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1040 ez tax forms Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. 1040 ez tax forms Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. 1040 ez tax forms Method 2. 1040 ez tax forms How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. 1040 ez tax forms In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 1040 ez tax forms You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. 1040 ez tax forms Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. 1040 ez tax forms 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. 1040 ez tax forms These wages must be included on line 7 of Form 1040. 1040 ez tax forms See Form 8919 for more information. 1040 ez tax forms Childcare providers. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms Babysitting. 1040 ez tax forms   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. 1040 ez tax forms Bankruptcy. 1040 ez tax forms   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. 1040 ez tax forms Your W-2 will show your total wages and withheld income tax for the year. 1040 ez tax forms On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. 1040 ez tax forms Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. 1040 ez tax forms If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. 1040 ez tax forms   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. 1040 ez tax forms For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. 1040 ez tax forms   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. 1040 ez tax forms The statement must show the allocation and describe the method used to make the allocation. 1040 ez tax forms For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. 1040 ez tax forms R. 1040 ez tax forms B. 1040 ez tax forms 596, available at www. 1040 ez tax forms irs. 1040 ez tax forms gov/irb/2006-40_IRB/ar12. 1040 ez tax forms html. 1040 ez tax forms Miscellaneous Compensation This section discusses many types of employee compensation. 1040 ez tax forms The subjects are arranged in alphabetical order. 1040 ez tax forms Advance commissions and other earnings. 1040 ez tax forms   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. 1040 ez tax forms    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. 1040 ez tax forms If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. 1040 ez tax forms See Repayments , later. 1040 ez tax forms Allowances and reimbursements. 1040 ez tax forms    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 1040 ez tax forms If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. 1040 ez tax forms Back pay awards. 1040 ez tax forms   Include in income amounts you are awarded in a settlement or judgment for back pay. 1040 ez tax forms These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. 1040 ez tax forms They should be reported to you by your employer on Form W-2. 1040 ez tax forms Bonuses and awards. 1040 ez tax forms    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. 1040 ez tax forms These include prizes such as vacation trips for meeting sales goals. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms Employee achievement award. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms Your employer can tell you whether your award is a qualified plan award. 1040 ez tax forms 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. 1040 ez tax forms   However, the exclusion does not apply to the following awards. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms Example. 1040 ez tax forms 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. 1040 ez tax forms Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. 1040 ez tax forms 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. 1040 ez tax forms Differential wage payments. 1040 ez tax forms   This is any payment made by an employer to an individual for any period during which the individual is, 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 the individual would have received from the employer for that period. 1040 ez tax forms These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. 1040 ez tax forms The payments are reported as wages on Form W-2. 1040 ez tax forms Government cost-of-living allowances. 1040 ez tax forms   Most payments received by U. 1040 ez tax forms S. 1040 ez tax forms Government civilian employees for working abroad are taxable. 1040 ez tax forms However, certain cost-of-living allowances are tax free. 1040 ez tax forms Publication 516, U. 1040 ez tax forms S. 1040 ez tax forms Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. 1040 ez tax forms Nonqualified deferred compensation plans. 1040 ez tax forms   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. 1040 ez tax forms This amount is shown on Form W-2, box 12, using code Y. 1040 ez tax forms This amount is not included in your income. 1040 ez tax forms   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. 1040 ez tax forms This amount is included in your wages shown on Form W-2, box 1. 1040 ez tax forms It is also shown on Form W-2, box 12, using code Z. 1040 ez tax forms Nonqualified deferred compensation plans of nonqualified entities. 1040 ez tax forms   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. 1040 ez tax forms For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. 1040 ez tax forms A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. 1040 ez tax forms Note received for services. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms Do not include that part again in your income. 1040 ez tax forms Include the rest of the payment in your income in the year of payment. 1040 ez tax forms   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. 1040 ez tax forms Severance pay. 1040 ez tax forms   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. 1040 ez tax forms Accrued leave payment. 1040 ez tax forms   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. 1040 ez tax forms   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. 1040 ez tax forms You can reduce gross wages by the amount you repaid in the same tax year in which you received it. 1040 ez tax forms 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 your return and the wages on your Forms W-2. 1040 ez tax forms Outplacement services. 1040 ez tax forms   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. 1040 ez tax forms    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). 1040 ez tax forms Sick pay. 1040 ez tax forms   Pay you receive from your employer while you are sick or injured is part of your salary or wages. 1040 ez tax forms In addition, you must include in your income sick pay benefits received from any of the following payers. 1040 ez tax forms A welfare fund. 1040 ez tax forms A state sickness or disability fund. 1040 ez tax forms An association of employers or employees. 1040 ez tax forms An insurance company, if your employer paid for the plan. 1040 ez tax forms However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 1040 ez tax forms For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. 1040 ez tax forms Social security and Medicare taxes paid by employer. 1040 ez tax forms   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. 1040 ez tax forms The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. 1040 ez tax forms However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. 1040 ez tax forms Stock appreciation rights. 1040 ez tax forms   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. 1040 ez tax forms 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. 1040 ez tax forms You include the cash payment in income in the year you use the right. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. 1040 ez tax forms Recipient of fringe benefit. 1040 ez tax forms   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. 1040 ez tax forms You are considered to be the recipient even if it is given to another person, such as a member of your family. 1040 ez tax forms An example is a car your employer gives to your spouse for services you perform. 1040 ez tax forms The car is considered to have been provided to you and not to your spouse. 1040 ez tax forms   You do not have to be an employee of the provider to be a recipient of a fringe benefit. 1040 ez tax forms If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. 1040 ez tax forms Provider of benefit. 1040 ez tax forms   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. 1040 ez tax forms The provider can be a client or customer of an independent contractor. 1040 ez tax forms Accounting period. 1040 ez tax forms   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. 1040 ez tax forms Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. 1040 ez tax forms The general rule: benefits are reported for a full calendar year (January 1–December 31). 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms   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). 1040 ez tax forms Form W-2. 1040 ez tax forms   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. 1040 ez tax forms Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). 1040 ez tax forms 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). 1040 ez tax forms 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. 1040 ez tax forms Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . 1040 ez tax forms 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. 1040 ez tax forms Long-term care coverage. 1040 ez tax forms   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. 1040 ez tax forms However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. 1040 ez tax forms This amount will be reported as wages in box 1 of your Form W-2. 1040 ez tax forms Archer MSA contributions. 1040 ez tax forms    Contributions by your employer to your Archer MSA generally are not included in your income. 1040 ez tax forms Their total will be reported in box 12 of Form W-2, with code R. 1040 ez tax forms You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 1040 ez tax forms File the form with your return. 1040 ez tax forms Health flexible spending arrangement (health FSA). 1040 ez tax forms   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. 1040 ez tax forms   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. 1040 ez tax forms The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. 1040 ez tax forms For more information, see Notice 2012-40, 2012-26 I. 1040 ez tax forms R. 1040 ez tax forms B. 1040 ez tax forms 1046, available at www. 1040 ez tax forms irs. 1040 ez tax forms gov/irb/2012-26 IRB/ar09. 1040 ez tax forms html. 1040 ez tax forms Health reimbursement arrangement (HRA). 1040 ez tax forms   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. 1040 ez tax forms Health savings accounts (HSA). 1040 ez tax forms   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. 1040 ez tax forms Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. 1040 ez tax forms Contributions made by your employer are not included in your income. 1040 ez tax forms Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. 1040 ez tax forms Distributions not used for qualified medical expenses are included in your income. 1040 ez tax forms See Publication 969 for the requirements of an HSA. 1040 ez tax forms   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 1040 ez tax forms The contributions are treated as a distribution of money and are not included in the partner's gross income. 1040 ez tax forms 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. 1040 ez tax forms In both situations, the partner can deduct the contribution made to the partner's HSA. 1040 ez tax forms   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. 1040 ez tax forms The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 1040 ez tax forms Qualified HSA funding distribution. 1040 ez tax forms   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. 1040 ez tax forms See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. 1040 ez tax forms Failure to maintain eligibility. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms This income is also subject to an additional 10% tax. 1040 ez tax forms 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. 1040 ez tax forms See Instructions for Form 8839, Qualified Adoption Expenses, for more information. 1040 ez tax forms Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. 1040 ez tax forms They also are included as social security and Medicare wages in boxes 3 and 5. 1040 ez tax forms However, they are not included as wages in box 1. 1040 ez tax forms To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. 1040 ez tax forms File the form with your return. 1040 ez tax forms Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. 1040 ez tax forms The gym must be used primarily by employees, their spouses, and their dependent children. 1040 ez tax forms If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms Also see Employee Discounts , later. 1040 ez tax forms Holiday gifts. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. 1040 ez tax forms Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. 1040 ez tax forms The amount you can exclude is limited to the lesser 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). 1040 ez tax forms Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. 1040 ez tax forms Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. 1040 ez tax forms To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. 1040 ez tax forms See the Instructions for Form 2441 for more information. 1040 ez tax forms Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. 1040 ez tax forms For more information, see Publication 970. 1040 ez tax forms Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. 1040 ez tax forms The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. 1040 ez tax forms However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). 1040 ez tax forms The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. 