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Tax File Extension

Tax file extension 32. Tax file extension   Child and Dependent Care Credit Table of Contents Reminders Introduction Useful Items - You may want to see: 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 file extension Employment Taxes for Household Employers Reminders Taxpayer identification number needed for each qualifying person. Tax file extension  You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social security number) of each qualifying person. Tax file extension See Taxpayer identification number under Qualifying Person Test, later. Tax file extension You may have to pay employment taxes. Tax file extension  If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Tax file extension 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 file extension See Employment Taxes for Household Employers , later. Tax file extension Introduction This chapter discusses the credit for child and dependent care expenses and covers the following topics. Tax file extension Tests you must meet to claim the credit. Tax file extension How to figure the credit. Tax file extension How to claim the credit. Tax file extension Employment taxes you may have to pay as a household employer. Tax file extension You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. Tax file extension The credit can be up to 35% of your expenses. Tax file extension To qualify, you must pay these expenses so you can work or look for work. Tax file extension This credit should not be confused with the child tax credit discussed in chapter 34. Tax file extension Dependent care benefits. Tax file extension   If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. Tax file extension You must complete Form 2441, Part III, before you can figure the amount of your credit. Tax file extension See Dependent Care Benefits under How To Figure the Credit, later. Tax file extension Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 503 Child and Dependent Care Expenses 926 Household Employer's Tax Guide Form (and Instructions) 2441 Child and Dependent Care Expenses Schedule H (Form 1040) Household Employment Taxes W-7 Application for IRS Individual Taxpayer Identification Number W-10 Dependent Care Provider's Identification and Certification Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040 or Form 1040A, not Form 1040EZ, and meet all the following tests. Tax file extension The care must be for one or more qualifying persons who are identified on Form 2441. Tax file extension (See Qualifying Person Test . Tax file extension ) You (and your spouse if filing jointly) must have earned income during the year. Tax file extension (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Tax file extension ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Tax file extension (See Work-Related Expense Test , later. Tax file extension ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Tax file extension 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 file extension 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 file extension (See Payments to Relatives or Dependents under Work-Related Expense Test, later. Tax file extension ) Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Tax file extension If you are married, you must file a joint return, unless an exception applies to you. Tax file extension (See Joint Return Test , later. Tax file extension ) You must identify the care provider on your tax return. Tax file extension (See Provider Identification Test , later. Tax file extension ) If you exclude or deduct dependent care benefits provided by a dependent care benefits 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 file extension (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 file extension See Reduced Dollar Limit under How To Figure the Credit, later. Tax file extension ) These tests are presented in Figure 32-A and are also explained in detail in this chapter. Tax file extension Figure 32-A. Tax file extension Can You Claim the Credit? Please click here for the text description of the image. Tax file extension Figure 32-A Can You Claim the Credit? Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Tax file extension 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 file extension Dependent defined. Tax file extension   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Tax file extension To be your dependent, a person must be your qualifying child (or your qualifying relative). Tax file extension Qualifying child. Tax file extension   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Tax file extension More information. Tax file extension   For more information about who is a dependent or a qualifying child, see chapter 3. Tax file extension Physically or mentally not able to care for oneself. Tax file extension   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Tax file extension Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Tax file extension Person qualifying for part of year. Tax file extension   You determine a person's qualifying status each day. Tax file extension 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 file extension Also see Yearly limit under Dollar Limit, later. Tax file extension Birth or death of otherwise qualifying person. Tax file extension   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 for more than half the time he or she was alive in 2013. Tax file extension Taxpayer identification number. Tax file extension   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Tax file extension If the correct information is not shown, the credit may be reduced or disallowed. Tax file extension Individual taxpayer identification number (ITIN) for aliens. Tax file extension   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 file extension The ITIN is entered wherever an SSN is requested on a tax return. Tax file extension To apply for an ITIN, see Form W-7. Tax file extension   An ITIN is for tax use only. Tax file extension It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Tax file extension S. Tax file extension law. Tax file extension Adoption taxpayer identification number (ATIN). Tax file extension   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 file extension File Form W-7A, Application for Taxpayer Identification Number for Pending U. Tax file extension S. Tax file extension Adoptions. Tax file extension Child of divorced or separated parents or parents living apart. Tax file extension   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 file extension   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Tax file extension 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 file extension For details and an exception for a parent who works at night, see Pub. Tax file extension 501. Tax file extension   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 file extension Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Tax file extension Earned income. Tax file extension   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Tax file extension A net loss from self-employment reduces earned income. Tax file extension Earned income also includes strike benefits and any disability pay you report as wages. Tax file extension   Generally, only taxable compensation is included. Tax file extension However, you can elect to include nontaxable combat pay in earned income. Tax file extension 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 file extension (In other words, if one of you makes the election, the other one can also make it but does not have to. Tax file extension ) You should figure your credit both ways and make the election if it gives you a greater tax benefit. Tax file extension Members of certain religious faiths opposed to social security. Tax file extension   Certain income earned by 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 may not be considered earned income for this purpose. Tax file extension See Earned Income Test in Publication 503. Tax file extension Not earned income. Tax file extension   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarship or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received by you, Income of nonresident aliens that is not effectively connected with a U. Tax file extension S. Tax file extension trade or business, or Any amount received for work while an inmate in a penal institution. Tax file extension Rule for student-spouse or spouse not able to care for self. Tax file extension   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 file extension (Your spouse also must live with you for more than half the year. Tax file extension )   If you are filing a joint return, this rule also applies to you. Tax file extension 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 file extension   Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under Earned Income Limit , later. Tax file extension   This rule applies to only one spouse for any one month. Tax file extension 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 file extension Full-time student. Tax file extension   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 file extension You must have been a full-time student for some part of each of 5 calendar months during the year. Tax file extension (The months need not be consecutive. Tax file extension ) School. Tax file extension   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Tax file extension A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax file extension Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Tax file extension Expenses are considered work-related only if both of the following are true. Tax file extension They allow you (and your spouse if filing jointly) to work or look for work. Tax file extension They are for a qualifying person's care. Tax file extension Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Tax file extension If you are married, generally both you and your spouse must work or look for work. Tax file extension 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 file extension Your work can be for others or in your own business or partnership. Tax file extension It can be either full time or part time. Tax file extension Work also includes actively looking for work. Tax file extension However, if you do not find a job and have no earned income for the year, you cannot take this credit. Tax file extension See Earned Income Test , earlier. Tax file extension An expense is not considered work-related merely because you had it while you were working. Tax file extension The purpose of the expense must be to allow you to work. Tax file extension Whether your expenses allow you to work or look for work depends on the facts. Tax file extension Example 1. Tax file extension The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Tax