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Taxes For Military Members

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Taxes For Military Members

Taxes for military members Publication 463 - Introductory Material Table of Contents Future Developments What's New Reminder IntroductionUsers of employer-provided vehicles. Taxes for military members Volunteers. Taxes for military members Ordering forms and publications. Taxes for military members Tax questions. Taxes for military members Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 463, such as legislation enacted after it was published, go to www. Taxes for military members irs. Taxes for military members gov/pub463. Taxes for military members What's New Standard mileage rate. Taxes for military members  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Taxes for military members Car expenses and use of the standard mileage rate are explained in chapter 4. Taxes for military members Depreciation limits on cars, trucks, and vans. Taxes for military members  For 2013, the first-year limit on the total depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Taxes for military members For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Taxes for military members Depreciation limits are explained in chapter 4. Taxes for military members Section 179 deduction. Taxes for military members  For 2013, the section 179 deduction limit on qualifying property purchases (including cars, trucks, and vans) is a total of $500,000 and the limit on those purchases at which the deduction begins to be phased out is $2,000,000. Taxes for military members Section 179 Deduction is explained in chapter 4. Taxes for military members Special depreciation allowance. Taxes for military members  For 2013, the special (“bonus”) depreciation allowance on qualified property (including cars, trucks, and vans) remains at 50%. Taxes for military members Special Depreciation Allowance is explained in chapter 4. Taxes for military members Reminder Photographs of missing children. Taxes for military members  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Taxes for military members Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Taxes for military members You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Taxes for military members Per diem rates. Taxes for military members  The IRS no longer updates Publication 1542, Per Diem Rates (For Travel Within the Continental United States). Taxes for military members Instead, current per diem rates may be found on the U. Taxes for military members S. Taxes for military members General Services Administration (GSA) website at www. Taxes for military members gsa. Taxes for military members gov/perdiem. Taxes for military members Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. Taxes for military members An ordinary expense is one that is common and accepted in your trade or business. Taxes for military members A necessary expense is one that is helpful and appropriate for your business. Taxes for military members An expense does not have to be required to be considered necessary. Taxes for military members This publication explains: What expenses are deductible, How to report them on your return, What records you need to prove your expenses, and How to treat any expense reimbursements you may receive. Taxes for military members Who should use this publication. Taxes for military members   You should read this publication if you are an employee or a sole proprietor who has business-related travel, entertainment, gift, or transportation expenses. Taxes for military members Users of employer-provided vehicles. Taxes for military members   If an employer-provided vehicle was available for your use, you received a fringe benefit. Taxes for military members Generally, your employer must include the value of the use or availability of the vehicle in your income. Taxes for military members However, there are exceptions if the use of the vehicle qualifies as a working condition fringe benefit (such as the use of a qualified nonpersonal use vehicle). Taxes for military members   A working condition fringe benefit is any property or service provided to you by your employer for which you could deduct the cost as an employee business expense if you had paid for it. Taxes for military members   A qualified nonpersonal use vehicle is one that is not likely to be used more than minimally for personal purposes because of its design. Taxes for military members See Qualified nonpersonal use vehicles under Actual Car Expenses in chapter 4. Taxes for military members   For information on how to report your car expenses that your employer did not provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer provides), see Vehicle Provided by Your Employer in chapter 6. Taxes for military members Who does not need to use this publication. Taxes for military members   Partnerships, corporations, trusts, and employers who reimburse their employees for business expenses should refer to their tax form instructions and chapter 11 of Publication 535, Business Expenses, for information on deducting travel, meals, and entertainment expenses. Taxes for military members   If you are an employee, you will not need to read this publication if all of the following are true. Taxes for military members You fully accounted to your employer for your work-related expenses. Taxes for military members You received full reimbursement for your expenses. Taxes for military members Your employer required you to return any excess reimbursement and you did so. Taxes for military members There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. Taxes for military members If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. Taxes for military members If you would like more information on reimbursements and accounting to your employer, see chapter 6 . Taxes for military members    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. Taxes for military members Volunteers. Taxes for military members   If you perform services as a volunteer worker for a qualified charity, you may be able to deduct some of your costs as a charitable contribution. Taxes for military members See Out-of-Pocket Expenses in Giving Services in Publication 526, Charitable Contributions, for information on the expenses you can deduct. Taxes for military members Comments and suggestions. Taxes for military members   We welcome your comments about this publication and your suggestions for future editions. Taxes for military members   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Taxes for military members NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxes for military members Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxes for military members   You can send your comments from www. Taxes for military members irs. Taxes for military members gov/formspubs/. Taxes for military members Click on “More Information” and then on “Comment on Tax Forms and Publications. Taxes for military members ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Taxes for military members Ordering forms and publications. Taxes for military members   Visit www. Taxes for military members irs. Taxes for military members gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Taxes for military members Internal Revenue Service 1201 N. Taxes for military members Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Taxes for military members   If you have a tax question, check the information available on IRS. Taxes for military members gov or call 1-800-829-1040. Taxes for military members We cannot answer tax questions sent to either of the above addresses. Taxes for military members Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 529 Miscellaneous Deductions 535 Business Expenses 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 7, How To Get Tax Help , for information about getting these publications and forms. Taxes for military members Prev  Up  Next   Home   More Online Publications