1040 ez tax forms For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. 1040 ez tax forms (Ask your employer for this percentage. 1040 ez tax forms ) For a discount on services, 20%. 1040 ez tax forms Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. 1040 ez tax forms If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). 1040 ez tax forms Qualified retirement planning services paid for you by your employer may be excluded from your income. 1040 ez tax forms For more information, see Retirement Planning Services , later. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. 1040 ez tax forms 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. 1040 ez tax forms Also, it is shown separately in box 12 with code C. 1040 ez tax forms Group-term life insurance. 1040 ez tax forms   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. 1040 ez tax forms Permanent benefits. 1040 ez tax forms   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. 1040 ez tax forms Your employer should be able to tell you the amount to include in your income. 1040 ez tax forms Accidental death benefits. 1040 ez tax forms   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. 1040 ez tax forms Former employer. 1040 ez tax forms   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. 1040 ez tax forms Also, it is shown separately in box 12 with code C. 1040 ez tax forms Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. 1040 ez tax forms You must pay these taxes with your income tax return. 1040 ez tax forms Include them on line 60, Form 1040, and follow the instructions forline 60. 1040 ez tax forms For more information, see the Instructions for Form 1040. 1040 ez tax forms Two or more employers. 1040 ez tax forms   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. 1040 ez tax forms 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. 1040 ez tax forms You must figure how much to include in your income. 1040 ez tax forms 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. 1040 ez tax forms Figuring the taxable cost. 1040 ez tax forms    Use the following worksheet to figure the amount to include in your income. 1040 ez tax forms   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. 1040 ez tax forms However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . 1040 ez tax forms Worksheet 1. 1040 ez tax forms Figuring the Cost of Group-Term Life Insurance To Include in Income 1. 1040 ez tax forms Enter the total amount of your insurance coverage from your employer(s) 1. 1040 ez tax forms   2. 1040 ez tax forms Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040 ez tax forms 50,000 3. 1040 ez tax forms Subtract line 2 from line 1 3. 1040 ez tax forms   4. 1040 ez tax forms Divide line 3 by $1,000. 1040 ez tax forms Figure to the nearest tenth 4. 1040 ez tax forms   5. 1040 ez tax forms Go to Table 1. 1040 ez tax forms 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. 1040 ez tax forms   6. 1040 ez tax forms Multiply line 4 by line 5 6. 1040 ez tax forms     7. 1040 ez tax forms Enter the number of full months of coverage at this cost 7. 1040 ez tax forms   8. 1040 ez tax forms Multiply line 6 by line 7 8. 1040 ez tax forms   9. 1040 ez tax forms Enter the premiums you paid per month 9. 1040 ez tax forms       10. 1040 ez tax forms Enter the number of months you paid the  premiums 10. 1040 ez tax forms       11. 1040 ez tax forms Multiply line 9 by line 10. 1040 ez tax forms 11. 1040 ez tax forms   12. 1040 ez tax forms Subtract line 11 from line 8. 1040 ez tax forms Include this amount in your income as wages 12. 1040 ez tax forms   Table 1. 1040 ez tax forms Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . 1040 ez tax forms 05     25 through 29 . 1040 ez tax forms 06     30 through 34 . 1040 ez tax forms 08     35 through 39 . 1040 ez tax forms 09     40 through 44 . 1040 ez tax forms 10     45 through 49 . 1040 ez tax forms 15     50 through 54 . 1040 ez tax forms 23     55 through 59 . 1040 ez tax forms 43     60 through 64 . 1040 ez tax forms 66     65 through 69 1. 1040 ez tax forms 27     70 and older 2. 1040 ez tax forms 06   Example. 1040 ez tax forms You are 51 years old and work for employers A and B. 1040 ez tax forms Both employers provide group-term life insurance coverage for you for the entire year. 1040 ez tax forms Your coverage is $35,000 with employer A and $45,000 with employer B. 1040 ez tax forms You pay premiums of $4. 1040 ez tax forms 15 a month under the employer B group plan. 1040 ez tax forms You figure the amount to include in your income as follows. 1040 ez tax forms   Worksheet 1. 1040 ez tax forms Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. 1040 ez tax forms Enter the total amount of your insurance coverage from your employer(s) 1. 1040 ez tax forms 80,000 2. 1040 ez tax forms Limit on exclusion for employer-provided group-term life insurance coverage 2. 1040 ez tax forms 50,000 3. 1040 ez tax forms Subtract line 2 from line 1 3. 1040 ez tax forms 30,000 4. 1040 ez tax forms Divide line 3 by $1,000. 1040 ez tax forms Figure to the nearest tenth 4. 1040 ez tax forms 30. 1040 ez tax forms 0 5. 1040 ez tax forms Go to Table 1. 1040 ez tax forms 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. 1040 ez tax forms . 1040 ez tax forms 23 6. 1040 ez tax forms Multiply line 4 by line 5 6. 1040 ez tax forms 6. 1040 ez tax forms 90 7. 1040 ez tax forms Enter the number of full months of coverage at this cost. 1040 ez tax forms 7. 1040 ez tax forms 12 8. 1040 ez tax forms Multiply line 6 by line 7 8. 1040 ez tax forms 82. 1040 ez tax forms 80 9. 1040 ez tax forms Enter the premiums you paid per month 9. 1040 ez tax forms 4. 1040 ez tax forms 15     10. 1040 ez tax forms Enter the number of months you paid the premiums 10. 1040 ez tax forms 12     11. 1040 ez tax forms Multiply line 9 by line 10. 1040 ez tax forms 11. 1040 ez tax forms 49. 1040 ez tax forms 80 12. 1040 ez tax forms Subtract line 11 from line 8. 1040 ez tax forms Include this amount in your income as wages 12. 1040 ez tax forms 33. 1040 ez tax forms 00 The total amount to include in income for the cost of excess group-term life insurance is $33. 1040 ez tax forms Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. 1040 ez tax forms You must add it to the wages shown on your Forms W-2 and include the total on your return. 1040 ez tax forms Entire cost excluded. 1040 ez tax forms   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. 1040 ez tax forms You are permanently and totally disabled and have ended your employment. 1040 ez tax forms Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. 1040 ez tax forms A charitable organization 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. 1040 ez tax forms (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. 1040 ez tax forms ) 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. 1040 ez tax forms Entire cost taxed. 1040 ez tax forms   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. 1040 ez tax forms The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. 1040 ez tax forms You are a key employee and your employer's plan discriminates in favor of key employees. 1040 ez tax forms Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. 1040 ez tax forms The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. 1040 ez tax forms The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. 1040 ez tax forms (You must accept it in order to be able to properly perform your duties. 1040 ez tax forms ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. 1040 ez tax forms See De Minimis (Minimal) Benefits , earlier. 1040 ez tax forms Faculty lodging. 1040 ez tax forms   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. 1040 ez tax forms However, the lodging must be qualified campus lodging, and you must pay an adequate rent. 1040 ez tax forms Academic health center. 1040 ez tax forms   This is an organization that meets the following conditions. 1040 ez tax forms Its principal purpose or function is to provide medical or hospital care or medical education or research. 1040 ez tax forms It receives payments for graduate medical education under the Social Security Act. 1040 ez tax forms One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. 1040 ez tax forms Qualified campus lodging. 1040 ez tax forms   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. 1040 ez tax forms The lodging must be located on or near a campus of the educational institution or academic health center. 1040 ez tax forms Adequate rent. 1040 ez tax forms   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. 1040 ez tax forms If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. 1040 ez tax forms   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. 1040 ez tax forms Example. 1040 ez tax forms Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. 1040 ez tax forms The house is appraised at $200,000. 1040 ez tax forms The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. 1040 ez tax forms Carl pays an annual rent of $11,000. 1040 ez tax forms Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). 1040 ez tax forms If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). 1040 ez tax forms Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. 1040 ez tax forms See Publication 521 for more information. 1040 ez tax forms No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). 1040 ez tax forms In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. 1040 ez tax forms Example. 1040 ez tax forms You are employed as a flight attendant for a company that owns both an airline and a hotel chain. 1040 ez tax forms Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. 1040 ez tax forms The value of the personal flight is not included in your income. 1040 ez tax forms However, the value of the hotel room is included in your income because you do not work in the hotel business. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. 1040 ez tax forms Also, see Financial Counseling Fees , earlier. 1040 ez tax forms Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. 1040 ez tax forms 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. 1040 ez tax forms Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. 1040 ez tax forms 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. 1040 ez tax forms Exclusion limit. 1040 ez tax forms   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. 1040 ez tax forms   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. 1040 ez tax forms   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. 1040 ez tax forms   If the benefits have a value that is more than these limits, the excess must be included in your income. 1040 ez tax forms You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. 1040 ez tax forms Commuter highway vehicle. 1040 ez tax forms   This is a highway vehicle that seats at least six adults (not including the driver). 1040 ez tax forms 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). 1040 ez tax forms Transit pass. 1040 ez tax forms   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. 1040 ez tax forms Qualified parking. 1040 ez tax forms   This is parking provided to an employee at or near the employer's place of business. 1040 ez tax forms 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. 1040 ez tax forms It does not include parking at or near the employee's home. 1040 ez tax forms Qualified bicycle commuting. 1040 ez tax forms   This is reimbursement based on the number of qualified bicycle commuting months for the year. 1040 ez tax forms 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. 1040 ez tax forms The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. 1040 ez tax forms Tuition Reduction You can exclude a qualified tuition reduction from your income. 1040 ez tax forms This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. 1040 ez tax forms For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. 1040 ez tax forms Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. 1040 ez tax forms For more information, see Publication 970. 1040 ez tax forms Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. 1040 ez tax forms Example. 1040 ez tax forms You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. 1040 ez tax forms The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. 1040 ez tax forms Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. 1040 ez tax forms For an exception, see Group-Term Life Insurance , earlier. 1040 ez tax forms General valuation rule. 1040 ez tax forms   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. 1040 ez tax forms If you pay fair market value for a fringe benefit, no amount is included in your income. 1040 ez tax forms Fair market value. 1040 ez tax forms   The fair market value of a fringe benefit is determined by all the facts and circumstances. 1040 ez tax forms It is the amount you would have to pay a third party to buy or lease the benefit. 1040 ez tax forms This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. 1040 ez tax forms Employer-provided vehicles. 1040 ez tax forms   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. 1040 ez tax forms   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. 1040 ez tax forms An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. 1040 ez tax forms The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. 1040 ez tax forms Flights on employer-provided aircraft. 1040 ez tax forms   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. 1040 ez tax forms   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. 1040 ez tax forms The division must be based on all the facts, including which employee or employees control the use of the aircraft. 1040 ez tax forms Special valuation rules. 1040 ez tax forms   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. 1040 ez tax forms If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. 1040 ez tax forms You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. 