepaid in an earlier year. Tax amendment   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Tax amendment Claim the expenses for the later year as if they were actually paid in that later year. Tax amendment Expenses not paid until the following year. Tax amendment   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Tax amendment You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Tax amendment See Payments for prior year's expenses under Amount of Credit, later. Tax amendment If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Tax amendment You may be able to claim a credit for them on your 2014 return. Tax amendment Expenses reimbursed. Tax amendment   If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. Tax amendment Example. Tax amendment You paid work-related expenses of $3,000. Tax amendment You are reimbursed $2,000 by a state social services agency. Tax amendment You can use only $1,000 to figure your credit. Tax amendment Medical expenses. Tax amendment   Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. Tax amendment You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Tax amendment   If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. Tax amendment However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. Tax amendment For information on medical expenses, see Publication 502, Medical and Dental Expenses. Tax amendment    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Tax amendment Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Tax amendment See Reduced Dollar Limit, later. Tax amendment But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Tax amendment Dependent care benefits. Tax amendment    Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. Tax amendment Your salary may have been reduced to pay for these benefits. Tax amendment If you received benefits as an employee, they should be shown in box 10 of your Form W-2, Wage and Tax Statement. Tax amendment See Statement for employee, later. Tax amendment Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Tax amendment   Enter the amount of these benefits on Form 2441, Part III, line 12. Tax amendment Exclusion or deduction. Tax amendment   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Tax amendment Your employer can tell you whether your benefit plan qualifies. Tax amendment To claim the exclusion, you must complete Part III of Form 2441. Tax amendment You cannot use Form 1040EZ. Tax amendment   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Tax amendment Therefore, you would not get an exclusion from wages. Tax amendment Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Tax amendment To claim the deduction, you must use Form 2441. Tax amendment   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Tax amendment   The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. Tax amendment    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. Tax amendment Statement for employee. Tax amendment   Your employer must give you a Form W-2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Tax amendment Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. Tax amendment Effect of exclusion on credit. Tax amendment   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. Tax amendment Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year, if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. Tax amendment Earned income for the purpose of figuring the credit is defined under Earned Income Test, earlier. Tax amendment For purposes of item (2), use your spouse's earned income for the entire year, even if you were married for only part of the year. Tax amendment Example. Tax amendment You remarried on December 3. Tax amendment Your earned income for the year was $18,000. Tax amendment Your new spouse's earned income for the year was $2,000. Tax amendment You paid work-related expenses of $3,000 for the care of your 5-year-old child and qualified to claim the credit. Tax amendment The amount of expenses you use to figure your credit cannot be more than $2,000 (the smaller of your earned income or that of your spouse). Tax amendment Separated spouse. Tax amendment   If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. Tax amendment Use only your income in figuring the earned income limit. Tax amendment Surviving spouse. Tax amendment   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. Tax amendment Community property laws. Tax amendment   Disregard community property laws when you figure earned income for this credit. Tax amendment Self-employment earnings. Tax amendment   If you are self-employed, include your net earnings in earned income. Tax amendment For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from Schedule SE (either Section A or Section B), line 3, minus any deduction for self-employment tax on Form 1040 or Form 1040NR, line 27. Tax amendment Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE. Tax amendment Clergy or church employee. Tax amendment   If you are a member of the clergy or a church employee, see the Instructions for Form 2441 for details. Tax amendment Statutory employee. Tax amendment   If you filed Schedule C (Form 1040) or C-EZ (Form 1040) to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C (Form 1040) or C-EZ (Form 1040). Tax amendment Net loss. Tax amendment   You must reduce your earned income by any net loss from self-employment. Tax amendment Optional method if earnings are low or a net loss. Tax amendment   If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. Tax amendment Get Publication 334, Tax Guide for Small Business, for details. Tax amendment If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. Tax amendment In this case, subtract any deduction you claimed on Form 1040 or Form 1040NR, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings. Tax amendment You or your spouse is a student or not able to care for self. Tax amendment   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. Tax amendment His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. Tax amendment Spouse works. Tax amendment   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. Tax amendment