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The Taxes For Military Members

Taxes for military members 5. Taxes for military members   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Taxes for military members Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Taxes for military members   If you are a U. Taxes for military members S. Taxes for military members citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Taxes for military members S. Taxes for military members law. Taxes for military members This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Taxes for military members This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Taxes for military members If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Taxes for military members For details, see Publication 54, Tax Guide for U. Taxes for military members S. Taxes for military members Citizens and Resident Aliens Abroad. Taxes for military members Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Taxes for military members The following topics are included. Taxes for military members Bonuses and awards. Taxes for military members Special rules for certain employees. Taxes for military members Sickness and injury benefits. Taxes for military members The chapter explains what income is included in the employee's gross income and what is not included. Taxes for military members Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Taxes for military members Form W-2. Taxes for military members    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Taxes for military members Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Taxes for military members   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Taxes for military members These wages must be included on line 7 of Form 1040. Taxes for military members See Form 8919 for more information. Taxes for military members Childcare providers. Taxes for military members    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Taxes for military members If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Taxes for military members You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Taxes for military members Babysitting. Taxes for military members   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Taxes for military members Miscellaneous Compensation This section discusses different types of employee compensation. Taxes for military members Advance commissions and other earnings. Taxes for military members   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Taxes for military members    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Taxes for military members If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Taxes for military members See Repayments in chapter 12. Taxes for military members Allowances and reimbursements. Taxes for military members    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Taxes for military members If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Taxes for military members Back pay awards. Taxes for military members    Include in income amounts you are awarded in a settlement or judgment for back pay. Taxes for military members These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Taxes for military members They should be reported to you by your employer on Form W-2. Taxes for military members Bonuses and awards. Taxes for military members   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Taxes for military members These include prizes such as vacation trips for meeting sales goals. Taxes for military members If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Taxes for military members However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Taxes for military members Employee achievement award. Taxes for military members   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Taxes for military members However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Taxes for military members Your employer can tell you whether your award is a qualified plan award. Taxes for military members Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Taxes for military members   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Taxes for military members A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Taxes for military members Example. Taxes for military members Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Taxes for military members Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Taxes for military members However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. Taxes for military members Differential wage payments. Taxes for military members   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. Taxes for military members These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Taxes for military members The payments are reported as wages on Form W-2. Taxes for military members Government cost-of-living allowances. Taxes for military members   Most payments received by U. Taxes for military members S. Taxes for military members Government civilian employees for working abroad are taxable. Taxes for military members However, certain cost-of-living allowances are tax free. Taxes for military members Publication 516, U. Taxes for military members S. Taxes for military members Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Taxes for military members Nonqualified deferred compensation plans. Taxes for military members   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Taxes for military members This amount is shown on Form W-2, box 12, using code Y. Taxes for military members This amount is not included in your income. Taxes for military members   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Taxes for military members This amount is included in your wages shown on Form W-2, box 1. Taxes for military members It is also shown on Form W-2, box 12, using code Z. Taxes for military members Note received for services. Taxes for military members    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Taxes for military members When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Taxes for military members Do not include that part again in your income. Taxes for military members Include the rest of the payment in your income in the year of payment. Taxes for military members   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Taxes for military members Severance pay. Taxes for military members   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Taxes for military members Accrued leave payment. Taxes for military members    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Taxes for military members   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Taxes for military members You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Taxes for military members Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. Taxes for military members Outplacement services. Taxes for military members   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Taxes for military members    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Taxes for military members Sick pay. Taxes for military members   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Taxes for military members In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Taxes for military members A state sickness or disability fund. Taxes for military members An association of employers or employees. Taxes for military members An insurance company, if your employer paid for the plan. Taxes for military members However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Taxes for military