1040 ez tax forms   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. 1040 ez tax forms The special valuation rules are the following. 1040 ez tax forms The automobile lease rule. 1040 ez tax forms The vehicle cents-per-mile rule. 1040 ez tax forms The commuting rule. 1040 ez tax forms The unsafe conditions commuting rule. 1040 ez tax forms The employer-operated eating-facility rule. 1040 ez tax forms   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 1040 ez tax forms    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. 1040 ez tax forms 61-21(g) and 1. 1040 ez tax forms 61-21(h) of the regulations. 1040 ez tax forms Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. 1040 ez tax forms (Your employer can tell you whether your retirement plan is qualified. 1040 ez tax forms ) However, the cost of life insurance coverage included in the plan may have to be included. 1040 ez tax forms See Group-Term Life Insurance , earlier, under Fringe Benefits. 1040 ez tax forms 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. 1040 ez tax forms 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. 1040 ez tax forms For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. 1040 ez tax forms S. 1040 ez tax forms Civil Service Retirement Benefits, if you are a federal employee or retiree). 1040 ez tax forms Elective Deferrals 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. 1040 ez tax forms The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. 1040 ez tax forms An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. 1040 ez tax forms However, it is included in wages subject to social security and Medicare taxes. 1040 ez tax forms Elective deferrals include elective contributions to the following retirement plans. 1040 ez tax forms Cash or deferred arrangements (section 401(k) plans). 1040 ez tax forms The Thrift Savings Plan for federal employees. 1040 ez tax forms Salary reduction simplified employee pension plans (SARSEP). 1040 ez tax forms Savings incentive match plans for employees (SIMPLE plans). 1040 ez tax forms Tax-sheltered annuity plans (403(b) plans). 1040 ez tax forms Section 501(c)(18)(D) plans. 1040 ez tax forms (But see Reporting by employer , later. 1040 ez tax forms ) Section 457 plans. 1040 ez tax forms Qualified automatic contribution arrangements. 1040 ez tax forms   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. 1040 ez tax forms You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. 1040 ez tax forms 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. 1040 ez tax forms   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. 1040 ez tax forms Overall limit on deferrals. 1040 ez tax forms   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), earlier. 1040 ez tax forms The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. 1040 ez tax forms Amounts deferred under specific plan limits are part of the overall limit on deferrals. 1040 ez tax forms   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. 1040 ez tax forms However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. 1040 ez tax forms Catch-up contributions. 1040 ez tax forms   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. 1040 ez tax forms For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. 1040 ez tax forms   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. 1040 ez tax forms SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. 1040 ez tax forms Section 457 plans, see Limit for deferrals under section 457 plans , later. 1040 ez tax forms Limit for deferrals under SIMPLE plans. 1040 ez tax forms   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. 1040 ez tax forms Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. 1040 ez tax forms Limit for tax-sheltered annuities. 1040 ez tax forms   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. 1040 ez tax forms However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. 1040 ez tax forms $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. 1040 ez tax forms   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. 1040 ez tax forms   For more information, see Publication 571. 1040 ez tax forms Limit for deferral under section 501(c)(18) plans. 1040 ez tax forms   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. 1040 ez tax forms Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. 1040 ez tax forms Limit for deferrals under section 457 plans. 1040 ez tax forms   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. 1040 ez tax forms However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. 1040 ez tax forms See Increased limit , later. 1040 ez tax forms Includible compensation. 1040 ez tax forms   This is the pay you received for the year from the employer who maintained the section 457 plan. 1040 ez tax forms In most cases, it includes all the following payments. 1040 ez tax forms Wages and salaries. 1040 ez tax forms Fees for professional services. 1040 ez tax forms The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. 1040 ez tax forms Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. 1040 ez tax forms Commissions and tips. 1040 ez tax forms Fringe benefits. 1040 ez tax forms Bonuses. 1040 ez tax forms Employer contributions (elective deferrals) to: The section 457 plan. 1040 ez tax forms Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. 1040 ez tax forms A salary reduction simplified employee pension (SARSEP). 1040 ez tax forms A tax-sheltered annuity (section 403(b) plan). 1040 ez tax forms A savings incentive match plan for employees (SIMPLE plan). 1040 ez tax forms A section 125 cafeteria plan. 1040 ez tax forms   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. 1040 ez tax forms Your wages as defined for income tax withholding purposes. 1040 ez tax forms Your wages as reported in box 1 of Form W-2. 1040 ez tax forms Your wages that are subject to social security withholding (including elective deferrals). 1040 ez tax forms Increased limit. 1040 ez tax forms   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). 1040 ez tax forms Catch-up contributions. 1040 ez tax forms   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. 1040 ez tax forms If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. 1040 ez tax forms However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. 1040 ez tax forms Designated Roth contributions. 1040 ez tax forms   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. 1040 ez tax forms Designated Roth contributions are treated as elective deferrals, except that they are included in income. 1040 ez tax forms Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. 1040 ez tax forms   Qualified distributions from a Roth plan are not included in income. 1040 ez tax forms In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. 1040 ez tax forms Reporting by employer. 1040 ez tax forms   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. 1040 ez tax forms Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. 1040 ez tax forms Section 501(c)(18)(D) contributions. 1040 ez tax forms   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. 1040 ez tax forms The amount you contributed should be identified with code “H” in box 12. 1040 ez tax forms You may deduct the amount deferred subject to the limits that apply. 1040 ez tax forms Include your deduction in the total on Form 1040, line 36. 1040 ez tax forms Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. 1040 ez tax forms Designated Roth contributions. 1040 ez tax forms    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. 1040 ez tax forms Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. 1040 ez tax forms Excess deferrals. 1040 ez tax forms   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. 1040 ez tax forms If the plan permits, the excess amount will be distributed to you. 1040 ez tax forms If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. 1040 ez tax forms You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. 1040 ez tax forms The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. 1040 ez tax forms   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. 1040 ez tax forms File Form 1040 to add the excess deferral amount to your wages on line 7. 1040 ez tax forms Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. 1040 ez tax forms Excess not distributed. 1040 ez tax forms   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. 1040 ez tax forms Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. 1040 ez tax forms Excess distributed to you. 1040 ez tax forms   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. 1040 ez tax forms If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. 1040 ez tax forms Any income on the excess deferral taken out is taxable in the tax year in which you take it out. 1040 ez tax forms If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. 1040 ez tax forms    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. 1040 ez tax forms Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. 1040 ez tax forms If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. 1040 ez tax forms Add the excess deferral amount to your wages on your 2013 tax return. 1040 ez tax forms If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. 1040 ez tax forms Do not add this amount to your wages on your 2013 return. 1040 ez tax forms If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. 1040 ez tax forms If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. 1040 ez tax forms S. 1040 ez tax forms Individual Income Tax Return. 1040 ez tax forms If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. 1040 ez tax forms If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. 1040 ez tax forms Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. 1040 ez tax forms Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. 1040 ez tax forms Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. 1040 ez tax forms ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 1040 ez tax forms It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 1040 ez tax forms Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. 1040 ez tax forms If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. 1040 ez tax forms You must include the excess contributions in your income as wages on Form 1040, line 7. 1040 ez tax forms You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. 1040 ez tax forms If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. 1040 ez tax forms The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. 1040 ez tax forms You should receive a Form 1099-R for the year the excess contributions are distributed to you. 1040 ez tax forms Add the distribution to your wages for that year. 1040 ez tax forms Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 1040 ez tax forms It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 1040 ez tax forms Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. 1040 ez tax forms Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. 1040 ez tax forms A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. 1040 ez tax forms A corrective payment consisting of your after-tax contributions is not taxable. 1040 ez tax forms If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. 1040 ez tax forms Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. 1040 ez tax forms Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. 1040 ez tax forms Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. 1040 ez tax forms It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. 1040 ez tax forms Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), 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 or property acquired through exercise of the option. 1040 ez tax forms The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. 1040 ez tax forms Your employer can tell you which kind of option you hold. 1040 ez tax forms Nonstatutory Stock Options Grant of option. 1040 ez tax forms   If you are granted a nonstatutory stock option, you may have income when you receive the option. 1040 ez tax forms The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. 1040 ez tax forms The fair market value of an option can be readily determined if it is actively traded on an established market. 1040 ez tax forms    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. 1040 ez tax forms You can transfer the option. 1040 ez tax forms You can exercise the option immediately in full. 1040 ez tax forms The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. 1040 ez tax forms The fair market value of the option privilege can be readily determined. 1040 ez tax forms The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. 1040 ez tax forms For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. 1040 ez tax forms The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. 1040 ez tax forms If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. 1040 ez tax forms For more information on the excise tax, see Internal Revenue Code section 4985. 1040 ez tax forms Option with readily determinable value. 1040 ez tax forms   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. 1040 ez tax forms See Restricted Property , later, for rules on how much income to include and when to include it. 1040 ez tax forms However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. 1040 ez tax forms Option without readily determinable value. 1040 ez tax forms   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. 1040 ez tax forms    Exercise or transfer of option. 1040 ez tax forms   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. 1040 ez tax forms Option with readily determinable value. 1040 ez tax forms   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. 1040 ez tax forms Option without readily determinable value. 1040 ez tax forms   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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Understanding your CP03C Notice