Spouse qualifies for part of month. Tax amendment   If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month. Tax amendment You are a student or not able to care for self. Tax amendment   These rules also apply if you are a student or not able to care for yourself and are filing a joint return. Tax amendment For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). Tax amendment If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Tax amendment Both spouses qualify. Tax amendment   If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month. Tax amendment Example. Tax amendment Jim works and keeps up a home for himself and his wife Sharon. Tax amendment Because of an accident, Sharon is not able to care for herself for 11 months during the tax year. Tax amendment During the 11 months, Jim pays $3,300 of work-related expenses for Sharon's care. Tax amendment These expenses also qualify as medical expenses. Tax amendment Their adjusted gross income is $29,000 and the entire amount is Jim's earned income. Tax amendment Jim and Sharon's earned income limit is the smallest of the following amounts. Tax amendment   Jim and Sharon's Earned Income Limit   1) Work-related expenses Jim paid $   3,300   2) Jim's earned income $   29,000   3) Income considered earned by Sharon (11 × $250) $    2,750   Jim and Sharon can use $2,750 to figure the credit and treat the balance of $550 ($3,300 − $2,750) as a medical expense. Tax amendment However, if they use the $3,300 first as a medical expense, they cannot use any part of that amount to figure the credit. Tax amendment Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Tax amendment This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Tax amendment If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Tax amendment This limit does not need to be divided equally among them. Tax amendment For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. Tax amendment Yearly limit. Tax amendment   The dollar limit is a yearly limit. Tax amendment The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Tax amendment Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Tax amendment Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. Tax amendment Example 1. Tax amendment You pay $500 a month for after-school care for your son. Tax amendment He turned 13 on May 1 and is no longer a qualifying person. Tax amendment You can use the $2,000 of expenses for his care January through April to figure your credit because it is not more than the $3,000 yearly limit. Tax amendment Example 2. Tax amendment In July of this year, to permit your spouse to begin a new job, you enrolled your 3-year-old daughter in a nursery school that provides preschool childcare. Tax amendment You paid $300 per month for the childcare. Tax amendment You can use the full $1,800 you paid ($300 × 6 months) as qualified expenses because it is not more than the $3,000 yearly limit. Tax amendment Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Tax amendment Your reduced dollar limit is figured on Form 2441, Part III. Tax amendment See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits. Tax amendment Example 1. Tax amendment George is a widower with one child and earns $24,000 a year. Tax amendment He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. Tax amendment His employer pays an additional $1,000 under a qualified dependent care benefit plan. Tax amendment This $1,000 is excluded from George's income. Tax amendment Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. Tax amendment This is because his dollar limit is reduced as shown next. Tax amendment   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. Tax amendment Randall is married and both he and his wife are employed. Tax amendment Each has earned income in excess of $6,000. Tax amendment They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Tax amendment Randall's work-related expenses are $6,000 for the year. Tax amendment Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Tax amendment Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Tax amendment Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. Tax amendment This is because his dollar limit is reduced as shown next. Tax amendment   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits selected from employer's cafeteria plan and  excluded from Randall's income −5,000 3) Reduced dollar limit on work-related expenses Randall can use for the credit $1,000 Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. Tax amendment This percentage depends on your adjusted gross income shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Tax amendment The following table shows the percentage to use based on adjusted gross income. Tax amendment   IF your adjusted gross income is: THEN the       Over:       But not over:   percentage is:       $0   —   $15,000   35%       15,000   —   17,000   34%       17,000   —   19,000   33%       19,000   —   21,000   32%       21,000   —   23,000   31%       23,000   —   25,000   30%       25,000   —   27,000   29%       27,000   —   29,000   28%       29,000   —   31,000   27%       31,000   —   33,000   26%       33,000   —   35,000   25%       35,000   —   37,000   24%       37,000   —   39,000   23%       39,000   —   41,000   22%       41,000   —   43,000   21%       43,000   —   No limit   20%   To qualify for the credit, you must have one or more qualifying persons. Tax amendment You should show the expenses for each person on Form 2441, line 2, column (c). Tax amendment However, it is possible a qualifying person could have no expenses and a second qualifying person could have expenses exceeding $3,000. Tax amendment You should list -0- for the one person and the actual amount for the second person. Tax amendment The $6,000 limit that applies to two or more qualifying persons would still be used to compute your credit unless you already excluded or deducted, in Part III of Form 2441, certain dependent care benefits paid to you (or on your behalf) by your employer. Tax amendment Example. Tax amendment Roger and Megan Paris have two qualifying children. Tax amendment They received $1,000 