members For more information, see Publication 525. Taxes for military members Social security and Medicare taxes paid by employer. Taxes for military members   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Taxes for military members The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Taxes for military members However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Taxes for military members Stock appreciation rights. Taxes for military members   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Taxes for military members When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Taxes for military members You include the cash payment in your income in the year you use the right. Taxes for military members Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Taxes for military members Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Taxes for military members Accounting period. Taxes for military members   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Taxes for military members Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Taxes for military members The general rule: benefits are reported for a full calendar year (January 1–December 31). Taxes for military members The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Taxes for military members For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Taxes for military members  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Taxes for military members   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Taxes for military members Form W-2. Taxes for military members   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Taxes for military members Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Taxes for military members However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Taxes for military members Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Taxes for military members Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Taxes for military members For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Taxes for military members Long-term care coverage. Taxes for military members    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Taxes for military members However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Taxes for military members This amount will be reported as wages in box 1 of your Form W-2. Taxes for military members   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Taxes for military members Archer MSA contributions. Taxes for military members    Contributions by your employer to your Archer MSA generally are not included in your income. Taxes for military members Their total will be reported in box 12 of Form W-2 with code R. Taxes for military members You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Taxes for military members File the form with your return. Taxes for military members Health flexible spending arrangement (health FSA). Taxes for military members   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Taxes for military members Note. Taxes for military members Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Taxes for military members The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Taxes for military members For more information, see Notice 2012-40, 2012-26 I. Taxes for military members R. Taxes for military members B. Taxes for military members 1046, available at www. Taxes for military members irs. Taxes for military members gov/irb/2012-26 IRB/ar09. Taxes for military members html. Taxes for military members Health reimbursement arrangement (HRA). Taxes for military members   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Taxes for military members Health savings accounts (HSA). Taxes for military members   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Taxes for military members Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Taxes for military members Contributions made by your employer are not included in your income. Taxes for military members Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Taxes for military members Distributions not used for qualified medical expenses are included in your income. Taxes for military members See Publication 969 for the requirements of an HSA. Taxes for military members   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Taxes for military members The contributions are treated as a distribution of money and are not included in the partner's gross income. Taxes for military members Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Taxes for military members In both situations, the partner can deduct the contribution made to the partner's HSA. Taxes for military members   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Taxes for military members The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Taxes for military members Qualified HSA funding distribution. Taxes for military members   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Taxes for military members See Publication 590 for the requirements for these qualified HSA funding distributions. Taxes for military members Failure to maintain eligibility. Taxes for military members   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Taxes for military members If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Taxes for military members This income is also subject to an additional 10% tax. Taxes for military members Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Taxes for military members See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Taxes for military members Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Taxes for military members They also are included as social security and Medicare wages in boxes 3 and 5. Taxes for military members However, they are not included as wages in box 1. Taxes for military members To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Taxes for military members File the form with your return. Taxes for military members De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Taxes for military members In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Taxes for military members Holiday gifts. Taxes for military members   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Taxes for military members However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Taxes for military members Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Taxes for military members For more information, see Publication 970, Tax Benefits for Education. Taxes for military members Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Taxes for military members However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Taxes for military members For exceptions, see Entire cost excluded , and Entire cost taxed , later. Taxes for military members If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Taxes for military members Also, it is shown separately in box 12 with code C. Taxes for military members Group-term life insurance. Taxes for military members   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Taxes for military members Permanent benefits. Taxes for military members   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Taxes for military members Your employer should be able to tell you the amount to include in your income. Taxes for military members Accidental death benefits. Taxes for military members   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Taxes for military members Former employer. Taxes for military members   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Taxes for military members Also, it is shown separately in box 12 with code C. Taxes for military members Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Taxes for military members You must pay these taxes with your income tax return. Taxes for military members Include them on