You received a tax credit (called the First-Time Homebuyer Credit) for a house you purchased. You may need to file a form to report a change in ownership to the house you purchased.

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Form 2848, Power of Attorney and Declaration of Representative.

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do


You may want to...


Answers to Common Questions

How much is the repayment amount?
The repayment amount is equal to the full amount of the credit you received minus any credit repayments you may have already made.

Do I have to repay the credit if my home was is destroyed, condemned, or disposed of under threat of condemnation and I acquired a new home within two years?
You do not have to repay the credit if you purchased a new main home within two years of the event.

How and when do I repay the credit?
You must file a Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with your tax return for the year in which the change occurred. You can report your change in ownership status by checking the appropriate box in Part III (Disposition or Change in Use of Main Home for Which the Credit Was Claimed) of the form.

You have to repay the credit by including it as additional tax on the federal income tax return for the year in which the home stopped being your main home. For example, a taxpayer who reports a change of ownership occurring in 2010 must repay the first-time homebuyer credit, minus any payments they might have made to repay the credit, in their 2010 tax return.

I heard that taxpayers didn't have to repay the First Time Homebuyers Credit any longer. Didn't the law change?
The law changed for home purchases in 2009 and 2010, which now have no 15-year repayment requirement. The law did not change the repayment requirement for purchases for home that cease being a main home.

What if my spouse has died, do I have to repay the entire amount of the credit?
If, unfortunately, a spouse is deceased, the remaining spouse only has to repay half of the remaining credit balance: we won't seek repayment for the deceased spouse's half. For example, the surviving spouse will owe only $3,750 for a $7,500 first-time homebuyer credit taken on an earlier joint income tax return.

What if I don't have to pay any additional tax, do I still have to report the change in my ownership status?
Yes, even if you don't have to pay any additional tax, you still need to complete a Form 5405 to report the disposition of your property.