of dependent care benefits from Megan's employer during 2013, but they incurred a total of $19,500 of child and dependent care expenses. Tax amendment They complete Part III of Form 2441 to exclude the $1,000 from their taxable income (offsetting $1,000 of their expenses). Tax amendment Roger and Megan continue to line 27 to figure their credit using the remaining $18,500 of expenses. Tax amendment Line 30 tells them to complete line 2 without including any dependent care benefits. Tax amendment They complete line 2 of Form 2441, listing both Susan and James, as shown in the Line 2 example above. Tax amendment Line 2 Example (a) Qualifying person's name (b) Qualifying person's social security number (c) Qualified expenses you incurred and paid in 2013 for the person listed in column (a) First Last Susan Paris 123-00-6789 -0- James Paris 987-00-4321 18,500. Tax amendment 00 All of Susan's expenses were covered by the $1,000 of employer-provided dependent care benefits. Tax amendment However, their son James has special needs and they paid $18,500 for his care. Tax amendment Line 3 imposes a $5,000 limit for two or more children ($6,000 limit, minus $1,000 already excluded from income = $5,000) and Roger and Megan continue to complete the form. Tax amendment Even though line 2 indicates one of the Paris children did not have any dependent care expenses, it does not change the fact that they had two qualifying children for the purposes of Form 2441. Tax amendment Payments for prior year's expenses. Tax amendment   If you had work-related expenses in 2012 that you paid in 2013, you may be able to increase the credit on your 2013 return. Tax amendment Attach a statement to your form showing how you figured the additional amount from 2012. Tax amendment Then enter “CPYE” (Credit for Prior Year Expenses) and the amount of the credit on the dotted line next to line 9 on Form 2441. Tax amendment Also enter the name and taxpayer identification number of the person for whom you paid the prior year's expenses. Tax amendment Then add this credit to the amount on line 9, and replace the amount on line 9 with the total. Tax amendment See Worksheet A. Tax amendment Example. Tax amendment In 2012, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. Tax amendment Of the $2,600, they paid $2,000 in 2012 and $600 in 2013. Tax amendment Their adjusted gross income for 2012 was $30,000. Tax amendment Sam's earned income of $14,000 was less than Kate's earned income. Tax amendment A credit for their 2012 expenses paid in 2013 is not allowed in 2012. Tax amendment It is allowed for the 2013 tax year, but they must use their adjusted gross income for 2012 to compute the amount. Tax amendment The filled-in Worksheet A they used to figure this credit is shown later. Tax amendment Sam and Kate add the $162 from line 13 of this worksheet to their 2013 credit and enter the total on their Form 2441, line 9. Tax amendment They enter “CPYE $162” and their child's name and SSN in the space to the left of line 9. Tax amendment Worksheet A. Tax amendment Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Tax amendment 1. Tax amendment   Enter your 2012 qualified expenses paid in 2012 1. Tax amendment     2. Tax amendment   Enter your 2012 qualified expenses paid in 2013 2. Tax amendment     3. Tax amendment   Add the amounts on lines 1 and 2 3. Tax amendment     4. Tax amendment   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Tax amendment     5. Tax amendment   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Tax amendment     6. Tax amendment   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Tax amendment     7. Tax amendment   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Tax amendment     8. Tax amendment   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Tax amendment     9. Tax amendment   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Tax amendment     10. Tax amendment   Subtract the amount on line 9 from the amount on line 8 and enter the result. Tax amendment If zero or less, stop here. Tax amendment You cannot increase your 2013 credit by any previous year's expenses 10. Tax amendment     11. Tax amendment   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Tax amendment     12. Tax amendment   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Tax amendment             IF your 2012 adjusted gross income is:   THEN the decimal                 Over:   But not over:     amount is:                 $0 — $15,000     . Tax amendment 35                 15,000 — 17,000     . Tax amendment 34                 17,000 — 19,000     . Tax amendment 33                 19,000 — 21,000     . Tax amendment 32                 21,000 — 23,000     . Tax amendment 31                 23,000 — 25,000     . Tax amendment 30                 25,000 — 27,000     . Tax amendment 29                 27,000 — 29,000     . Tax amendment 28                 29,000 — 31,000     . Tax amendment 27                 31,000 — 33,000     . Tax amendment 26                 33,000 — 35,000     . Tax amendment 25                 35,000 — 37,000     . Tax amendment 24                 37,000 — 39,000     . Tax amendment 23                 39,000 — 41,000     . Tax amendment 22                 41,000 — 43,000     . Tax amendment 21                 43,000 — No limit     . Tax amendment 20           13. Tax amendment   Multiply line 10 by line 12. Tax amendment Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Tax amendment Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses           Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Tax amendment       Worksheet A. Tax amendment Filled-in Worksheet for 2012 Expenses Paid in 2013 Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013. Tax amendment 1. Tax amendment   Enter your 2012 qualified expenses paid in 2012 1. Tax amendment   $2,000 2. Tax amendment   Enter your 2012 qualified expenses paid in 2013 2. Tax amendment   600 3. Tax amendment   Add the amounts on lines 1 and 2 3. Tax amendment   2,600 4. Tax amendment   Enter $3,000 if care was for one qualifying person ($6,000 if for two or more) 4. Tax amendment   3,000 5. Tax