file extension Example 2. Tax file extension You work during the day. Tax file extension Your spouse works at night and sleeps during the day. Tax file extension You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Tax file extension Your expenses are considered work-related. Tax file extension Volunteer work. Tax file extension    For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Tax file extension Work for part of year. Tax file extension   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 file extension 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 file extension 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 file extension Temporary absence from work. Tax file extension   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 file extension Instead, you can figure your credit including the expenses you paid for the period of absence. Tax file extension   An absence of 2 weeks or less is a short, temporary absence. Tax file extension An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Tax file extension Example. Tax file extension You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Tax file extension You become ill and miss 4 months of work but receive sick pay. Tax file extension You continue to pay the nanny to care for the children while you are ill. Tax file extension Your absence is not a short, temporary absence, and your expenses are not considered work-related. Tax file extension Part-time work. Tax file extension   If you work part-time, you generally must figure your expenses for each day. Tax file extension 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 file extension Any day when you work at least 1 hour is a day of work. Tax file extension Example 1. Tax file extension You work 3 days a week. Tax file extension While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Tax file extension You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Tax file extension Your child attends the center 5 days a week. Tax file extension Your work-related expenses are limited to $150 a week. Tax file extension Example 2. Tax file extension The facts are the same as in Example 1 except the center does not offer a 3-day option. Tax file extension The entire $250 weekly fee may be a work-related expense. Tax file extension Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Tax file extension You do not have to choose the least expensive way of providing care. Tax file extension 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 file extension Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Tax file extension Expenses for household services qualify if part of the services is for the care of qualifying persons. Tax file extension See Household services , later. Tax file extension Expenses not for care. Tax file extension   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Tax file extension 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 file extension   Child support payments are not for care and do not qualify for the credit. Tax file extension Education. Tax file extension   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Tax file extension Expenses to attend kindergarten or a higher grade are not expenses for care. Tax file extension Do not use these expenses to figure your credit. Tax file extension   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Tax file extension   Summer school and tutoring programs are not for care. Tax file extension Example 1. Tax file extension You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool childcare service. Tax file extension The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Tax file extension You can count the total cost when you figure the credit. Tax file extension Example 2. Tax file extension You place your 10-year-old child in a boarding school so you can work full time. Tax file extension Only the part of the boarding school expense that is for the care of your child is a work-related expense. Tax file extension You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Tax file extension You cannot count any part of the amount you pay the school for your child's education. Tax file extension Care outside your home. Tax file extension   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 file extension Dependent care center. Tax file extension   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 file extension   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 file extension Camp. Tax file extension   The cost of sending your child to an overnight camp is not considered a work-related expense. Tax file extension 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 file extension Transportation. Tax file extension   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 file extension This includes transportation by bus, subway, taxi, or private car. Tax file extension However, transportation not provided by a care provider is not for the care of a qualifying person. Tax file extension 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 file extension Fees and deposits. Tax file extension   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 file extension However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Tax file extension Example 1. Tax file extension 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 file extension The fee you paid is a work-related expense. Tax file extension Example 2. Tax file extension You placed a deposit with a preschool to reserve a place for your 3-year-old child. Tax file extension You later sent your child to a different preschool and forfeited the deposit. Tax file extension The forfeited deposit is not for care and so is not a work-related expense. Tax file extension Household services. Tax file extension   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 file extension   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Tax file extension They include the services of a housekeeper, maid, or cook. Tax file extension However, they do not include the services of a chauffeur, bartender, or gardener. Tax file extension See Household Services in Publication 503 for more information. Tax file extension   In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Tax file extension Taxes paid on wages. Tax file extension   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Tax file extension See Employment Taxes for Household Employers , later. Tax file extension 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 file extension 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 file extension Joint Return Test Generally, married couples must file a joint return to take the credit. Tax file extension 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 file extension Legally separated. Tax file extension   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Tax file extension You may be eligible to take the credit on your return using head of household filing status. Tax file extension Married and living apart. Tax file extension   You are not considered married and are eligible to take the credit if all the following apply. Tax file extension You file a return apart from your spouse. Tax file extension Your home is the home of a qualifying person for more than half the year. Tax file extension You pay more than half the cost of keeping up your home for the year. Tax file extension Your spouse does not live in your home for the last 6 months of the year. Tax file extension Costs of keeping up a home. Tax file extension   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 file extension   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Tax file extension   They also do not include the purchase, permanent improvement, or replacement of property. Tax file extension For example, you cannot include the cost of replacing a water heater. Tax file extension However, you can include the cost of repairing a water heater. Tax file extension Death of spouse. Tax file extension   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 file extension If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's return. Tax file extension Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Tax file extension Use Form 2441, Part I, to show the information. Tax file extension 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 file extension Information needed. Tax file extension   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Tax file extension   If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Tax file extension If the care provider is an organization, then it is the employer identification number (EIN). Tax file extension   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 file extension In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Tax file extension   If you cannot provide all of the information or if 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 file extension Getting the information. Tax file extension   You can use Form W-10 to request the required information from the care provider. Tax file extension 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 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 information. Tax file extension    You should keep this information with your tax records. Tax file extension Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Tax file extension Due diligence. Tax file extension   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Tax file extension However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Tax file extension   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 file extension Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Tax file extension Provider refusal. Tax file extension   If the provider refuses to give you their identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Tax file extension Enter “See Attached Statement” in the columns calling for the information you do not have. Tax file extension Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Tax file extension Be sure to write your name and social security number on this statement. Tax file extension The statement will show that you used due diligence in trying to furnish the necessary information. Tax file extension U. Tax file extension S. Tax file extension citizens and resident aliens living abroad. Tax file extension   If you are living abroad, your care provider may not have, and may not be required to get, a U. Tax file extension S. Tax file extension taxpayer identification number (for example, an SSN or EIN). Tax file extension If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Tax file extension How To Figure the Credit Your credit is a percentage of your work-related expenses. Tax file extension Your expenses are subject to the earned income limit and the dollar limit. Tax file extension The percentage is based on your adjusted gross