Page Last Reviewed or Updated: 14-Mar-2014

The 1040 Ez Tax Forms

1040 ez tax forms Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. 1040 ez tax forms S. 1040 ez tax forms Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. 1040 ez tax forms S. 1040 ez tax forms Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. 1040 ez tax forms S. 1040 ez tax forms Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. 1040 ez tax forms Employee business expenses. 1040 ez tax forms Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. 1040 ez tax forms You can change your choice for each year's taxes. 1040 ez tax forms To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. 1040 ez tax forms S. 1040 ez tax forms tax return. 1040 ez tax forms However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. 1040 ez tax forms See How To Figure the Credit , later. 1040 ez tax forms To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. 1040 ez tax forms Figure your tax both ways—claiming the credit and claiming the deduction. 1040 ez tax forms Then fill out your return the way that benefits you more. 1040 ez tax forms See Why Choose the Credit, later. 1040 ez tax forms Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. 1040 ez tax forms If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. 1040 ez tax forms You cannot deduct any of them. 1040 ez tax forms Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. 1040 ez tax forms You cannot take a credit for any of them. 1040 ez tax forms See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. 1040 ez tax forms There are exceptions to this general rule, which are described next. 1040 ez tax forms Exceptions for foreign taxes not allowed as a credit. 1040 ez tax forms   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. 1040 ez tax forms Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. 1040 ez tax forms S. 1040 ez tax forms tax purposes. 1040 ez tax forms For more information, see Internal Revenue Code section 901(m). 1040 ez tax forms The IRS intends to issue guidance that will explain this provision in greater detail. 1040 ez tax forms   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. 1040 ez tax forms Foreign taxes that are not income taxes. 1040 ez tax forms   In most cases, only foreign income taxes qualify for the foreign tax credit. 1040 ez tax forms Other taxes, such as foreign real and personal property taxes, do not qualify. 1040 ez tax forms But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. 1040 ez tax forms   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. 1040 ez tax forms However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). 1040 ez tax forms Carrybacks and carryovers. 1040 ez tax forms   There is a limit on the credit you can claim in a tax year. 1040 ez tax forms If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. 1040 ez tax forms If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. 1040 ez tax forms That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. 1040 ez tax forms   For more information on the limit, see How To Figure the Credit , later. 1040 ez tax forms For more information on carrybacks and carryovers, see Carryback and Carryover , later. 1040 ez tax forms Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. 1040 ez tax forms You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. 1040 ez tax forms Example. 1040 ez tax forms You paid foreign taxes for the last 13 years and chose to deduct them on your U. 1040 ez tax forms S. 1040 ez tax forms income tax returns. 1040 ez tax forms You were timely in both filing your returns and paying your U. 1040 ez tax forms S. 1040 ez tax forms tax liability. 1040 ez tax forms In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. 1040 ez tax forms Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). 1040 ez tax forms Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. 1040 ez tax forms Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. 1040 ez tax forms If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. 1040 ez tax forms Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. 1040 ez tax forms Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. 1040 ez tax forms However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. 1040 ez tax forms You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. 1040 ez tax forms See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. 1040 ez tax forms Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. 1040 ez tax forms In most cases, if the foreign tax rate is higher than the U. 1040 ez tax forms S. 1040 ez tax forms rate, there will be no U. 1040 ez tax forms S. 1040 ez tax forms tax on the foreign income. 1040 ez tax forms If the foreign tax rate is lower than the U. 1040 ez tax forms S. 1040 ez tax forms rate, U. 1040 ez tax forms S. 1040 ez tax forms tax on the foreign income will be limited to the difference between the rates. 1040 ez tax forms The foreign tax credit can only reduce U. 1040 ez tax forms S. 1040 ez tax forms taxes on foreign source income; it cannot reduce U. 1040 ez tax forms S. 1040 ez tax forms taxes on U. 1040 ez tax forms S. 1040 ez tax forms source income. 1040 ez tax forms Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. 1040 ez tax forms This is because: A credit reduces your actual U. 1040 ez tax forms S. 1040 ez tax forms income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. 1040 ez tax forms You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. 1040 ez tax forms (See Limit on credit under How To Figure the Credit, later. 1040 ez tax forms ) Example 1. 1040 ez tax forms For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. 1040 ez tax forms None of the dividends are qualified dividends. 1040 ez tax forms You file a joint return and can claim two $3,900 exemptions. 1040 ez tax forms You had to pay $2,000 in foreign income taxes on the dividend income. 1040 ez tax forms If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. 1040 ez tax forms Your taxable income then is $57,500 and your tax is $7,736. 1040 ez tax forms If you take the credit instead, your itemized deductions are only $13,000. 1040 ez tax forms Your taxable income then is $59,500 and your tax before the credit is $8,036. 1040 ez tax forms After the credit, however, your tax is only $6,036. 1040 ez tax forms Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. 1040 ez tax forms Example 2. 1040 ez tax forms In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. 1040 ez tax forms You report on your U. 1040 ez tax forms S. 1040 ez tax forms return this income as well as $56,000 of U. 1040 ez tax forms S. 1040 ez tax forms source wages and an allowable $49,000 partnership loss from a U. 1040 ez tax forms S. 1040 ez tax forms partnership. 1040 ez tax forms Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. 1040 ez tax forms You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. 1040 ez tax forms If you deduct the foreign tax on your U. 1040 ez tax forms S. 1040 ez tax forms return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. 1040 ez tax forms If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. 1040 ez tax forms You can take a credit of only $113 because of limits discussed later. 1040 ez tax forms Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. 1040 ez tax forms If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). 1040 ez tax forms When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. 1040 ez tax forms Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. 1040 ez tax forms “Tax year” refers to the tax year for which your U. 1040 ez tax forms S. 1040 ez tax forms return is filed, not the tax year for which your foreign return is filed. 1040 ez tax forms Accrual method of accounting. 1040 ez tax forms   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. 1040 ez tax forms You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. 1040 ez tax forms   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. 1040 ez tax forms Generally, this occurs on the last day of the tax year for which your foreign return is filed. 1040 ez tax forms Contesting your foreign tax liability. 1040 ez tax forms   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. 1040 ez tax forms However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. 1040 ez tax forms Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. 1040 ez tax forms If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . 1040 ez tax forms You may have to post a bond. 1040 ez tax forms   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. 1040 ez tax forms   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. 1040 ez tax forms Cash method of accounting. 1040 ez tax forms   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. 1040 ez tax forms You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. 1040 ez tax forms Choosing to take credit in the year taxes accrue. 1040 ez tax forms   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. 1040 ez tax forms You make the choice by checking the box in Part II of Form 1116. 1040 ez tax forms Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. 1040 ez tax forms   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. 1040 ez tax forms You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. 1040 ez tax forms   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. 1040 ez tax forms Credit based on taxes paid in earlier year. 1040 ez tax forms   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. 1040 ez tax forms Example. 1040 ez tax forms Last year you took the credit based on taxes paid. 1040 ez tax forms This year you chose to take the credit based on taxes accrued. 1040 ez tax forms During the year you paid foreign income taxes owed for last year. 1040 ez tax forms You also accrued foreign income taxes for this year that you did not pay by the end of the year. 1040 ez tax forms You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. 1040 ez tax forms Foreign Currency and Exchange Rates U. 1040 ez tax forms S. 1040 ez tax forms income tax is imposed on income expressed in U. 1040 ez tax forms S. 1040 ez tax forms dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. 1040 ez tax forms Therefore, fluctuations in the value of the foreign currency relative to the U. 1040 ez tax forms S. 1040 ez tax forms dollar may affect the foreign tax credit. 1040 ez tax forms Translating foreign currency into U. 1040 ez tax forms S. 1040 ez tax forms dollars. 1040 ez tax forms   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. 1040 ez tax forms S. 1040 ez tax forms dollars. 1040 ez tax forms How and when you do this depends on your functional currency. 1040 ez tax forms In most cases, your functional currency is the U. 1040 ez tax forms S. 1040 ez tax forms dollar unless you are required to use the currency of a foreign country. 1040 ez tax forms   You must make all federal income tax determinations in your functional currency. 1040 ez tax forms The U. 1040 ez tax forms S. 1040 ez tax forms dollar is the functional currency for all taxpayers except some qualified business units. 1040 ez tax forms A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. 1040 ez tax forms Unless you are self-employed, your functional currency is the U. 1040 ez tax forms S. 1040 ez tax forms dollar. 1040 ez tax forms   Even if you are self-employed and have a qualified business unit, your functional currency is the U. 1040 ez tax forms S. 1040 ez tax forms dollar if any of the following apply. 