amendment   Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25) 5. Tax amendment   0 6. Tax amendment   Subtract the amount on line 5 from the amount on line 4 and enter the result 6. Tax amendment   3,000 7. Tax amendment   Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount 7. Tax amendment   14,000 8. Tax amendment   Compare the amounts on lines 3, 6, and 7 and enter the smallest amount 8. Tax amendment   2,600 9. Tax amendment   Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6) 9. Tax amendment   2,000 10. Tax amendment   Subtract the amount on line 9 from the amount on line 8 and enter the result. Tax amendment If zero or less, stop here. Tax amendment You cannot increase your 2013 credit by any previous year's expenses 10. Tax amendment   600 11. Tax amendment   Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37) 11. Tax amendment   30,000 12. Tax amendment   Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here 12. Tax amendment   . Tax amendment 27         IF your 2012 adjusted gross income is:   THEN the decimal                 Over   But not over     amount is:                 $0 — $15,000     . Tax amendment 35                 15,000 — 17,000     . Tax amendment 34                 17,000 — 19,000     . Tax amendment 33                 19,000 — 21,000     . Tax amendment 32                 21,000 — 23,000     . Tax amendment 31                 23,000 — 25,000     . Tax amendment 30                 25,000 — 27,000     . Tax amendment 29                 27,000 — 29,000     . Tax amendment 28                 29,000 — 31,000     . Tax amendment 27                 31,000 — 33,000     . Tax amendment 26                 33,000 — 35,000     . Tax amendment 25                 35,000 — 37,000     . Tax amendment 24                 37,000 — 39,000     . Tax amendment 23                 39,000 — 41,000     . Tax amendment 22                 41,000 — 43,000     . Tax amendment 21                 43,000 — No limit     . Tax amendment 20           13. Tax amendment   Multiply line 10 by line 12. Tax amendment Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Tax amendment Enter the following on the dotted line next to line 9 of Form 2441: “CPYE” The amount of this credit for a prior year's expenses             Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. Tax amendment   $162   How To Claim the Credit To claim the credit, you can file Form 1040, Form 1040A, or Form 1040NR. Tax amendment You cannot claim the credit on Form 1040EZ or Form 1040NR-EZ. Tax amendment Form 1040, Form 1040A, or Form 1040NR. Tax amendment    You must complete Form 2441 and attach it to your Form 1040, Form 1040A, or Form 1040NR. Tax amendment Enter the credit on your Form 1040, line 48; Form 1040A, line 29; or Form 1040NR, line 46. Tax amendment Limit on credit. Tax amendment    The amount of credit you can claim is limited to your tax. Tax amendment For more information, see the Instructions for Form 2441. Tax amendment Tax credit not refundable. Tax amendment   You cannot get a refund for any part of the credit that is more than this limit. Tax amendment Recordkeeping. Tax amendment You should keep records of your work-related expenses. Tax amendment Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and length of the disability. Tax amendment Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier. Tax amendment Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. Tax amendment If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Tax amendment If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Tax amendment Self-employed persons who are in business for themselves are not household employees. Tax amendment Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Tax amendment If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. Tax amendment This control could include providing rules of conduct and appearance and requiring regular reports. Tax amendment In this case, you do not have to pay employment taxes. Tax amendment But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. Tax amendment If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. Tax amendment Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Tax amendment Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Tax amendment Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Tax amendment For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Tax amendment State employment tax. Tax amendment   You may also have to pay state unemployment tax. Tax amendment Contact your state unemployment tax office for information. Tax amendment You should also find out whether you need to pay or collect other state employment taxes or carry worker's compensation insurance. Tax amendment For a list of state unemployment tax agencies, visit the U. Tax amendment S. Tax amendment Department of Labor's website. Tax amendment To find that website, use the link in Publication 926 or search online. Tax amendment How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Tax amendment Free help with your tax return. Tax amendment   You can get free help preparing your return nationwide from IRS-certified volunteers. Tax amendment The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Tax amendment The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Tax amendment Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Tax amendment In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Tax amendment To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Tax amendment gov, download the IRS2Go app, or call 1-800-906-9887. Tax amendment   As part of the TCE program, AARP offers the Tax-Aide counseling program. Tax amendment To find the nearest AARP Tax-Aide site, visit AARP's website at www. Tax amendment aarp. Tax amendment org/money/taxaide or call 1-888-227-7669. Tax amendment For more information on these programs, go to IRS. Tax amendment gov and enter “VITA” in the search box. Tax amendment Internet. Tax amendment    IRS. Tax amendment gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Tax amendment Download the free IRS2Go app from the iTunes app store or from Google Play. Tax