income. Tax file extension Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Tax file extension Expenses prepaid in an earlier year. Tax file extension   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Tax file extension Claim the expenses for the later year as if they were actually paid in that later year. Tax file extension Expenses not paid until the following year. Tax file extension   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Tax file extension You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Tax file extension See Payments for prior year's expenses under Amount of Credit in Publication 503. Tax file extension    If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Tax file extension You may be able to claim a credit for them on your 2014 return. Tax file extension Expenses reimbursed. Tax file extension   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 file extension Example. Tax file extension You paid work-related expenses of $3,000. Tax file extension You are reimbursed $2,000 by a state social services agency. Tax file extension You can use only $1,000 to figure your credit. Tax file extension Medical expenses. Tax file extension   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 file extension You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Tax file extension   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 file extension 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 file extension    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Tax file extension Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Tax file extension See Reduced Dollar Limit , later. Tax file extension But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Tax file extension Dependent care benefits. Tax file extension   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 file extension Your salary may have been reduced to pay for these benefits. Tax file extension If you received benefits as an employee, they should be shown in box 10 of your Form W-2. Tax file extension See Statement for employee , later. Tax file extension Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Tax file extension Enter the amount of these benefits on Form 2441, Part III, line 12. Tax file extension Exclusion or deduction. Tax file extension   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Tax file extension Your employer can tell you whether your benefit plan qualifies. Tax file extension To claim the exclusion, you must complete Part III of Form 2441. Tax file extension You cannot use Form 1040EZ. Tax file extension   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Tax file extension Therefore, you would not get an exclusion from wages. Tax file extension 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 file extension To claim the deduction, you must use Form 2441. Tax file extension   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 file extension 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 file extension See Earned Income Limit, later. Tax file extension    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 file extension Statement for employee. Tax file extension   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 file extension 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 file extension Effect of exclusion on credit. Tax file extension   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 file extension 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 file extension Earned income is defined under Earned Income Test , earlier. Tax file extension 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 file extension Separated spouse. Tax file extension   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 file extension Use only your income in figuring the earned income limit. Tax file extension Surviving spouse. Tax file extension   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 file extension Community property laws. Tax file extension   You should disregard community property laws when you figure earned income for this credit. Tax file extension You or your spouse is a student or not able to care for self. Tax file extension   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 file extension 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 file extension Spouse works. Tax file extension   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 file extension Spouse qualifies for part of month. Tax file extension    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 file extension You are a student or not able to care for self. Tax file extension   These rules also apply if you are a student or not able to care for yourself and you are filing a joint return. Tax file extension 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 file extension If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Tax file extension Both spouses qualify. Tax file extension   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 file extension Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Tax file extension This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Tax file extension If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Tax file extension This $6,000 limit does not need to be divided equally among them. Tax file extension 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 file extension Yearly limit. Tax file extension   The dollar limit is a yearly limit. Tax file extension 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 file extension 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 file extension 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 file extension 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 file extension Your reduced dollar limit is figured on Form 2441, Part III. Tax file extension See Dependent Care Benefits , earlier, for information on excluding or deducting these benefits. Tax file extension Example 1. Tax file extension George is a widower with one child and earns $24,000 a year. Tax file extension 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 file extension His employer pays an additional $1,000 under a dependent care benefit plan. Tax file extension This $1,000 is excluded from George's income. Tax file extension 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 file extension This is because his dollar limit is reduced as shown next. Tax file extension   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 file extension Randall is married and both he and his wife are employed. Tax file extension Each has earned income in excess of $6,000. Tax file extension They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Tax file extension Randall's work-related expenses are $6,000 for the year. Tax file extension 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 file extension Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Tax file extension 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 file extension This is because his dollar limit is reduced as shown next. Tax file extension   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits Randall selects from employer's cafeteria plan and excludes from income −5,000 3) Reduced dollar limit on 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 file extension This percentage depends on your adjusted gross income shown on Form 1040, line 38, or Form 1040A, line 22. Tax file extension The following table shows the percentage to use based on adjusted gross income. Tax file extension   IF your adjusted gross income is: THEN the percentage is:       Over   But not over         $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%   How To Claim the Credit To claim the credit, you can file Form 1040 or Form 1040A. Tax file extension You cannot claim the credit on Form 1040EZ. Tax file extension Form 1040 or 1040A. Tax file extension   You must complete Form 2441 and attach it to your Form 1040 or 1040A. Tax file extension Enter the credit on Form 1040, line 48, or Form 1040A, line 29. Tax file extension Limit on credit. Tax file extension   The amount of credit you can claim is generally limited to the amount of your tax. Tax file extension For more information, see the Instructions for Form 2441. Tax file extension Tax credit not refundable. Tax file extension   You cannot get a refund for any part of the credit that is more than this limit. Tax file extension Recordkeeping. Tax file extension You should keep records of your work-related expenses. Tax file extension Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and the length of the disability. Tax file extension Other records you should keep to support your claim for the credit are described earlier under Provider Identification Test . Tax file extension 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 file extension If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Tax file extension 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 file extension Self-employed persons who are in business for themselves are not household employees. Tax file extension 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 file extension 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 file extension This control could include providing rules of conduct and appearance and requiring regular reports. Tax file extension In this case, you do not have to pay employment taxes. Tax file extension 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 file extension 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 file extension Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Tax file extension 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 file extension Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Tax file extension For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Tax file extension State employment tax. Tax file extension   You may also have to pay state unemployment tax. Tax file extension Contact your state unemployment tax office for information. Tax file extension You should also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance. Tax file extension For a list of state unemployment tax agencies, visit the U. Tax file extension S. Tax file extension Department of Labor's website. Tax file extension A link to that website is in Publication 926, or you can find it with an online search. Tax file extension Prev  Up  Next   Home   More Online Publications
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New Two-Year Period to Adopt Restated Pre-approved DC Plans

The IRS expects to issue most opinion and advisory letters for the latest round of pre-approved defined contribution plans on March 31, 2014. Employers using pre-approved defined contribution plan documents must adopt plan documents restated for the 2010 Cumulative List by April 30, 2016 (Announcement 2014-16).