1040 ez tax forms You conduct the business primarily in dollars. 1040 ez tax forms The principal place of business is located in the United States. 1040 ez tax forms You choose to or are required to use the dollar as your functional currency. 1040 ez tax forms The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. 1040 ez tax forms   If your functional currency is the U. 1040 ez tax forms S. 1040 ez tax forms dollar, you must immediately translate into dollars all items of income, expense, etc. 1040 ez tax forms , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 1040 ez tax forms If there is more than one exchange rate, use the one that most properly reflects your income. 1040 ez tax forms In most cases, you can get exchange rates from banks and U. 1040 ez tax forms S. 1040 ez tax forms Embassies. 1040 ez tax forms   If your functional currency is not the U. 1040 ez tax forms S. 1040 ez tax forms dollar, make all income tax determinations in your functional currency. 1040 ez tax forms At the end of the year, translate the results, such as income or loss, into U. 1040 ez tax forms S. 1040 ez tax forms dollars to report on your income tax return. 1040 ez tax forms    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. 1040 ez tax forms   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. 1040 ez tax forms If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. 1040 ez tax forms If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. 1040 ez tax forms   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). 1040 ez tax forms Exception. 1040 ez tax forms   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. 1040 ez tax forms This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. 1040 ez tax forms The foreign taxes are paid on or after the first day of the tax year to which they relate. 1040 ez tax forms The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. 1040 ez tax forms The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). 1040 ez tax forms (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. 1040 ez tax forms )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. 1040 ez tax forms Election to use exchange rate on date paid. 1040 ez tax forms   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. 1040 ez tax forms If any of the accrued taxes are unpaid, you must translate them into U. 1040 ez tax forms S. 1040 ez tax forms dollars using the exchange rate on the last day of the U. 1040 ez tax forms S. 1040 ez tax forms tax year to which those taxes relate. 1040 ez tax forms You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. 1040 ez tax forms S. 1040 ez tax forms dollar functional currency. 1040 ez tax forms Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. 1040 ez tax forms The election is available for tax years beginning after 2004. 1040 ez tax forms It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. 1040 ez tax forms Make the election by attaching a statement to the applicable tax return. 1040 ez tax forms The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. 1040 ez tax forms S. 1040 ez tax forms dollar functional currency. 1040 ez tax forms Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. 1040 ez tax forms S. 1040 ez tax forms foreign tax credit claimed. 1040 ez tax forms The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. 1040 ez tax forms If a foreign tax redetermination occurs, a redetermination of your U. 1040 ez tax forms S. 1040 ez tax forms tax liability is required if any of the following conditions apply. 1040 ez tax forms The accrued taxes when paid differ from the amounts claimed as a credit. 1040 ez tax forms The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. 1040 ez tax forms If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. 1040 ez tax forms You will not be allowed a credit for the unpaid taxes until you pay them. 1040 ez tax forms When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. 1040 ez tax forms S. 1040 ez tax forms dollars using the exchange rate as of the date they were paid. 1040 ez tax forms The foreign tax credit is allowed for the year to which the foreign tax relates. 1040 ez tax forms See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. 1040 ez tax forms The foreign taxes you paid are refunded in whole or in part. 1040 ez tax forms For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. 1040 ez tax forms However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. 1040 ez tax forms S. 1040 ez tax forms tax year. 1040 ez tax forms In this case, you must adjust your U. 1040 ez tax forms S. 1040 ez tax forms tax in the tax year in which the accrued foreign taxes are paid. 1040 ez tax forms Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. 1040 ez tax forms S. 1040 ez tax forms tax liability for each tax year affected by the redetermination. 1040 ez tax forms In most cases, you must file Form 1040X, Amended U. 1040 ez tax forms S. 1040 ez tax forms Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. 1040 ez tax forms S. 1040 ez tax forms tax liability for the year or years affected. 1040 ez tax forms See Contents of statement , later. 1040 ez tax forms You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. 1040 ez tax forms There are other exceptions to this requirement. 1040 ez tax forms They are discussed later under Due date of notification to IRS . 1040 ez tax forms Contents of statement. 1040 ez tax forms   The statement must include all of the following. 1040 ez tax forms Your name, address, and taxpayer identification number. 1040 ez tax forms The tax year or years that are affected by the foreign tax redetermination. 1040 ez tax forms The date or dates the foreign taxes were accrued, if applicable. 1040 ez tax forms The date or dates the foreign taxes were paid. 1040 ez tax forms The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. 1040 ez tax forms Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. 1040 ez tax forms   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. 1040 ez tax forms   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). 1040 ez tax forms Due date of notification to IRS. 1040 ez tax forms   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. 1040 ez tax forms There is no limit on the time the IRS has to redetermine and assess the correct U. 1040 ez tax forms S. 1040 ez tax forms tax due. 1040 ez tax forms If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. 1040 ez tax forms S. 1040 ez tax forms taxes. 1040 ez tax forms See Time Limit on Refund Claims , later. 1040 ez tax forms   Exceptions to this due date are explained in the next two paragraphs. 1040 ez tax forms Multiple redeterminations of U. 1040 ez tax forms S. 1040 ez tax forms tax liability for same tax year. 1040 ez tax forms   Where more than one foreign tax redetermination requires a redetermination of U. 1040 ez tax forms S. 1040 ez tax forms tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. 1040 ez tax forms If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. 1040 ez tax forms However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. 1040 ez tax forms S. 1040 ez tax forms tax liability is required may occur after the due date for providing that notification. 1040 ez tax forms In this situation, you may have to file more than one Form 1040X for that tax year. 1040 ez tax forms Additional U. 1040 ez tax forms S. 1040 ez tax forms tax due eliminated by foreign tax credit carryback or carryover. 1040 ez tax forms   If a foreign tax redetermination requires a redetermination of U. 1040 ez tax forms S. 1040 ez tax forms tax liability that would otherwise result in an additional amount of U. 1040 ez tax forms S. 1040 ez tax forms tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. 1040 ez tax forms Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. 1040 ez tax forms You must file the statement by the due date (with extensions) of that return. 1040 ez tax forms The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. 1040 ez tax forms S. 1040 ez tax forms tax liability is required). 1040 ez tax forms Failure-to-notify penalty. 1040 ez tax forms   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. 1040 ez tax forms   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. 1040 ez tax forms S. 1040 ez tax forms tax. 1040 ez tax forms This penalty cannot be more than 25% of the tax due. 1040 ez tax forms Foreign tax refund. 1040 ez tax forms   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. 1040 ez tax forms S. 1040 ez tax forms tax for the time before the date of the refund. 1040 ez tax forms   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. 1040 ez tax forms The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. 1040 ez tax forms Interest also is owed from the time you receive a refund until you pay the additional tax due. 1040 ez tax forms Foreign tax imposed on foreign refund. 1040 ez tax forms   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. 1040 ez tax forms However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. 1040 ez tax forms Example. 1040 ez tax forms You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. 1040 ez tax forms When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. 1040 ez tax forms Time Limit on Refund Claims You have 10 years to file a claim for refund of U. 1040 ez tax forms S. 1040 ez tax forms tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. 1040 ez tax forms The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. 1040 ez tax forms You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. 1040 ez tax forms The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). 1040 ez tax forms The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. 1040 ez tax forms See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. 1040 ez tax forms Who Can Take the Credit? U. 1040 ez tax forms S. 1040 ez tax forms citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. 1040 ez tax forms S. 1040 ez tax forms tax on foreign source income may be able to take a foreign tax credit. 1040 ez tax forms U. 1040 ez tax forms S. 1040 ez tax forms Citizens If you are a U. 1040 ez tax forms S. 1040 ez tax forms citizen, you are taxed by the United States on your worldwide income wherever you live. 1040 ez tax forms You are normally entitled to take a credit for foreign taxes you pay or accrue. 1040 ez tax forms Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. 1040 ez tax forms S. 1040 ez tax forms citizens. 1040 ez tax forms If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. 1040 ez tax forms Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. 1040 ez tax forms For information on alien status, see Publication 519. 1040 ez tax forms Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. 1040 ez tax forms However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. 1040 ez tax forms S. 1040 ez tax forms possession on income from foreign sources that is effectively connected with a trade or business in the United States. 1040 ez tax forms But if you must pay tax to a foreign country or U. 1040 ez tax forms S. 1040 ez tax forms possession on income from U. 1040 ez tax forms S. 1040 ez tax forms sources only because you are a citizen or a resident of that country or U. 1040 ez tax forms S. 1040 ez tax forms possession, do not use that tax in figuring the amount of your credit. 1040 ez tax forms For information on alien status and effectively connected income, see Publication 519. 