amendment Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Tax amendment Check the status of your 2013 refund with the Where's My Refund? application on IRS. Tax amendment gov or download the IRS2Go app and select the Refund Status option. Tax amendment The IRS issues more than 9 out of 10 refunds in less than 21 days. Tax amendment Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Tax amendment You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax amendment The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Tax amendment Use the Interactive Tax Assistant (ITA) to research your tax questions. Tax amendment No need to wait on the phone or stand in line. Tax amendment The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Tax amendment When you reach the response screen, you can print the entire interview and the final response for your records. Tax amendment New subject areas are added on a regular basis. Tax amendment  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Tax amendment gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Tax amendment You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Tax amendment The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Tax amendment When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Tax amendment Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Tax amendment You can also ask the IRS to mail a return or an account transcript to you. Tax amendment Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Tax amendment gov or by calling 1-800-908-9946. Tax amendment Tax return and tax account transcripts are generally available for the current year and the past three years. Tax amendment Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Tax amendment Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Tax amendment If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Tax amendment Check the status of your amended return using Where's My Amended Return? Go to IRS. Tax amendment gov and enter Where's My Amended Return? in the search box. Tax amendment You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Tax amendment It can take up to 3 weeks from the date you mailed it to show up in our system. 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The Tax Amendment

Tax amendment 8. Tax amendment   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. Tax amendment Reporting tax withheld. Tax amendment Nominees. Tax amendment Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Tax amendment Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Tax amendment Alternative minimum tax treatment. Tax amendment How To Report Dividend IncomeInvestment interest deducted. Tax amendment Reminder Foreign-source income. Tax amendment  If you are a U. Tax amendment S. Tax amendment citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. Tax amendment S. Tax amendment law. Tax amendment This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Tax amendment Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. Tax amendment This chapter also explains how to report dividend income on your tax return. Tax amendment Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. Tax amendment You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Tax amendment However, some amounts you receive that are called dividends are actually interest income. Tax amendment (See Dividends that are actually interest under Taxable Interest in chapter 7. Tax amendment ) Most distributions are paid in cash (or check). Tax amendment However, distributions can consist of more stock, stock rights, other property, or services. Tax amendment Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. Tax amendment Tax on unearned income of certain children. Tax amendment   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Tax amendment If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Tax amendment If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Tax amendment    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Tax amendment Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Tax amendment   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Tax amendment Beneficiary of an estate or trust. Tax amendment    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. Tax amendment You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Tax amendment , from the fiduciary. Tax amendment Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Tax amendment Social security number (SSN) or individual taxpayer identification number (ITIN). Tax amendment    You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. Tax amendment This includes payers of dividends. Tax amendment If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. Tax amendment For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Tax amendment Backup withholding. Tax amendment   Your dividend income is generally not subject to regular withholding. Tax amendment However, it may be subject to backup withholding to ensure that income tax is collected on the income. Tax amendment Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Tax amendment   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Tax amendment For more information, see Backup Withholding in chapter 4. Tax amendment Stock certificate in two or more names. Tax amendment   If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. Tax amendment Form 1099-DIV. Tax amendment   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. Tax amendment Keep this form with your records. Tax amendment You do not have to attach it to your tax return. Tax amendment Dividends not reported on Form 1099-DIV. Tax amendment   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. Tax amendment For example, you may receive distributive shares of dividends from partnerships or S corporations. Tax amendment These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Tax amendment , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Tax amendment Reporting tax withheld. Tax amendment   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. Tax amendment Nominees. Tax amendment   If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. Tax amendment Form 