Determination letters for pre-approved defined contribution plans

Starting May 1, 2014, and ending April 30, 2016, employers can submit applications for individual determination letters for pre-approved defined contribution plans.

An employer who adopts a master & prototype plan (standardized or non-standardized) may not apply for its own determination letter on Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans (instructions) – instead, the employer should rely on the letter issued to the plan sponsor.

However, an adopting employer who made limited modifications to its volume submitter plan may apply for a determination letter on Form 5307. If the modifications are extensive, causing the plan to be treated as an individually designed plan, the employer must instead file Form 5300, Application for Determination for Employee Benefit Plan.

See Revenue Procedure 2014-6, sections 8 and 9 for more information on determination letter applications for pre-approved plans.

Additional resources

 

Page Last Reviewed or Updated: 27-Mar-2014

The Tax File Extension

Tax file extension 6. Tax file extension   How To Report Table of Contents Where To ReportGifts. Tax file extension Statutory employees. Tax file extension Vehicle Provided by Your Employer ReimbursementsAccountable Plans Nonaccountable Plans Rules for Independent Contractors and Clients How To Use Per Diem Rate TablesThe Two Substantiation Methods Transition Rules Completing Forms 2106 and 2106-EZInformation on use of cars. Tax file extension Standard mileage rate. Tax file extension Actual expenses. Tax file extension Car rentals. Tax file extension Hours of service limits. Tax file extension Allocating your reimbursement. Tax file extension 1. Tax file extension Limit on meals and entertainment. Tax file extension 2. Tax file extension Limit on miscellaneous itemized deductions. Tax file extension 3. Tax file extension Limit on total itemized deductions. Tax file extension Special Rules This chapter explains where and how to report the expenses discussed in this publication. Tax file extension It discusses reimbursements and how to treat them under accountable and nonaccountable plans. Tax file extension It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. Tax file extension The chapter ends with illustrations of how to report travel, entertainment, gift, and car expenses on Forms 2106 and 2106-EZ. Tax file extension Where To Report This section provides general information on where to report the expenses discussed in this publication. Tax file extension Self-employed. Tax file extension   You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. Tax file extension You do not use Form 2106 or 2106-EZ. Tax file extension    If you claim car or truck expenses, you must provide certain information on the use of your vehicle. Tax file extension You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562. Tax file extension   If you file Schedule C (Form 1040): Report your travel expenses, except meals, on line 24a, Report your deductible meals (actual cost or standard meal allowance) and entertainment on line 24b, Report your gift expenses and transportation expenses, other than car expenses, on line 27a, and Report your car expenses on line 9. Tax file extension Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization. Tax file extension   If you file Schedule C-EZ (Form 1040), report the total of all business expenses on line 2. Tax file extension You can only include 50% of your meals and entertainment in that total. Tax file extension If you include car expenses, you must also complete Part III of the form. Tax file extension    If you file Schedule F (Form 1040): Report your car expenses on line 10. Tax file extension Attach Form 4562 and provide information on the use of your car in Part V of Form 4562. Tax file extension Report all other business expenses discussed in this publication on line 32. Tax file extension You can only include 50% of your meals and entertainment on that line. Tax file extension See your form instructions for more information on how to complete your tax return. Tax file extension Both self-employed and an employee. Tax file extension   If you are both self-employed and an employee, you must keep separate records for each business activity. Tax file extension Report your business expenses for self-employment on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040), as discussed earlier. Tax file extension Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next. Tax file extension Employees. Tax file extension    If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. Tax file extension However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions. Tax file extension You are an employee deducting expenses attributable to your job. Tax file extension You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Tax file extension If you claim car expenses, you use the standard mileage rate. Tax file extension   For more information on how to report your expenses on Forms 2106 and 2106-EZ, see Completing Forms 2106 and 2106-EZ , later. Tax file extension Gifts. Tax file extension   If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Tax file extension Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040). Tax file extension Statutory employees. Tax file extension    If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Tax file extension Do not complete Form 2106 or 2106-EZ. Tax file extension   Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Tax file extension If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies. Tax file extension Reimbursement for personal expenses. Tax file extension    If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. Tax file extension You cannot deduct personal expenses. Tax file extension Income-producing property. Tax file extension   If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity. Tax file extension   For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. Tax file extension See Publication 527, Residential Rental Property, for more information on the rental of real estate. Tax file extension If you have deductible investment-related transportation expenses, report them on Schedule A (Form 1040), line 23. Tax file extension Vehicle Provided by Your Employer If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. Tax file extension The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. Tax file extension You cannot use the standard mileage rate. Tax file extension Value reported on Form W-2. Tax file extension   Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Tax file extension Your employer must separately state the amount if 100% of the annual lease value was included in your income. Tax file extension If you are unsure of the amount included on your Form W-2, ask your employer. Tax file extension Full value included in your income. Tax file extension   You can deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. Tax file extension On your 2013 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation, and box 14. Tax file extension    To claim your expenses, complete Form 2106, Part II, Sections A and C. Tax file extension Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Tax file extension Complete the rest of the form. Tax file extension Less than full value included in your income. Tax file extension   If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Tax file extension Do not enter this value on your Form 2106 because it is not deductible. Tax file extension   If you paid any actual costs (that your employer did not provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Tax file extension Examples of costs that you may have are gas, oil, and repairs. Tax file extension Complete Form 2106, Part II, Sections A and C. Tax file extension Enter your actual costs on line 23 of Section C and leave line 25 blank. Tax file extension Complete the rest of the form. Tax file extension Reimbursements This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication. Tax file extension If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Tax file extension This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. Tax file extension It also covers rules for independent contractors. Tax file extension No reimbursement. Tax file extension   You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. Tax file extension In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Tax file extension Instead, see Completing Forms 2106 and 2106-EZ , later, for information on completing your tax return. Tax file extension Reimbursement, allowance, or advance. Tax file extension   A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Tax file extension Arrangements include per diem and car allowances. Tax file extension    A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. Tax file extension (The term “ incidental expenses ” is defined in chapter 1 under Standard Meal Allowance. Tax file extension ) A car allowance is an amount your employer gives you for the business use of your car. Tax file extension   Your employer should tell you what method of reimbursement is used and what records you must provide. Tax file extension Employers. Tax file extension   If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Tax file extension Reimbursements treated as paid under an accountable plan, as explained next, are not reported as pay. Tax file extension Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. Tax file extension See Publication 15 (Circular E), Employer's Tax Guide, for information on employee pay. Tax file extension Accountable Plans To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules: Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Tax file extension You must adequately account to your employer for these