1040 ez tax forms What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. 1040 ez tax forms The tax must be imposed on you. 1040 ez tax forms You must have paid or accrued the tax. 1040 ez tax forms The tax must be the legal and actual foreign tax liability. 1040 ez tax forms The tax must be an income tax (or a tax in lieu of an income tax). 1040 ez tax forms Certain foreign taxes do not qualify for the credit even if the four tests are met. 1040 ez tax forms See Foreign Taxes for Which You Cannot Take a Credit, later. 1040 ez tax forms Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. 1040 ez tax forms S. 1040 ez tax forms possession. 1040 ez tax forms For example, a tax that is deducted from your wages is considered to be imposed on you. 1040 ez tax forms You cannot shift the right to claim the credit by contract or other means. 1040 ez tax forms Foreign country. 1040 ez tax forms   A foreign country includes any foreign state and its political subdivisions. 1040 ez tax forms Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. 1040 ez tax forms U. 1040 ez tax forms S. 1040 ez tax forms possessions. 1040 ez tax forms   For foreign tax credit purposes, all qualified taxes paid to U. 1040 ez tax forms S. 1040 ez tax forms possessions are considered foreign taxes. 1040 ez tax forms For this purpose, U. 1040 ez tax forms S. 1040 ez tax forms possessions include Puerto Rico and American Samoa. 1040 ez tax forms   When the term “foreign country” is used in this publication, it includes U. 1040 ez tax forms S. 1040 ez tax forms possessions unless otherwise stated. 1040 ez tax forms You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. 1040 ez tax forms S. 1040 ez tax forms possession. 1040 ez tax forms However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. 1040 ez tax forms Joint return. 1040 ez tax forms   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. 1040 ez tax forms Combined income. 1040 ez tax forms   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. 1040 ez tax forms 901-2(f)(3)(iii). 1040 ez tax forms Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. 1040 ez tax forms   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. 1040 ez tax forms However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. 1040 ez tax forms For more details, see paragraphs (f) and (h) of Regulations section 1. 1040 ez tax forms 901-2. 1040 ez tax forms For similar rules applicable to prior tax years, see Regulations section 1. 1040 ez tax forms 901-2 (revised as of April 1, 2011). 1040 ez tax forms Example. 1040 ez tax forms You and your spouse reside in Country X, which imposes income tax on your combined incomes. 1040 ez tax forms Both of you use the “u” as your functional currency. 1040 ez tax forms Country X apportions tax based on income. 1040 ez tax forms You had income of 30,000u and your spouse had income of 20,000u. 1040 ez tax forms Your filing status on your U. 1040 ez tax forms S. 1040 ez tax forms income tax return is married filing separately. 1040 ez tax forms You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. 1040 ez tax forms S income tax return. 1040 ez tax forms Your spouse can claim only 40% (20,000u/50,000u). 1040 ez tax forms Partner or S corporation shareholder. 1040 ez tax forms   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. 1040 ez tax forms These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. 1040 ez tax forms However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. 1040 ez tax forms Beneficiary. 1040 ez tax forms   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. 1040 ez tax forms This amount will be shown on the Schedule K-1 you receive from the estate or trust. 1040 ez tax forms However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. 1040 ez tax forms Mutual fund shareholder. 1040 ez tax forms   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. 1040 ez tax forms You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. 1040 ez tax forms If you do not receive this information, you will need to contact the fund. 1040 ez tax forms Controlled foreign corporation shareholder. 1040 ez tax forms   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. 1040 ez tax forms If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. 1040 ez tax forms Controlled foreign corporation. 1040 ez tax forms   A controlled foreign corporation is a foreign corporation in which U. 1040 ez tax forms S. 1040 ez tax forms shareholders own more than 50% of the voting power or value of the stock. 1040 ez tax forms You are considered a U. 1040 ez tax forms S. 1040 ez tax forms shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. 1040 ez tax forms See Internal Revenue Code sections 951(b) and 958(b) for more information. 1040 ez tax forms Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. 1040 ez tax forms Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. 1040 ez tax forms Foreign tax refund. 1040 ez tax forms   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. 1040 ez tax forms   For example, the United States has tax treaties with many countries allowing U. 1040 ez tax forms S. 1040 ez tax forms citizens and residents reductions in the rates of tax of those foreign countries. 1040 ez tax forms However, some treaty countries require U. 1040 ez tax forms S. 1040 ez tax forms citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. 1040 ez tax forms The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. 1040 ez tax forms Subsidy received. 1040 ez tax forms   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. 1040 ez tax forms This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. 1040 ez tax forms A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. 1040 ez tax forms   The term “subsidy” includes any type of benefit. 1040 ez tax forms Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. 1040 ez tax forms Shareholder receiving refund for corporate tax in integrated system. 1040 ez tax forms   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. 1040 ez tax forms You may be able to claim a refund of these taxes from the foreign government. 1040 ez tax forms You must include the refund (including any amount withheld) in your income in the year received. 1040 ez tax forms Any tax withheld from the refund is a qualified foreign tax. 1040 ez tax forms Example. 1040 ez tax forms You are a shareholder of a French corporation. 1040 ez tax forms You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. 1040 ez tax forms The French government imposes a 15% withholding tax ($15) on the refund you received. 1040 ez tax forms You receive a check for $85. 1040 ez tax forms You include $100 in your income. 1040 ez tax forms The $15 of tax withheld is a qualified foreign tax. 1040 ez tax forms Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. 1040 ez tax forms Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. 1040 ez tax forms Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. 1040 ez tax forms See Taxes in Lieu of Income Taxes , later. 1040 ez tax forms Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. 1040 ez tax forms A foreign levy is an income tax only if it meets both of the following requirements. 1040 ez tax forms It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. 1040 ez tax forms The predominant character of the tax is that of an income tax in the U. 1040 ez tax forms S. 1040 ez tax forms sense. 1040 ez tax forms A foreign levy may meet these requirements even if the foreign tax law differs from U. 1040 ez tax forms S. 1040 ez tax forms tax law. 1040 ez tax forms The foreign law may include in income items that U. 1040 ez tax forms S. 1040 ez tax forms law does not include, or it may allow certain exclusions or deductions that U. 1040 ez tax forms S. 1040 ez tax forms law does not allow. 1040 ez tax forms Specific economic benefit. 1040 ez tax forms   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. 1040 ez tax forms   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. 1040 ez tax forms   However, see the exception discussed later under Pension, unemployment, and disability fund payments . 1040 ez tax forms Economic benefits. 1040 ez tax forms   Economic benefits include the following. 1040 ez tax forms Goods. 1040 ez tax forms Services. 1040 ez tax forms Fees or other payments. 1040 ez tax forms Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. 1040 ez tax forms Discharges of contractual obligations. 1040 ez tax forms   In most cases, the right or privilege merely to engage in business is not an economic benefit. 1040 ez tax forms Dual-capacity taxpayers. 1040 ez tax forms   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. 1040 ez tax forms ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. 1040 ez tax forms    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. 1040 ez tax forms   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. 1040 ez tax forms    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. 1040 ez tax forms For more information about these agreements, see Publication 54. 1040 ez tax forms Soak-up taxes. 1040 ez tax forms   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. 1040 ez tax forms A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. 1040 ez tax forms This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. 1040 ez tax forms Penalties and interest. 1040 ez tax forms   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. 1040 ez tax forms Taxes not based on income. 1040 ez tax forms   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. 1040 ez tax forms Taxes based on assets, such as property taxes, do not qualify for the credit. 1040 ez tax forms Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. 1040 ez tax forms A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. 1040 ez tax forms A tax in lieu of an income tax does not have to be based on realized net income. 1040 ez tax forms A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. 1040 ez tax forms In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. 1040 ez tax forms However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. 1040 ez tax forms The soak-up tax. 1040 ez tax forms The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. 1040 ez tax forms Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. 1040 ez tax forms These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. 1040 ez tax forms S. 1040 ez tax forms persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. 1040 ez tax forms Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. 1040 ez tax forms S. 1040 ez tax forms gross income. 1040 ez tax forms Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. 1040 ez tax forms S. 1040 ez tax forms income under the foreign earned income exclusion or the foreign housing exclusion. 1040 ez tax forms See Publication 54 for more information on the foreign earned income and housing exclusions. 1040 ez tax forms Wages completely excluded. 1040 ez tax forms   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. 1040 ez tax forms Wages partly excluded. 1040 ez tax forms   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. 1040 ez tax forms You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. 1040 ez tax forms   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. 1040 ez tax forms Deductible expenses do not include the foreign housing deduction. 1040 ez tax forms   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). 