1099-MISC. Tax amendment   Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. Tax amendment See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. Tax amendment Incorrect amount shown on a Form 1099. Tax amendment   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Tax amendment The new Form 1099 you receive will be marked “Corrected. Tax amendment ” Dividends on stock sold. Tax amendment   If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. Tax amendment Dividends received in January. Tax amendment   If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. Tax amendment You report the dividend in the year it was declared. Tax amendment Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. Tax amendment They are paid out of earnings and profits and are ordinary income to you. Tax amendment This means they are not capital gains. Tax amendment You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Tax amendment Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. Tax amendment Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. Tax amendment They should be shown in box 1b of the Form 1099-DIV you receive. Tax amendment The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. Tax amendment 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. Tax amendment 6%. Tax amendment 20% on any amount that otherwise would be taxed at a 39. Tax amendment 6% rate. Tax amendment To qualify for the maximum rate, all of the following requirements must be met. Tax amendment The dividends must have been paid by a U. Tax amendment S. Tax amendment corporation or a qualified foreign corporation. Tax amendment (See Qualified foreign corporation , later. Tax amendment ) The dividends are not of the type listed later under Dividends that are not qualified dividends . Tax amendment You meet the holding period (discussed next). Tax amendment Holding period. Tax amendment   You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Tax amendment The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. Tax amendment Instead, the seller will get the dividend. Tax amendment   When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. Tax amendment See the examples later. Tax amendment Exception for preferred stock. Tax amendment   In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. Tax amendment If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. Tax amendment Example 1. Tax amendment You bought 5,000 shares of XYZ Corp. Tax amendment common stock on July 9, 2013. Tax amendment XYZ Corp. Tax amendment paid a cash dividend of 10 cents per share. Tax amendment The ex-dividend date was July 16, 2013. Tax amendment Your Form 1099-DIV from XYZ Corp. Tax amendment shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). Tax amendment However, you sold the 5,000 shares on August 12, 2013. Tax amendment You held your shares of XYZ Corp. Tax amendment for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). Tax amendment The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. Tax amendment You have no qualified dividends from XYZ Corp. Tax amendment because you held the XYZ stock for less than 61 days. Tax amendment Example 2. Tax amendment Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. Tax amendment You held the stock for 63 days (from July 16, 2013, through September 16, 2013). Tax amendment The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). Tax amendment Example 3. Tax amendment You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. Tax amendment ABC Mutual Fund paid a cash dividend of 10 cents a share. Tax amendment The ex-dividend date was July 16, 2013. Tax amendment The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. Tax amendment Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. Tax amendment However, you sold the 10,000 shares on August 12, 2013. Tax amendment You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. Tax amendment Holding period reduced where risk of loss is diminished. Tax amendment   When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. Tax amendment You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. Tax amendment You were grantor (writer) of an option to buy substantially identical stock or securities. Tax amendment Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. Tax amendment   For information about how to apply condition (3), see Regulations section 1. Tax amendment 246-5. Tax amendment Qualified foreign corporation. Tax amendment   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. Tax amendment The corporation is incorporated in a U. Tax amendment S. Tax amendment possession. Tax amendment The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. Tax amendment For a list of those treaties, see Table 8-1. Tax amendment The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. Tax amendment See Readily tradable stock , later. Tax amendment Exception. Tax amendment   A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. Tax amendment Readily tradable stock. Tax amendment   Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. Tax amendment For a list of the exchanges that meet these requirements, see www. Tax amendment sec. Tax amendment gov/divisions/marketreg/mrexchanges. Tax amendment shtml. Tax amendment Dividends that are not qualified dividends. Tax amendment   The following dividends are not qualified dividends. Tax amendment They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. Tax amendment Capital gain distributions. Tax amendment Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. Tax amendment S. Tax amendment building and loan associations, U. Tax amendment S. Tax amendment savings and loan associations, federal savings and loan associations, and similar financial institutions. Tax amendment (Report these amounts as interest income. Tax amendment ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. Tax amendment Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. Tax amendment Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. Tax amendment Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Tax amendment Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. Tax amendment