line 60, Form 1040, and follow the instructions for line 60. Taxes for military members For more information, see the Instructions for Form 1040. Taxes for military members Two or more employers. Taxes for military members   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Taxes for military members If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Taxes for military members You must figure how much to include in your income. Taxes for military members Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Taxes for military members Figuring the taxable cost. Taxes for military members   Use the following worksheet to figure the amount to include in your income. Taxes for military members     Worksheet 5-1. Taxes for military members Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Taxes for military members Enter the total amount of your insurance coverage from your employer(s) 1. Taxes for military members   2. Taxes for military members Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxes for military members 50,000 3. Taxes for military members Subtract line 2 from line 1 3. Taxes for military members   4. Taxes for military members Divide line 3 by $1,000. Taxes for military members Figure to the nearest tenth 4. Taxes for military members   5. Taxes for military members Go to Table 5-1. Taxes for military members Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxes for military members   6. Taxes for military members Multiply line 4 by line 5 6. Taxes for military members   7. Taxes for military members Enter the number of full months of coverage at this cost. Taxes for military members 7. Taxes for military members   8. Taxes for military members Multiply line 6 by line 7 8. Taxes for military members   9. Taxes for military members Enter the premiums you paid per month 9. Taxes for military members       10. Taxes for military members Enter the number of months you paid the premiums 10. Taxes for military members       11. Taxes for military members Multiply line 9 by line 10. Taxes for military members 11. Taxes for military members   12. Taxes for military members Subtract line 11 from line 8. Taxes for military members Include this amount in your income as wages 12. Taxes for military members      Table 5-1. Taxes for military members Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Taxes for military members 05 25 through 29 . Taxes for military members 06 30 through 34 . Taxes for military members 08 35 through 39 . Taxes for military members 09 40 through 44 . Taxes for military members 10 45 through 49 . Taxes for military members 15 50 through 54 . Taxes for military members 23 55 through 59 . Taxes for military members 43 60 through 64 . Taxes for military members 66 65 through 69 1. Taxes for military members 27 70 and older 2. Taxes for military members 06 Example. Taxes for military members You are 51 years old and work for employers A and B. Taxes for military members Both employers provide group-term life insurance coverage for you for the entire year. Taxes for military members Your coverage is $35,000 with employer A and $45,000 with employer B. Taxes for military members You pay premiums of $4. Taxes for military members 15 a month under the employer B group plan. Taxes for military members You figure the amount to include in your income as shown in Worksheet 5-1. Taxes for military members Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Taxes for military members Worksheet 5-1. Taxes for military members Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Taxes for military members Enter the total amount of your insurance coverage from your employer(s) 1. Taxes for military members 80,000 2. Taxes for military members Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxes for military members 50,000 3. Taxes for military members Subtract line 2 from line 1 3. Taxes for military members 30,000 4. Taxes for military members Divide line 3 by $1,000. Taxes for military members Figure to the nearest tenth 4. Taxes for military members 30. Taxes for military members 0 5. Taxes for military members Go to Table 5-1. Taxes for military members Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxes for military members . Taxes for military members 23 6. Taxes for military members Multiply line 4 by line 5 6. Taxes for military members 6. Taxes for military members 90 7. Taxes for military members Enter the number of full months of coverage at this cost. Taxes for military members 7. Taxes for military members 12 8. Taxes for military members Multiply line 6 by line 7 8. Taxes for military members 82. Taxes for military members 80 9. Taxes for military members Enter the premiums you paid per month 9. Taxes for military members 4. Taxes for military members 15     10. Taxes for military members Enter the number of months you paid the premiums 10. Taxes for military members 12     11. Taxes for military members Multiply line 9 by line 10. Taxes for military members 11. Taxes for military members 49. Taxes for military members 80 12. Taxes for military members Subtract line 11 from line 8. Taxes for military members Include this amount in your income as wages 12. Taxes for military members 33. Taxes for military members 00 Entire cost excluded. Taxes for military members   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Taxes for military members You are permanently and totally disabled and have ended your employment. Taxes for military members Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxes for military members A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxes for military members (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Taxes for military members ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Taxes for military members Entire cost taxed. Taxes for military members   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Taxes for military members You are a key employee and your employer's plan discriminates in favor of key employees. Taxes for military members Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Taxes for military members Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Taxes for military members You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Taxes for military members Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Taxes for military members A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Taxes for military members Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Taxes for military members However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Taxes for military members Exclusion limit. Taxes for military members   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Taxes for military members   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Taxes for military members   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Taxes for military members   If the benefits have a value that is more than these limits, the excess must be included in your income. Taxes for military members You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Taxes for military members Commuter highway vehicle. Taxes for military members   This is a highway vehicle that seats at least six adults (not including the driver). Taxes for military members At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Taxes for military members Transit pass. Taxes for military members   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Taxes for military members Qualified parking. Taxes for military members   This is parking provided to an employee at or near the employer's place of business. Taxes for military members It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Taxes for military members It does not include parking at or near the employee's home. Taxes for military members Qualified bicycle