1040 ez tax forms If the foreign law taxes foreign earned income and some other income (for example, earned income from U. 1040 ez tax forms S. 1040 ez tax forms sources or a type of income not subject to U. 1040 ez tax forms S. 1040 ez tax forms tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. 1040 ez tax forms Example. 1040 ez tax forms You are a U. 1040 ez tax forms S. 1040 ez tax forms citizen and a cash basis taxpayer, employed by Company X and living in Country A. 1040 ez tax forms Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. 1040 ez tax forms To find that part, do the following. 1040 ez tax forms First, find the amount of business expenses allocable to excluded wages and therefore not deductible. 1040 ez tax forms To do this, multiply the otherwise deductible expenses by a fraction. 1040 ez tax forms That fraction is the excluded wages over your foreign earned income. 1040 ez tax forms   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. 1040 ez tax forms To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). 1040 ez tax forms The result is $81,984. 1040 ez tax forms Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). 1040 ez tax forms Finally, multiply the foreign tax you paid by the resulting fraction. 1040 ez tax forms   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. 1040 ez tax forms Taxes on Income From Puerto Rico Exempt From U. 1040 ez tax forms S. 1040 ez tax forms Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. 1040 ez tax forms For information on figuring the reduction, see Publication 570. 1040 ez tax forms Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. 1040 ez tax forms For more information on this exclusion, see Publication 570. 1040 ez tax forms Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. 1040 ez tax forms However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. 1040 ez tax forms Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. 1040 ez tax forms However, you can claim an itemized deduction for these taxes. 1040 ez tax forms See Choosing To Take Credit or Deduction , earlier. 1040 ez tax forms Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. 1040 ez tax forms The following countries meet this description for 2013. 1040 ez tax forms Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. 1040 ez tax forms Cuba. 1040 ez tax forms Iran. 1040 ez tax forms Libya (but see Note later). 1040 ez tax forms North Korea. 1040 ez tax forms Sudan. 1040 ez tax forms Syria. 1040 ez tax forms Waiver of denial of the credit. 1040 ez tax forms   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. 1040 ez tax forms S. 1040 ez tax forms companies in the sanctioned country. 1040 ez tax forms The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. 1040 ez tax forms Note. 1040 ez tax forms Effective December 10, 2004, the President granted a waiver to Libya. 1040 ez tax forms Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. 1040 ez tax forms Limit on credit. 1040 ez tax forms   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. 1040 ez tax forms You must fill out a separate Form 1116 for this income. 1040 ez tax forms This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. 1040 ez tax forms Example. 1040 ez tax forms You lived and worked in Iran until August, when you were transferred to Italy. 1040 ez tax forms You paid taxes to each country on the income earned in that country. 1040 ez tax forms You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. 1040 ez tax forms Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. 1040 ez tax forms You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. 1040 ez tax forms Figuring the credit when a sanction ends. 1040 ez tax forms    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. 1040 ez tax forms For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. 1040 ez tax forms Example. 1040 ez tax forms The sanctions against Country X ended on July 31. 1040 ez tax forms On August 19, you receive a distribution from a mutual fund of Country X income. 1040 ez tax forms The fund paid Country X income tax for you on the distribution. 1040 ez tax forms Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. 1040 ez tax forms Amounts for the nonsanctioned period. 1040 ez tax forms   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. 1040 ez tax forms Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. 1040 ez tax forms   Number of nonsanctioned days in year  Number of days in year Example. 1040 ez tax forms You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. 1040 ez tax forms Sanctions against Country X ended on July 11, 2013. 1040 ez tax forms You are unable to determine how much of the income or tax is for the nonsanctioned period. 1040 ez tax forms Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. 1040 ez tax forms You would compute the income for the nonsanctioned period as follows. 1040 ez tax forms 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. 1040 ez tax forms 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. 1040 ez tax forms Further information. 1040 ez tax forms   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. 1040 ez tax forms This Cumulative Bulletin can be found in many libraries and IRS offices. 1040 ez tax forms Table 1. 1040 ez tax forms Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. 1040 ez tax forms Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. 1040 ez tax forms The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). 1040 ez tax forms The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. 1040 ez tax forms If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. 1040 ez tax forms When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 1040 ez tax forms Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. 1040 ez tax forms Withholding tax. 1040 ez tax forms   For this purpose, withholding tax includes any tax determined on a gross basis. 1040 ez tax forms It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040 ez tax forms Ex-dividend date. 1040 ez tax forms   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. 1040 ez tax forms Example 1. 1040 ez tax forms You bought common stock from a foreign corporation on November 3. 1040 ez tax forms You sold the stock on November 19. 1040 ez tax forms You received a dividend on this stock because you owned it on the ex-dividend date of November 5. 1040 ez tax forms To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). 1040 ez tax forms Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. 1040 ez tax forms Example 2. 1040 ez tax forms The facts are the same as in Example 1 except that you sold the stock on November 14. 1040 ez tax forms You held the stock for only 11 days. 1040 ez tax forms You are not entitled to the credit. 1040 ez tax forms Exception. 1040 ez tax forms   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. 1040 ez tax forms See section 901(k)(4) of the Internal Revenue Code for more information. 1040 ez tax forms Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. 1040 ez tax forms When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 1040 ez tax forms Withholding tax. 1040 ez tax forms   For this purpose, withholding tax includes any tax determined on a gross basis. 1040 ez tax forms It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040 ez tax forms Exception for dealers. 1040 ez tax forms   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. 1040 ez tax forms See section 901(I)(2) of the Internal Revenue Code for more information. 1040 ez tax forms Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. 1040 ez tax forms A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. 1040 ez tax forms S. 1040 ez tax forms tax purposes but not for foreign tax purposes. 1040 ez tax forms For more information, see Internal Revenue Code section 901(m). 1040 ez tax forms The IRS intends to issue guidance that will explain this provision in greater detail. 1040 ez tax forms Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. 1040 ez tax forms Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. 1040 ez tax forms For details, see Regulations section 1. 1040 ez tax forms 901-3. 1040 ez tax forms Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. 1040 ez tax forms See the instructions for line 12 in the Form 1116 instructions to figure this reduction. 1040 ez tax forms In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. 1040 ez tax forms List of boycotting countries. 1040 ez tax forms   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. 1040 ez tax forms As of November 2013, the following countries are listed. 1040 ez tax forms Iraq. 1040 ez tax forms Kuwait. 1040 ez tax forms Lebanon. 1040 ez tax forms Libya. 1040 ez tax forms Qatar. 1040 ez tax forms Saudi Arabia. 1040 ez tax forms Syria. 1040 ez tax forms United Arab Emirates. 1040 ez tax forms Yemen. 1040 ez tax forms    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. 1040 ez tax forms   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. 1040 ez tax forms The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. 1040 ez tax forms Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. 1040 ez tax forms Public inspection. 1040 ez tax forms   A determination and any related background file is open to public inspection. 1040 ez tax forms However, your identity and certain other information will remain confidential. 1040 ez tax forms Reporting requirements. 1040 ez tax forms   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. 1040 ez tax forms A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. 1040 ez tax forms A partnership in which you are a partner. 1040 ez tax forms A trust you are treated as owning. 1040 ez tax forms Form 5713 required. 1040 ez tax forms   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. 1040 ez tax forms See the Instructions for Form 5713 for information on when and where to file the form. 1040 ez tax forms Penalty for failure to file. 1040 ez tax forms   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. 1040 ez tax forms Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. 1040 ez tax forms The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. 1040 ez tax forms S. 1040 ez tax forms tax liability (Form 1040, line 44) divided by your worldwide taxable income. 1040 ez tax forms You may be entitled to carry over to other years taxes reduced under this rule. 1040 ez tax forms See Internal Revenue Code section 907(f). 1040 ez tax forms Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. 1040 ez tax forms Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. 1040 ez tax forms Taxes of U. 1040 ez tax forms S. 1040 ez tax forms Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. 1040 ez tax forms If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. 1040 ez tax forms See Penalty for not filing Form 5471 or Form 8865 , later. 1040 ez tax forms U. 1040 ez tax forms S. 1040 ez tax forms persons controlling foreign corporations. 1040 ez tax forms   If you are a U. 1040 ez tax forms S. 1040 ez tax forms citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. 1040 ez tax forms S. 1040 ez tax forms Persons With Respect To Certain Foreign Corporations. 1040 ez tax forms Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. 1040 ez tax forms U. 1040 ez tax forms S. 1040 ez tax forms persons controlling foreign partnerships. 1040 ez tax forms   If you are a U. 1040 ez tax forms S. 1040 ez tax forms citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file