Table 8-1. Tax amendment Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. Tax amendment Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal     Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. Tax amendment This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. Tax amendment Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. Tax amendment If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. Tax amendment If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. Tax amendment You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. Tax amendment But you may be able to deduct the service charge. Tax amendment See chapter 28 for more information about deducting expenses of producing income. Tax amendment In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. Tax amendment If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. Tax amendment When figuring this amount, use the fair market value of the stock on the dividend payment date. Tax amendment Money Market Funds Report amounts you receive from money market funds as dividend income. Tax amendment Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. Tax amendment Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). Tax amendment They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Tax amendment Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. Tax amendment Undistributed capital gains of mutual funds and REITs. Tax amendment    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. Tax amendment You must treat your share of these gains as distributions, even though you did not actually receive them. Tax amendment However, they are not included on Form 1099-DIV. Tax amendment Instead, they are reported to you in box 1a of Form 2439. Tax amendment   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. Tax amendment   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. Tax amendment You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. Tax amendment Attach Copy B of Form 2439 to your return, and keep Copy C for your records. Tax amendment Basis adjustment. Tax amendment   Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. Tax amendment Additional information. Tax amendment   For more information on the treatment of distributions from mutual funds, see Publication 550. Tax amendment Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. Tax amendment You should receive a Form 1099-DIV or other statement showing the nondividend distribution. Tax amendment On Form 1099-DIV, a nondividend distribution will be shown in box 3. Tax amendment If you do not receive such a statement, you report the distribution as an ordinary dividend. Tax amendment Basis adjustment. Tax amendment   A nondividend distribution reduces the basis of your stock. Tax amendment It is not taxed until your basis in the stock is fully recovered. Tax amendment This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. Tax amendment If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. Tax amendment   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Tax amendment Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. Tax amendment See Holding Period in chapter 14. Tax amendment Example. Tax amendment You bought stock in 2000 for $100. Tax amendment In 2003, you received a nondividend distribution of $80. Tax amendment You did not include this amount in your income, but you reduced the basis of your stock to $20. Tax amendment You received a nondividend distribution of $30 in 2013. Tax amendment The first $20 of this amount reduced your basis to zero. Tax amendment You report the other $10 as a long-term capital gain for 2013. Tax amendment You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. Tax amendment Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. Tax amendment These distributions are, at least in part, one form of a return of capital. Tax amendment They may be paid in one or more installments. Tax amendment You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. Tax amendment For more information on liquidating distributions, see chapter 1 of Publication 550. Tax amendment Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. Tax amendment Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. Tax amendment Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. Tax amendment Taxable stock dividends and stock rights. Tax amendment   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. Tax amendment You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. Tax amendment The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. Tax amendment The distribution is in convertible preferred stock and has the same result as in (2). Tax amendment The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. Tax amendment The distribution is on preferred stock. Tax amendment (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. Tax amendment )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. Tax amendment If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. Tax amendment Preferred stock redeemable at a premium. Tax amendment   If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. Tax amendment For more information, see chapter 1 of Publication 550. Tax amendment Basis. Tax amendment   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. Tax amendment If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. Tax amendment Fractional shares. Tax amendment    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. Tax amendment However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. Tax amendment Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. Tax amendment Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. Tax amendment Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. Tax amendment    Report these transactions on Form 8949 with the correct box checked. Tax amendment   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. Tax amendment Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Tax amendment Example. Tax amendment You own one share of common stock that you bought on January 3, 2004, for $100. Tax amendment The corporation declared a common stock