commuting. Taxes for military members   This is reimbursement based on the number of qualified bicycle commuting months for the year. Taxes for military members A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Taxes for military members The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Taxes for military members Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Taxes for military members (Your employer can tell you whether your retirement plan is qualified. Taxes for military members ) However, the cost of life insurance coverage included in the plan may have to be included. Taxes for military members See Group-Term Life Insurance , earlier, under Fringe Benefits. Taxes for military members If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Taxes for military members However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Taxes for military members For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Taxes for military members S. Taxes for military members Civil Service Retirement Benefits, if you are a federal employee or retiree). Taxes for military members Elective deferrals. Taxes for military members   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Taxes for military members The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Taxes for military members An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Taxes for military members However, it is included in wages subject to social security and Medicare taxes. Taxes for military members   Elective deferrals include elective contributions to the following retirement plans. Taxes for military members Cash or deferred arrangements (section 401(k) plans). Taxes for military members The Thrift Savings Plan for federal employees. Taxes for military members Salary reduction simplified employee pension plans (SARSEP). Taxes for military members Savings incentive match plans for employees (SIMPLE plans). Taxes for military members Tax-sheltered annuity plans (403(b) plans). Taxes for military members Section 501(c)(18)(D) plans. Taxes for military members Section 457 plans. Taxes for military members Qualified automatic contribution arrangements. Taxes for military members   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Taxes for military members You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Taxes for military members The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Taxes for military members   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Taxes for military members Overall limit on deferrals. Taxes for military members   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. Taxes for military members The limit for SIMPLE plans is $12,000. Taxes for military members The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Taxes for military members The limit for section 457 plans is the lesser of your includible compensation or $17,500. Taxes for military members Amounts deferred under specific plan limits are part of the overall limit on deferrals. Taxes for military members Designated Roth contributions. Taxes for military members   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Taxes for military members Designated Roth contributions are treated as elective deferrals, except that they are included in income. Taxes for military members Excess deferrals. Taxes for military members   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Taxes for military members However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Taxes for military members   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Taxes for military members See Publication 525 for a discussion of the tax treatment of excess deferrals. Taxes for military members Catch-up contributions. Taxes for military members   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Taxes for military members Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. Taxes for military members However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Taxes for military members Your employer can tell you which kind of option you hold. Taxes for military members For more information, see Publication 525. Taxes for military members Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Taxes for military members However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Taxes for military members (You can choose to include the value of the property in your income in the year it is transferred to you. Taxes for military members ) For more information, see Restricted Property in Publication 525. Taxes for military members Dividends received on restricted stock. Taxes for military members   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Taxes for military members Your employer should include these payments on your Form W-2. Taxes for military members Stock you chose to include in income. Taxes for military members   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Taxes for military members Report them on your return as dividends. Taxes for military members For a discussion of dividends, see chapter 8. Taxes for military members    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Taxes for military members Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Taxes for military members Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Taxes for military members , in addition to your salary. Taxes for military members If the offering is made to the religious institution, it is not taxable to you. Taxes for military members If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Taxes for military members However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Taxes for military members See chapter 24. Taxes for military members Pension. Taxes for military members    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Taxes for military members It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxes for military members Housing. Taxes for military members    Special rules for housing apply to members of the clergy. Taxes for military members Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Taxes for military members However, the exclusion cannot be more than the reasonable pay for your service. Taxes for military members If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Taxes for military members The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Taxes for military members However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Taxes for military members For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Taxes for military members Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Taxes for military members Services performed for the order. Taxes for military members   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Taxes for military members   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Taxes for military members Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Taxes for military members Example. Taxes for military members You are a member of a church order and have taken a vow of poverty. Taxes for military members You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Taxes for military members You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Taxes for military members However, you remain under the general direction and control of the order. Taxes for military members You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Taxes for military members Services performed outside the order. Taxes for military members   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Taxes for military members They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Taxes for military members If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Taxes for military members Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Taxes for military members Example. Taxes for military members