expenses within a reasonable period of time. Tax file extension You must return any excess reimbursement or allowance within a reasonable period of time. Tax file extension “ Adequate accounting ” and “ returning excess reimbursements ” are discussed later. Tax file extension An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Tax file extension Reasonable period of time. Tax file extension   The definition of reasonable period of time depends on the facts and circumstances of your situation. Tax file extension However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Tax file extension You receive an advance within 30 days of the time you have an expense. Tax file extension You adequately account for your expenses within 60 days after they were paid or incurred. Tax file extension You return any excess reimbursement within 120 days after the expense was paid or incurred. Tax file extension You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Tax file extension Employee meets accountable plan rules. Tax file extension   If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. Tax file extension If your expenses equal your reimbursements, you do not complete Form 2106. Tax file extension You have no deduction since your expenses and reimbursement are equal. Tax file extension    If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2. Tax file extension Accountable plan rules not met. Tax file extension   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. Tax file extension All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later). Tax file extension Failure to return excess reimbursements. Tax file extension   If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. Tax file extension See Reasonable period of time , earlier, and Returning Excess Reimbursements , later. Tax file extension Reimbursement of nondeductible expenses. Tax file extension   You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. Tax file extension The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. Tax file extension Example. Tax file extension Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. Tax file extension The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan. Tax file extension The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. Tax file extension If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer. Tax file extension Adequate Accounting One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. Tax file extension You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. Tax file extension (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses. Tax file extension ) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. Tax file extension See Per Diem and Car Allowances , later. Tax file extension You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. Tax file extension This includes amounts you charged to your employer by credit card or other method. Tax file extension You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. Tax file extension You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. Tax file extension Per Diem and Car Allowances If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. Tax file extension A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. Tax file extension Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. Tax file extension The allowance is similar in form to and not more than the federal rate (defined later). Tax file extension You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time. Tax file extension You are not related to your employer (as defined next). Tax file extension If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement. Tax file extension If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. Tax file extension In this case, you must be able to prove your expenses to the IRS. Tax file extension Related to employer. Tax file extension   You are related to your employer if: Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant, Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer. Tax file extension You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Tax file extension The federal rate. Tax file extension   The federal rate can be figured using any one of the following methods. Tax file extension For per diem amounts: The regular federal per diem rate. Tax file extension The standard meal allowance. Tax file extension The high-low rate. Tax file extension For car expenses: The standard mileage rate. Tax file extension A fixed and variable rate (FAVR). Tax file extension    For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Tax file extension Regular federal per diem rate. Tax file extension   The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. Tax file extension The rates are different for different locations. Tax file extension Your employer should have these rates available. Tax file extension You can also find federal per diem rates at www. Tax file extension gsa. Tax file extension gov/perdiem. Tax file extension The standard meal allowance. Tax file extension   The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). Tax file extension The rate for most small localities in the United States is $46 a day. Tax file extension Most major cities and many other localities qualify for higher rates. Tax file extension You can find this information on the Internet at www. Tax file extension gsa. Tax file extension gov/perdiem. Tax file extension   You receive an allowance only for meals and incidental expenses when your employer does one of the following. Tax file extension Provides you with lodging (furnishes it in kind). Tax file extension Reimburses you, based on your receipts, for the actual cost of your lodging. Tax file extension Pays the hotel, motel, etc. Tax file extension , directly for your lodging. Tax file extension Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck. Tax file extension Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled. Tax file extension High-low rate. Tax file extension   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Tax file extension It eliminates the need to keep a current list of the per diem rates for each city. Tax file extension   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 (including $65 for M&IE) for certain high-cost locations. Tax file extension All other areas have a per diem amount of $163 (including $52 for M&IE). Tax file extension For more information, see Notice 2012-63, which can be found on the Internet at www. Tax file extension irs. Tax file extension gov/irb/2012-42_IRB/ar12. Tax file extension html. Tax file extension    Effective October 1, 2013, the per diem rate for certain high-cost locations increased to $251 (including $65 for M&IE). Tax file extension The rate for all other locations increased to $170 (including $52 for M&IE). Tax file extension Employers who did not use the high-low method during the first 9 months of 2013 cannot begin to use it before 2014. Tax file extension For more information, see Notice 2013-65, which can be found on the Internet at www. Tax file extension irs. Tax file extension gov/pub/irs-drop/n-13–65. Tax file extension pdf and Revenue Procedure 2011-47 at www. Tax file extension irs. Tax file extension gov/irb/2011-42_IRB/ar12. Tax file extension html. Tax file extension Prorating the standard meal allowance on partial days of travel. Tax file extension   The standard meal allowance is for a full 24-hour day of travel. Tax file extension If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. Tax file extension This rule also applies if your employer uses the regular federal per diem rate or the high-low rate. Tax file extension   You can use either of the following methods to figure the federal M&IE for that day. Tax file extension Method 1: For the day you depart, add 3/4 of the standard meal allowance amount for that day. Tax file extension For the day you return, add 3/4 of the standard meal allowance amount for the preceding day. Tax file extension Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. Tax file extension For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a. Tax file extension m. Tax file extension of one day to 5 p. Tax file extension m. Tax file extension of the next day as being no more than the federal rate. Tax file extension This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate. Tax file extension The standard mileage rate. Tax file extension   This is a set rate per mile that you can use to compute your deductible car expenses. Tax file extension For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Tax file extension Fixed and variable rate (FAVR). Tax file extension   This is an allowance your employer may use to reimburse your car expenses. Tax file extension Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc. Tax file extension ) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc. Tax file extension ). Tax file extension If your employer chooses to use this method, your employer will request the necessary records from you. Tax file extension Reporting your expenses with a per diem or car allowance. Tax file extension   If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting. Tax file extension The federal rate. Tax file extension Whether the allowance or your actual expenses were more than the federal rate. Tax file extension The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate. Tax file extension Allowance less than or equal to the federal rate. Tax file extension   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. Tax file extension You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance. Tax file extension   However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). Tax file extension If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. Tax file extension