dividend of 5% on June 29, 2013. Tax amendment The fair market value of the stock at the time the stock dividend was declared was $200. Tax amendment You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. Tax amendment You figure your gain or loss as follows: Fair market value of old stock $200. Tax amendment 00 Fair market value of stock dividend (cash received) +10. Tax amendment 00 Fair market value of old stock and stock dividend $210. Tax amendment 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. Tax amendment 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. Tax amendment 76 Total $100. Tax amendment 00 Cash received $10. Tax amendment 00 Basis (cost) of stock dividend − 4. Tax amendment 76 Gain $5. Tax amendment 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. Tax amendment Scrip dividends. Tax amendment   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. Tax amendment The certificate is generally nontaxable when you receive it. Tax amendment If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. Tax amendment   However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. Tax amendment You must include its fair market value in income on the date you receive it. Tax amendment Other Distributions You may receive any of the following distributions during the year. Tax amendment Exempt-interest dividends. Tax amendment   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Tax amendment Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Tax amendment Information reporting requirement. Tax amendment   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. Tax amendment This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. Tax amendment Alternative minimum tax treatment. Tax amendment   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Tax amendment See Alternative Minimum Tax (AMT) in chapter 30 for more information. Tax amendment Dividends on insurance policies. Tax amendment    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. Tax amendment However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. Tax amendment    If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. Tax amendment Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. Tax amendment Report any taxable distributions on insurance policies on Form 1040, line 21. Tax amendment Dividends on veterans' insurance. Tax amendment   Dividends you receive on veterans' insurance policies are not taxable. Tax amendment In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. Tax amendment Patronage dividends. Tax amendment   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. Tax amendment   Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. Tax amendment But you must reduce the basis (cost) of the items bought. Tax amendment If the dividend is more than the adjusted basis of the assets, you must report the excess as income. Tax amendment   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. Tax amendment Alaska Permanent Fund dividends. Tax amendment    Do not report these amounts as dividends. Tax amendment Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. Tax amendment How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. Tax amendment Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. Tax amendment Report qualified dividends on line 9b of Form 1040 or Form 1040A. Tax amendment If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. Tax amendment See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. Tax amendment If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. Tax amendment You cannot use Form 1040EZ if you receive any dividend income. Tax amendment Form 1099-DIV. Tax amendment   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. Tax amendment Even if you do not receive Form 1099-DIV, you must report all your dividend income. Tax amendment   See Form 1099-DIV for more information on how to report dividend income. Tax amendment Form 1040A or 1040. Tax amendment    You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. Tax amendment If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. Tax amendment   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. Tax amendment If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. Tax amendment If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. Tax amendment   Enter on line 6 the total of the amounts listed on line 5. Tax amendment Also enter this total on line 9a of Form 1040A or 1040. Tax amendment Qualified dividends. Tax amendment   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. Tax amendment The amount in box 1b is already included in box 1a. Tax amendment Do not add the amount in box 1b to, or substract it from, the amount in box 1a. Tax amendment   Do not include any of the following on line 9b. Tax amendment Qualified dividends you received as a nominee. Tax amendment See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. Tax amendment Dividends on stock for which you did not meet the holding period. Tax amendment See Holding period , earlier under Qualified Dividends. Tax amendment Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. Tax amendment Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Tax amendment Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. Tax amendment   If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. Tax amendment Enter qualified dividends on line 2 of the worksheet. Tax amendment Investment interest deducted. Tax amendment   If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. Tax amendment Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. Tax amendment This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. Tax amendment For more information about the limit on investment interest, see Investment expenses in chapter 23. Tax amendment Expenses related to dividend income. Tax amendment   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). Tax amendment See chapter 28 for general information about deducting expenses of producing income. Tax amendment More information. Tax amendment    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. Tax amendment Prev  Up  Next   Home   More Online Publications