Mark Brown is a member of a religious order and has taken a vow of poverty. Taxes for military members He renounces all claims to his earnings and turns over his earnings to the order. Taxes for military members Mark is a schoolteacher. Taxes for military members He was instructed by the superiors of the order to get a job with a private tax-exempt school. Taxes for military members Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Taxes for military members Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Taxes for military members The wages Mark earns working for the school are included in his income. Taxes for military members Foreign Employer Special rules apply if you work for a foreign employer. Taxes for military members U. Taxes for military members S. Taxes for military members citizen. Taxes for military members   If you are a U. Taxes for military members S. Taxes for military members citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Taxes for military members Social security and Medicare taxes. Taxes for military members   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Taxes for military members However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Taxes for military members This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Taxes for military members Employees of international organizations or foreign governments. Taxes for military members   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Taxes for military members   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Taxes for military members You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Taxes for military members Your work is like the work done by employees of the United States in foreign countries. Taxes for military members The foreign government gives an equal exemption to employees of the United States in its country. Taxes for military members Waiver of alien status. Taxes for military members   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Taxes for military members See Foreign Employer in Publication 525. Taxes for military members Employment abroad. Taxes for military members   For information on the tax treatment of income earned abroad, see Publication 54. Taxes for military members Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Taxes for military members Allowances generally are not taxed. Taxes for military members For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Taxes for military members Differential wage payments. Taxes for military members   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Taxes for military members These wages are subject to income tax withholding and are reported on a Form W-2. Taxes for military members See the discussion under Miscellaneous Compensation , earlier. Taxes for military members Military retirement pay. Taxes for military members   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxes for military members Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Taxes for military members   For more detailed discussion of survivor annuities, see chapter 10. Taxes for military members Disability. Taxes for military members   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Taxes for military members Veterans' benefits. Taxes for military members   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Taxes for military members The following amounts paid to veterans or their families are not taxable. Taxes for military members Education, training, and subsistence allowances. Taxes for military members Disability compensation and pension payments for disabilities paid either to veterans or their families. Taxes for military members Grants for homes designed for wheelchair living. Taxes for military members Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Taxes for military members Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Taxes for military members Interest on insurance dividends you leave on deposit with the VA. Taxes for military members Benefits under a dependent-care assistance program. Taxes for military members The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Taxes for military members Payments made under the compensated work therapy program. Taxes for military members Any bonus payment by a state or political subdivision because of service in a combat zone. Taxes for military members Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Taxes for military members Peace Corps. Taxes for military members   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Taxes for military members Taxable allowances. Taxes for military members   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Taxes for military members Living allowances designated by the Director of the Peace Corps as basic compensation. Taxes for military members These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Taxes for military members Leave allowances. Taxes for military members Readjustment allowances or termination payments. Taxes for military members These are considered received by you when credited to your account. Taxes for military members Example. Taxes for military members Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Taxes for military members Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Taxes for military members Volunteers in Service to America (VISTA). Taxes for military members   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Taxes for military members National Senior Services Corps programs. Taxes for military members   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Taxes for military members Retired Senior Volunteer Program (RSVP). Taxes for military members Foster Grandparent Program. Taxes for military members Senior Companion Program. Taxes for military members Service Corps of Retired Executives (SCORE). Taxes for military members   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Taxes for military members Volunteer tax counseling. Taxes for military members   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Taxes for military members   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Taxes for military members See chapter 24. Taxes for military members Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Taxes for military members In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Taxes for military members If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Taxes for military members However, certain payments may not be taxable to you. Taxes for military members Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Taxes for military members In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Taxes for military members Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Taxes for military members Cost paid by you. Taxes for military members   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Taxes for military members If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Taxes for military members See Reimbursement in a later year in chapter 21. Taxes for military members Cafeteria plans. Taxes for military members   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Taxes for military members If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Taxes for military members Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Taxes for military members You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Taxes for military members Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Taxes for military members You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Taxes for military members For information on this credit and the definition of permanent and total disability, see chapter 33. Taxes for military members Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Taxes for military members Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxes for military members The rules for reporting pensions are explained in How To Report in chapter 10. Taxes for military members For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Taxes for military members Retirement and profit-sharing plans. Taxes for military members   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Taxes for military members The payments must be reported as a pension or annuity. Taxes for military members For more information on pensions, see chapter 10. Taxes for military members Accrued leave payment. Taxes for military members   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Taxes for military members The payment is not a disability payment. Taxes for military members Include it in your income in the tax year you receive it. Taxes for military members Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Taxes for military members Service-connected disability. Taxes for military members   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Taxes for military members The armed forces of any country. Taxes for military members The National Oceanic and Atmospheric Administration. Taxes for military members The Public Health Service. Taxes for military members The Foreign Service. Taxes for military members Conditions for exclusion. Taxes for military members   Do not include the disability payments in your income if any of the following conditions apply. Taxes for military members You were entitled to receive a disability payment before September 25, 1975. Taxes for military members You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Taxes for military members You receive the disability payments for a combat-related injury. Taxes for military members This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Taxes for military members You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Taxes for military members Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Taxes for military members Pension based on years of service. Taxes for military members   If you receive a disability pension based on years of service, in most cases you must include it in your income. Taxes for military members However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Taxes for military members You must include the rest of your pension in your income. Taxes for military members Retroactive VA determination. Taxes for military members   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Taxes for military members You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Taxes for military members You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Taxes for military members The letter must show the amount withheld and the effective date of the benefit. Taxes for military members   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Taxes for military members However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Taxes for military members Special statute of limitations. Taxes for military members   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Taxes for military members However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Taxes for military members This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Taxes for military members Example. Taxes for military members You retired in 2007 and receive a pension based on your years of service. Taxes for military members On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Taxes for military members Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Taxes for military members However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Taxes for military members You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Taxes for military members Terrorist attack or military action. Taxes for military members   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Taxes for military members Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Taxes for military members Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Taxes for military members To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Taxes for military members A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Taxes for military members The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Taxes for military members Qualified long-term care services. Taxes for military members   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Taxes for military members Chronically ill individual. Taxes for military members   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Taxes for military members Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Taxes for military members An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Taxes for military members Limit on exclusion. Taxes for military members   You generally can exclude from gross income up to $320 a day for 2013. Taxes for military members See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Taxes for military members Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Taxes for military members The exemption also applies to your survivors. Taxes for military members The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Taxes for military members If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Taxes for military members For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Taxes for military members Return to work. Taxes for military members    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Taxes for military members Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Taxes for military members Railroad sick pay. Taxes for military members    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Taxes for military members However, do not include them in your income if they are for an on-the-job injury. Taxes for military members   If you received income because of a disability, see Disability Pensions , earlier. Taxes for military members Federal Employees' Compensation Act (FECA). Taxes for military members   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Taxes for military members However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Taxes for military members Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Taxes for military members Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Taxes for military members    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Taxes for military members For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Taxes for military members    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Taxes for military members It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Taxes for military members If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Taxes for military members Do not deduct it separately. Taxes for military members Other compensation. Taxes for military members   Many other amounts you receive as compensation for sickness or injury are not taxable. Taxes for military members These include the following amounts. Taxes for military members Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Taxes for military members Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Taxes for military members Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Taxes for military members Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Taxes for military members This compensation must be based only on the injury and not on the period of your absence from work. Taxes for military members These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Taxes for military members Reimbursement for medical care. Taxes for military members    A reimbursement for medical care is generally not taxable. Taxes for military members However, it may reduce your medical expense deduction. Taxes for military members For more information, see chapter 21. Taxes for military members Prev  Up  Next   Home   More Online Publications