If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. Tax file extension Example 1. Tax file extension In April, Jeremy takes a 2-day business trip to Denver. Tax file extension The federal rate for Denver is $215 per day. Tax file extension As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. Tax file extension His employer reimburses him $215 a day ($430 total) for living expenses. Tax file extension Jeremy's living expenses in Denver are not more than $215 a day. Tax file extension Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return. Tax file extension Example 2. Tax file extension In June, Matt takes a 2-day business trip to Boston. Tax file extension Matt's employer uses the high-low method to reimburse employees. Tax file extension Since Boston is a high-cost area, Matt is given an advance of $242 a day ($484 total) for his lodging, meals, and incidental expenses. Tax file extension Matt's actual expenses totaled $700. Tax file extension Since Matt's $700 of expenses are more than his $484 advance, he includes the excess expenses when he itemizes his deductions. Tax file extension Matt completes Form 2106 (showing all of his expenses and reimbursements). Tax file extension He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ . Tax file extension Example 3. Tax file extension Nicole drives 10,000 miles in 2013 for business. Tax file extension Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Tax file extension Her employer pays her a mileage allowance of 40 cents a mile. Tax file extension Since Nicole's $5,650 expense computed under the standard mileage rate (10,000 miles x 56½ cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Tax file extension Nicole completes Form 2106 (showing all her expenses and reimbursements) and enters $1,650 ($5,650 − $4,000) as an itemized deduction. Tax file extension Allowance more than the federal rate. Tax file extension   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. Tax file extension This amount is not taxable. Tax file extension However, the excess allowance will be included in box 1 of your Form W-2. Tax file extension You must report this part of your allowance as if it were wage income. Tax file extension   If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return. Tax file extension   However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. Tax file extension You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. Tax file extension You should be able to prove these amounts to the IRS. Tax file extension Example 1. Tax file extension Laura lives and works in Austin. Tax file extension In July her employer sent her to Albuquerque for 4 days on business. Tax file extension Laura's employer paid the hotel directly for her lodging and reimbursed Laura $65 a day ($260 total) for meals and incidental expenses. Tax file extension Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $56 per day. Tax file extension Table 6-1. Tax file extension Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements IF the type of reimbursement (or  other expense allowance)  arrangement is under: THEN the employer reports on Form W-2: AND the employee reports on  Form 2106: * An accountable plan with: Actual expense reimbursement: Adequate accounting made and excess returned. Tax file extension No amount. Tax file extension No amount. Tax file extension Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned. Tax file extension The excess amount as wages in box 1. Tax file extension No amount. Tax file extension Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned. Tax file extension No amount. Tax file extension All expenses and reimbursements only if excess expenses are claimed. Tax file extension Otherwise, form is not filed. Tax file extension Per diem or mileage allowance up to the federal rate: Adequate accounting and return of excess both required but excess not returned. Tax file extension The excess amount as wages in box 1. Tax file extension The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Tax file extension No amount. Tax file extension Per diem or mileage allowance exceeds the federal rate: Adequate accounting up to the federal rate only and excess not returned. Tax file extension The excess amount as wages in box 1. Tax file extension The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Tax file extension All expenses (and reimbursements reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Tax file extension Otherwise, form is not filed. Tax file extension A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan. Tax file extension The entire amount as wages in box 1. Tax file extension All expenses. Tax file extension No reimbursement plan: The entire amount as wages in box 1. Tax file extension All expenses. Tax file extension * You may be able to use Form 2106-EZ. Tax file extension See Completing Forms 2106 and 2106-EZ . Tax file extension Her employer included the $36 that was more than the federal rate (($65 − $56) × 4) in box 1 of Laura's Form W-2. Tax file extension Her employer shows $224 ($56 a day × 4) in box 12 of her Form W-2. Tax file extension This amount is not included in Laura's income. Tax file extension Laura does not have to complete Form 2106; however, she must include the $36 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2). Tax file extension Example 2. Tax file extension Joe also lives in Austin and works for the same employer as Laura. Tax file extension In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. Tax file extension The employer reimbursed Joe $75 a day for his meals and incidental expenses. Tax file extension The federal rate for San Diego is $71 a day. Tax file extension Joe can prove that his actual meal expenses totaled $380. Tax file extension His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. Tax file extension However, he does account for the time, place, and business purpose of the trip. Tax file extension This is Joe's only business trip this year. Tax file extension Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal rate of $284 ($71 × 4 days). Tax file extension The employer includes the $16 as income on Joe's Form W-2 in box 1. Tax file extension The employer also enters $284 in box 12 of Joe's Form W-2. Tax file extension Joe completes Form 2106 to figure his deductible expenses. Tax file extension He enters the total of his actual expenses for the year ($380) on Form 2106. Tax file extension He also enters the reimbursements that were not included in his income ($284). Tax file extension His total deductible expense, before the 50% limit, is $96. Tax file extension After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $48, as an itemized deduction. Tax file extension Example 3. Tax file extension Debbie drives 10,000 miles in 2013 for business. Tax file extension Under her employer's accountable plan, she gets reimbursed 60 cents a mile, which is more than the standard mileage rate. Tax file extension Her total reimbursement is $6,000. Tax file extension Debbie's employer must include the reimbursement amount up to the standard mileage rate, $5,650 (10,000 × 56½ cents), in box 12 of her Form W-2. Tax file extension That amount is not taxable. Tax file extension Her employer must also include $350 ($6,000 − $5,650) in box 1 of her Form W-2. Tax file extension This is the reimbursement that is more than the standard mileage rate. Tax file extension If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. Tax file extension If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 12 of her Form W-2). Tax file extension She would then claim the excess expenses as an itemized deduction. Tax file extension Returning Excess Reimbursements Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Tax file extension Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. Tax file extension For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement. Tax file extension “ Adequate accounting ” and “ reasonable period of time ” were discussed earlier in this chapter. Tax file extension Travel advance. Tax file extension   You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Tax file extension Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time. Tax file extension   If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). Tax file extension Unproved amounts. Tax file extension   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproved amount of the travel advance within a reasonable period of time. Tax file extension If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). Tax file extension Per diem allowance more than federal rate. Tax file extension   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. Tax file extension However, the difference will be reported as wages on your Form W-2. Tax file extension This excess amount is considered paid under a nonaccountable plan (discussed later). Tax file extension Example. Tax file extension Your employer sends you on a 5-day business trip to Phoenix in March 2013 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. Tax file extension The federal per diem for meals and incidental expenses for Phoenix is $71. Tax file extension Your trip lasts only 3 days. Tax file extension Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. Tax file extension For the 3 days you did travel you do not have to return the $27 difference between the allowance you received and the federal rate for Phoenix (($80 − $71) × 3 days). Tax file extension However, the $27 will be reported on your Form W-2 as wages. Tax file extension Nonaccountable Plans A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. Tax file extension In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. Tax file extension See Reimbursement of nondeductible expenses , earlier, under Accountable Plans. Tax file extension An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. Tax file extension This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. Tax file extension If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer. Tax file extension Reporting your expenses under a nonaccountable plan. Tax file extension   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Tax file extension Your employer will report the total in box 1 of your Form W-2. Tax file extension    You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Tax file extension Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Tax file extension Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Tax file extension Example 1. Tax file extension Kim's employer gives her $1,000 a month ($12,000 total for the year) for her business expenses. Tax file extension Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend. Tax file extension Kim is being reimbursed under a nonaccountable plan. Tax file extension Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. Tax file extension If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions. Tax file extension Example 2. Tax file extension Kevin is paid $2,000 a month by his employer. Tax file extension On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Tax file extension Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. Tax file extension No part of the $50 a day designated by his employer is treated as paid under an accountable plan. Tax file extension Rules for Independent Contractors and Clients This section provides rules for independent contractors who incur expenses on behalf of a client or customer. Tax file extension The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers. Tax file extension You are considered an independent contractor if you are self-employed and you perform services for a customer or client. Tax file extension Accounting to Your Client If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. Tax file extension If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. Tax file extension You must keep adequate records of these expenses whether or not you account to your client for these expenses. Tax file extension If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. Tax file extension See 50% Limit in chapter 2. Tax file extension Adequate accounting. Tax file extension   As a self-employed person, you adequately account by reporting your actual expenses. Tax file extension You should follow the recordkeeping rules in chapter 5 . Tax file extension How to report. Tax file extension   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter. Tax file extension Required Records for Clients or Customers If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. Tax file extension However, you must keep records if: You reimburse the contractor for entertainment expenses incurred on your behalf, and The contractor adequately accounts to you for these expenses. Tax file extension Contractor adequately accounts. Tax file extension   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Tax file extension Use your records as proof for a deduction on your tax return. Tax file extension If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. Tax file extension If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return. Tax file extension Contractor does not adequately account. Tax file extension    If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. Tax file extension You are not subject to the 50% limit on entertainment in this case. Tax file extension You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. Tax file extension However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year. Tax file extension How To Use Per Diem Rate Tables This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year. Tax file extension The Two Substantiation Methods High-low method. Tax file extension   IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Tax file extension Notice 2012–63, available at www. Tax file extension irs. Tax file extension gov/irb/2012–42_IRB/ar12. Tax file extension html, lists the localities that are eligible for $242 ($65 meals and incidental expenses (M&IE)) per diem, effective October 1, 2012. Tax file extension For travel on or after October 1, 2012, all other localities within CONUS are eligible for $163 ($52 M&IE) per diem under the high-low method. Tax file extension   Notice 2013–65, available at www. Tax file extension irs. Tax file extension gov/pub/irs-drop/n-13–65. Tax file extension pdf, lists the localities that are eligible for $251 ($65 M&IE) per diem, effective October 1, 2013. Tax file extension For travel on or after October 1, 2013, the per diem for all other localities increased to $170 ($52 M&IE). Tax file extension Regular federal per diem rate method. Tax file extension   Regular federal per diem rates are published by the General Services Administration (GSA). Tax file extension Both tables include the separate rate for meals and incidental expenses (M&IE) for each locality. Tax file extension The rates listed for FY2013 at www. Tax file extension gsa. Tax file extension gov/perdiem are effective October 1, 2012 and those listed for FY2014 are effective October 1, 2013. Tax file extension The standard rate for all locations within CONUS not specifically listed for FY2013 is $123 ($77 for lodging and $46 for M&IE). Tax file extension For FY2014, this rate increased to $129 ($83 for lodging and $46 for M&IE). Tax file extension Transition Rules The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally October 1) through December 31. Tax file extension During this period, you generally may change to the new rates or finish out the year with the rates you had been using. Tax file extension High-low method. Tax file extension   If you use the high-low substantiation method, when new rates become effective (generally October 1) you can either continue with the rates you used for the first part of the year or change to the new rates. Tax file extension However, you must continue using the high-low method for the rest of the calendar year (through December 31). Tax file extension If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year. Tax file extension   The new rates and localities for the high-low method are included each year in a notice that is generally published in mid-to-late-September. Tax file extension You can find the notice in the weekly Internal Revenue Bulletin (IRB) on the Internet at www. Tax file extension irs. Tax file extension gov/irb. Tax file extension Federal per diem rate method. Tax file extension   New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Tax file extension Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). Tax file extension However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates. Tax file extension   The new federal CONUS per diem rates are published each year, generally early in September, on the Internet. Tax file extension Go to www. Tax file extension gsa. Tax file extension gov/perdiem. Tax file extension Per diem rates for localities listed for FY2014 may change at any time. Tax file extension To be sure you have the most current rate, check www. Tax file extension gsa. Tax file extension gov/perdiem. Tax file extension Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106 and 2106-EZ. Tax file extension Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. Tax file extension The instructions for the forms have more information on completing them. Tax file extension If you are self-employed, do not file Form 2106 or 2106-EZ. Tax file extension Report your expenses on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Tax file extension See the instructions for the form that you must file. Tax file extension Form 2106-EZ. Tax file extension   You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. Tax file extension You can use this form if you meet all the following conditions. Tax file extension You are an employee deducting ordinary and necessary expenses attributable to your job. Tax file extension You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Tax file extension If you are claiming car expenses, you are using the standard mileage rate. Tax file extension Car expenses. Tax file extension   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. Tax file extension These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Tax file extension Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. Tax file extension Information on use of cars. Tax file extension   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. Tax file extension The information relates to the following items. Tax file extension Date placed in service. Tax file extension Mileage (total, business, commuting, and other personal mileage). Tax file extension Percentage of business use. Tax file extension After-work use. Tax file extension Use of other vehicles. Tax file extension Whether you have evidence to support the deduction. Tax file extension Whether or not the evidence is written. Tax file extension Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information. Tax file extension Standard mileage rate. Tax file extension   If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. Tax file extension The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. Tax file extension In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. Tax file extension If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. Tax file extension See Standard Mileage Rate in chapter 4 for information on using this rate. Tax file extension Actual expenses. Tax file extension   If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. Tax file extension You must complete Form 2106, Part II, Section C. Tax file extension In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim. Tax file extension   If you are still using a car that is fully depreciated, continue to complete Section C. Tax file extension Since you have no depreciation deduction, enter zero on line 28. Tax file extension In this case, do not complete Section D. Tax file extension Car rentals. Tax file extension   If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. Tax file extension If so, you can show your car expenses and any inclusion amount as follows. Tax file extension Compute the inclusion amount without taking into account your business use percentage for the tax year. Tax file extension Report the inclusion amount from (1) on Form 2106, Part II, line 24b. Tax file extension Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)). Tax file extension The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year. Tax file extension Transportation expenses. Tax file extension   Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Tax file extension Also include on this line business expenses you have for parking fees and tolls. Tax file extension Do not include expenses of operating your car or expenses of commuting between your home and work. Tax file extension Employee business expenses other than meals and entertainment. Tax file extension   Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Tax file extension Do not include expenses for meals and entertainment on those lines. Tax file extension Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications. Tax file extension    If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Tax file extension Claim these amounts directly on Schedule A (Form 1040), line 21. Tax file extension List the type and amount of each expense on the dotted lines and include the total on line 21. Tax file extension Meal and entertainment expenses. Tax file extension   Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Tax file extension Include meals while away from your tax home overnight and other business meals and entertainment. Tax file extension Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B. Tax file extension   If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Tax file extension Enter the result on line 5. Tax file extension Hours of service limits. Tax file extension   If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for meals while away from your tax home. Tax file extension Reimbursements. Tax file extension   Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. Tax file extension This includes any amount reported under code L in box 12 of Form W-2. Tax file extension Allocating your reimbursement. Tax file extension   If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. Tax file extension This is necessary when your employer pays your reimbursement in the following manner: Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and Does not clearly identify how much is for deductible meals and/or entertainment. Tax file extension You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B. Tax file extension Example. Tax file extension Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. Tax file extension The $12,000 payment consisted of $5,000 for airfare and $7,000 for meals, entertainment, and car expenses. Tax file extension The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Tax file extension Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and entertainment, and $4,000 for car expenses). Tax file extension Since the airfare allowance was clearly identified, Rob knows that $5,000 of the payment goes in Column A, line 7, of Form 2106. Tax file extension To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. Tax file extension His completed worksheet follows. Tax file extension Reimbursement Allocation Worksheet (Keep for your records)   1. Tax file extension Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 $7,000   2. Tax file extension Enter the total amount of your expenses for the periods covered by this reimbursement 8,500   3. Tax file extension Of the amount on line 2, enter your total expense for meals and entertainment 4,500   4. Tax file extension Divide line 3 by line 2. Tax file extension Enter the result as a decimal (rounded to at least three places) . Tax file extension 529   5. Tax file extension Multiply line 1 by line 4. Tax file extension Enter the result here and in Column B, line 7 3,703   6. Tax file extension Subtract line 5 from line 1. Tax file extension Enter the result here and in Column A, line 7 $3,297 On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B. Tax file extension After you complete the form. Tax file extension   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. Tax file extension For most taxpayers, this is line 21 of Schedule A (Form 1040). Tax file extension However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later. Tax file extension Limits on employee business expenses. Tax file extension   Your employee business expenses may be subject to either of the limits described next. Tax file extension They are figured in the following order on the specified form. Tax file extension 1. Tax file extension Limit on meals and entertainment. Tax file extension   Certain meal and entertainment expenses are subject to a 50% limit. Tax file extension If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. Tax file extension (See 50% Limit in chapter 2. Tax file extension ) 2. Tax file extension Limit on miscellaneous itemized deductions. Tax file extension   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Tax file extension Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of-adjusted-gross-income limit. Tax file extension This limit is figured on line 26 of Schedule A (Form 1040). Tax file extension 3. Tax file extension Limit on total itemized deductions. Tax file extension   If your adjusted gross income (line 38 of Form 1040) is more than $300,000 ($150,000 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. Tax file extension See your form instructions for information on how to figure this limit. Tax file extension Special Rules This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. Tax file extension Armed Forces Reservists Traveling More Than 100 Miles From Home If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Tax file extension The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Tax file extension See Per Diem and Car Allowances , earlier, for more information. Tax file extension Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit. Tax file extension Member of a reserve component. Tax file extension   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. Tax file extension How to report. Tax file extension   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Tax file extension Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Tax file extension Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Tax file extension   You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Tax file extension Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21. Tax file extension Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040). Tax file extension Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. Tax file extension They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction. Tax file extension If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Tax file extension Expenses of Certain Performing Artists If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Tax file extension To qualify, you must meet all of the following requirements. Tax file extension During the tax year, you perform services in the performing arts as an employee for at least two employers. Tax file extension You receive at least $200 each from any two of these employers. Tax file extension Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services. Tax file extension Your adjusted gross income is not more than $16,000 before deducting these business expenses. Tax file extension Special rules for married persons. Tax file extension   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. Tax file extension If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. Tax file extension However, requirement (4) applies to your and your spouse's combined adjusted gross income. Tax file extension Where to report. Tax file extension   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Tax file extension Then you include your performing-arts-related expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Tax file extension   If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Tax file extension Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. Tax file extension Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. Tax file extension After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Tax file extension Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 21. Tax file extension Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work. Tax file extension You are disabled if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Tax file extension You can deduct impairment-related expenses as business expenses if they are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Tax file extension Example 1. Tax file extension You are blind. Tax file extension You must use a reader to do your work. Tax file extension You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Tax file extension The reader's services are only for your work. Tax file extension You can deduct your expenses for the reader as business expenses. Tax file extension Example 2. Tax file extension You are deaf. Tax file extension You must use a sign language interpreter during meetings while you are at work. Tax file extension The interpreter's services are used only for your work. Tax file extension You can deduct your expenses for the interpreter as business expenses. Tax file extension Prev  Up  Next   Home   More Online Publications